Agenda of Corporate and Strategic Committee

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

18 August 2021

Subject: Report & Recommendations from the 4 August 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 4 August 2021 and are now presented for the Committee’s consideration alongside recommendations to the Corporate and Strategic Committee and 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 (C&S) 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 Risk Management Maturity Update item provided an update on progress made to implement Council’s risk maturity roadmap and requested the Sub-committee consider re-setting the Project Plan baseline due to the initial risk maturity project plan being quite ambitious and the Risk and Compliance Manager role being vacant for four months. The next steps and focus for staff for the first quarter of the 2021-22 financial year are to:

3.1. Finalise the ‘draft’ risk appetite statement with councillors

3.2. Finish the remaining enterprise risk bowties through risk workshops

3.3. Identify the critical controls for all enterprise risks through workshops, and

3.4. Reset the baseline of the Risk Management Maturity Project Plan.

4. The Sub-committee agreed to re-set the Project Plan baseline, resolving:

4.1. Confirms that the management actions undertaken and planned adequately respond to the risk management maturity roadmap as endorsed by Hawke’s Bay Regional Council on 24 June 2020

4.2. Supports the reset of the baseline for the Risk Management Maturity Project with the new deliverable dates of the reset plan to be provided to the next meeting for endorsement.

5. The Internal Assurance Programme item provided an update on progress, via two dashboards, to deliver previously reported internal audit ‘corrective actions’, and the 2021-22 annual internal audit plan, including an overview of progress made to achieve the corrective actions against agreed milestones as impacted by the Risk and Compliance Manager role being vacant for four months.

6. The Internal Audit Report – Talent Management item provided the Crowe report on the Talent Management internal audit. The report’s findings and recommendations were accepted by staff and timeframes for implementing the recommendations inserted as ‘Management Comments’. Each management action from the internal audit will be tracked and reported to FARS through the Internal Audit Dashboard – Corrective Actions Status Update. Through discussions, the importance of having a People and Capability Strategy (P&C Strategy) was agreed and proposed that interim measures to track and report risks and priorities over the next 6-12 months be developed. In addition, the P&C Manager, Liana Monteith, will provide a summary of P&C strategic aims, high risk areas and any interim ‘retention’ measures undertaken. The Sub-committee resolved:

6.1. That the Finance, Audit and Risk Sub-committee receives and considers Crowe’s “Internal Audit Report – Talent Management”, including the key management actions added by Staff in response to the report’s recommendations.

6.2. Notes the intention of staff to present a People and Capability Strategy to the Finance, Audit and Risk Sub-committee by the end of the 2021 calendar year.

6.3. Requests that staff provide a summary, to FARS, of interim measures to manage recruitment risks.

7. The 2020-21 Annual Report Audit Plan item provided an update on the likely timing for the Audit of Council’s 2020-21 Annual Report, advising that legislation has extended the statutory deadline for the completion of the audited 2020-21 Annual Report by 2 months, to 31 December 2021. Staff have been given 11 October (6 weeks later than previously scheduled) as the new commencement date for the audit process. As a result, an additional meeting of the FARS will be scheduled in early December to recommend the Annual Report to Council for adoption.

8. The 2020-21 Annual Treasury Report item reported on the performance of Council’s investment portfolio, highlighting:

8.1. Council’s investment returns have exceeded expectations with a strong performance for management funds for the Financial Year ending 30 June 2021

8.2. Dividends exceeded the revised budget by $2.2m and due to improved returns, the planned borrowing to supplement an expected investment revenue shortfall of $4.6m was not required

8.3. Apart from a variance in the Jarden’s fund allocations against the SIPO Council is compliant with all policy parameters as at 30 June 2021.

9. The Six Monthly Enterprise Risk Report item was considered in Public Excluded session, and covered:

9.1. Council’s enterprise risks and risk descriptions

9.2. the inherent and residual risk ratings for each enterprise risk

9.3. the overall control assessment and control corrective actions for each enterprise risk

9.4. supporting risk information that may impact Council’s risk profile, including a regulatory/legal update, business incidents, internal audits, material internal change projects and emerging issues or uncertainties.

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 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 and recommendations from the 4 August 2021 Finance, Audit and Risk Sub-committee, including:

Risk Management Maturity Update

1.1. Reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction that adequate evidence has been provided of progress to implement the maturing risk management system in accordance with the risk maturity roadmap

Internal Assurance Programme

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

Internal Audit Report – Talent Management

1.3. That the Finance, Audit and Risk Sub-committee receives and considers Crowe’s “Internal Audit Report – Talent Management”, including the key management actions added by Staff in response to the report’s recommendations.

1.4. Notes the intention of staff to present a People and Capability Strategy to the Finance, Audit and Risk Sub-committee by the end of the 2021 calendar year.

1.5. Requests that staff provide a summary, to FARS, of interim measures to manage recruitment risks.

2020-21 Annual Report Audit Plan

1.6. That the Finance, Audit and Risk Sub-committee receives and considers the “2020-21 Annual Report Audit Plan” staff report.

2020-21 Annual Treasury Report

1.7. That the Finance, Audit and Risk Sub-committee receives and notes the “2020-21 Annual Treasury Report”.

Six Monthly Enterprise Risk Report

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

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

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 the Committee 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.

Risk Management Maturity Update

2.2. Agrees to reset the baseline of the supporting Risk Management Maturity Project Plan to implement the roadmap as proposed.

Authored by: Approved by:

Annelie Roets

Governance ADVISOR

Helen Marsden

Risk and Corporate Compliance Manager

Attachment/s There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

18 August 2021

Subject: Territorial Local Authority (TLA) Compliance Programmes

Reason for Report

1. This report summarises the compliance programmes in place for engaging and managing consented and permitted activity discharges/land uses by the main Territorial Local Authorities (TLAs) in the Hawke’s Bay region, Central Hawke’s Bay District Council (CHBDC), Hastings District Council (HDC), Hawke’s Bay Regional Council (HBRC), Napier City Council (NCC) and Wairoa District Council (WDC).

2. This report has been prepared to provide Council with confidence that the Compliance Section has a robust and effective strategy in place to ensure TLA compliance with national regulations and regional rules for the protection of our natural and built environments.

Executive Summary

3. The HBRC Strategic Plan 2020-25 and the Regional Resource Management Plan set clear environmental goals and specific actions that will be undertaken to meet them.

4. The HBRC TLA compliance programmes focus on three main methods of achieving compliance with regional and national legislation:

4.1. Compliance promotion

4.2. Resource Consent and Permitted Activity Monitoring, and

4.3. Enforcement Action.

5. The HBRC Compliance group has been provided additional resource through the HBRC 2021-31 long term plan. An additional 6.5 FTE over three years with 2 FTE dedicated to TLA compliance programmes will increase the level of engagement, monitoring, and enforcement action.

6. A review of the Compliance Monitoring Strategy is currently being undertaken to set direction for the next 5 years.

Strategic Fit

7. All activities undertaken as part of the HBRC TLA compliance programmes are in accordance with the Ministry for the Environments ‘best practice guidelines for Compliance, Monitoring and Enforcement under the Resource Management Act 1991’ (2018).

8. The HBRC Strategic Plan 2020-25 highlights four focus areas including water, land, biodiversity and infrastructure & Services. Our TLA compliance programmes predominantly address the quantity and quality of fresh and marine water.

9. Specifically, the TLA compliance programmes contribute towards achieving the following stated strategic goals:

9.1. By 2030, all popular Hawke’s Bay swimming sites are swimmable 80% of the time, and 90% of the time by 2040

9.2. By 2050, there is an increasing trend in the life-supporting capacity of all of the region’s degraded rivers and major streams

9.3. By 2050, there are 50% less contaminants from urban and rural environments into receiving waterbodies.

10. To achieve these goals, the Strategic Plan 2020-25 outlines certain actions including:

10.1. Working with stakeholders in high risk areas to design viable solutions

10.2. Invest in systems and infrastructure

10.3. Ensure efficiency of water use.

11. In addition to the Strategic Plan 2020-25, the HBRC Regional Resource Management Plan (RRMP) specifies certain monitoring, enforcement, and educational activities to ensure the strategic goals are achieved. Specifically:

11.1. Policy 56 – Role of Non-Regulatory Methods states that HBRC shall act as a facilitator between territorial authorities, the community, and infrastructure agencies to address and resolve issues that arise from the maintenance and development of infrastructure such as three waters, roading and solid waste

11.2. Section 4.2.4(g) states that HBRC will hold resource user group liaison meetings with key stakeholders on a regular basis

11.3. Section 4.3 – Liaison with Local Authorities, describes the initiatives that HBRC will implement to promote the sustainable management of the environment specifically with regard to joint responsibilities between HBRC and other local authorities. This includes statutory advocacy, joint hearings, communication, transfer of powers, protocols, contacts database, overlap issues, liaison with Tangata Whenua and a contaminated sites database.

12. The TLA compliance programmes incorporate the stated actions from the 2020-25 Strategic Plan and the activities from the Regional Resource Management Plan (RRMP) where relevant to the compliance function. Some functions are undertaken by other sections of Council including catchment management, asset management, consents, planning policy and projects.

Background

13. This report details HBRC’s engagement, monitoring and enforcement of national and regional regulations in relation to TLA activities. The report details how HBRC are meeting the obligations of HBRC RRMP Policy 56 as set out above.

14. Annual compliance reports presented to Council have specifically addressed TLA compliance with resource consents, but does not directly address engagement and compliance programmes that are not captured by incident or consent compliance reporting.

Discussion

15. The HBRC TLA compliance programmes focus on three main methods of achieving compliance with regional and national legislation: Compliance promotion, Resource consent and Permitted activity monitoring, and Enforcement action.

16. Compliance promotion activities include education, engagement, and enablement. HBRC engage with TLAs through stakeholder meetings, resource user groups, regular meetings between managers and operational staff. Providing a forum for unguarded discussion of resource management issues, sharing of knowledge between TLAs, and communication of expectations. This approach is an essential component of the HBRC compliance framework and is recommended best practice.

17. Regular meetings and engagement occur with the Regional CE’s monthly meeting. Regular meetings between the region’s group managers have been a recent initiative and has been implemented to increase communication of issues/pressures between HBRC and TLAs at an executive level. Formal submissions on each of the TLA’s Long Term Plans and Resource Management Act (RMA) Plans is also a focus for engagement.

18. Drinking water catchment meetings are regularly held as part of the consenting process and all local authorities meet as part of the Hawke’s Bay Drinking Water Governance Joint Group and associated Joint Working Group (technical) that was established following the Havelock North event. We have protocols in place for TLA water takes, including notification of spills, discharge consents and other issues within source protection zones.

19. Stormwater working group meetings are held quarterly with both Hastings District Council (HDC) and Central Hawke’s Bay District Council (CHBDC) and is open to other teams within Council including asset management, policy and consents. These meetings allow for regional issues, upcoming work programs, and any compliance concerns to be discussed and addressed to ensure compliance is maintained.

20. TLA and HBRC solid waste officers regularly meet at regional waste officers’ forums to discuss waste, transfer stations, waste minimisation, issues with landfills, and problematic waste streams. This provides a forum to discuss compliance issues and solutions between operators to reduce incidents. For hazardous substances, there are agreed protocols in between TLAs for the management of asbestos (2018) and collection of household hazardous wastes.

Resource consent and permitted activity monitoring

21. The consented discharges of stormwater, wastewater, solid waste, and takes of drinking water, from towns and cities within the region present the significant environmental risk.

22. Every resource consent is assigned a monitoring priority based on likelihood and consequence of environmental damage; public interest is also taken into account when determining the monitoring priority of a given activity. Historically, consents and permitted activities have been graded 1 (high priority), 2 (medium priority), or 3 (low priority) with priority 1 activities requiring annual visits.

23. A review of the priority system was completed in June 2021. The review identified the need to further prioritise certain regionally significant consents such as municipal wastewater and stormwater or significant commercial operations. These activities are subject to multiple inspections and reporting requirements through the year. The HBRC 2021-31 LTP set level of service measurements for HBRC to monitor 100% of these significant activities and 90% of other consents in recognition of this greater focus. For 2020-21, 100% of these consents were monitored.

24. Some TLAs are required to hold stormwater working groups with users of the network and receiving environments as well as undertake regular community education programs. Regular monitoring of quality and modelling of quantity is required by most stormwater consents and is assessed by internal or external expertise where required. The TLA stormwater consents detail reporting and response protocols for incidents that may lead to stormwater contamination. These include immediate notification, responsibilities, reporting requirements and follow up actions. TLA compliance with stormwater consent conditions is monitored frequently and reported to Council in the annual CME report. Significant events or non-compliance is reported to the executive and Council as required.

25. With regards to wastewater consents, both HDC and Napier City Council (NCC) have established tāngata whenua working groups. All TLAs are experiencing similar issues of ageing systems at or near capacity, with often significant infiltration concerns. Incidents and management of each plant is undertaken in accordance with the consent which includes reporting and liaison requirements.

26. HBRC compliance staff undertake regular visits including in response to incidents within the network. TLA staff have increased their response capacity and scale in recent years, but our compliance work is focussing more on ensuring sufficient preventative action is taken. To increase community awareness and engagement, the consent conditions require the TLAs to hold plant open days for the wider community.

27. Drinking water consents held by TLAs are all telemetered which allows for accurate and timely monitoring of flow and volume limits. Significant progress has been made in relation to bore security over the past two years with all TLAs bore meeting the requirements or decommissioned. Water quality is not regulated by HBRC with the exception of chlorine concentrations if drinking water is discharged to the environment.

28. Other consents include land use and roading consents which generally have a lower monitoring priority than three waters consents. Earthworks and stormwater discharges during roading projects is monitored before, during, and after works by compliance officers and consents require approval of plans and notification prior to commencement of works.

29. Enforcement actions undertaken by monitoring staff for breaches of resource consent conditions, or by our enforcement team for breaches of permitted activity conditions or the resource management act, is used when other methods of gaining compliance have not been successful, or where the offence has resulted in environmental damage.

30. Punitive enforcement actions include formal warnings, infringement notices, and prosecutions depending on the level of offending. Directive enforcement action includes enforcement orders and abatement notices that can be used to require TLAs to take or cease actions in order to protect the environment. HBRC may consider a combination of punitive and directive enforcement actions depending on the situation and the desired outcome. The enforcement action is determined in accordance with the HBRC enforcement policy that ensures proportional and consistent hierarchy of actions.

31. Joint enforcement action is also used for investigations of incidents where both the HBRC compliance team and the TLA are acting as regulators, such as urban stormwater incidents.

32. Table 1 below summarises the number of incidents and formal enforcement action taken by HBRC against TLAs in 2019, 2020, and 2021. Figures are for the 12-month period to 30 June of each year.

Table 1. Temporal summary of incident and enforcement action against TLAs

Enforcement Type	Year (Ending 30 June)
Enforcement Type	2020	2021	Year to date
Incident	19	55*¹	2
Formal Warning	0	1	0
Infringement Notice	6	13	0
Abatement Notice	7	1	0
Enforcement Order	0	0	0
Prosecution	0	0	0

*¹37 of these incidents relate to odour from the WDC and HDC/NCC landfills.

Next Steps

33. Officers intend to increase our TLA compliance programmes through additional monitoring staff, increasing our collaborative initiatives, non-regulatory engagement and education, and undertaking a review of the Compliance Monitoring Strategy ensuring our resources are being allocated in the most efficient and effective manner.

34. Discussions have been initiated with Napier City Council on how the two organisations Pollution and Enforcement officers might better collaborate. It is possible to create more efficient use of resources particularly in regard to illegal industry discharges to the stormwater and the lack of deterrents available to the TLAs on prosecution under bylaws such as Trade Waste Bylaws. A Memorandum of Understanding is to be developed and agreed between the two organisations that will detail the working relationships and roles and responsibilities in these situations. It is anticipated that similar Memorandum of Understanding (MOU) can also be developed and agreed with HDC, Wairoa District Council (WDC) and CHBDC.

35. Staffing levels will increase by 6.5 FTE within the Compliance section over the next three years. It is anticipated that 2 FTE for compliance monitoring and engagement with TLA three waters activities. Focus will be on discharges from municipal stormwater and wastewater infrastructure and the capabilities and desire of TLAs to monitor and enforce relevant bylaws.

36. The compliance team will continue to facilitate regional collaboration on regional education programs and encourage the establishment of industry groups for municipal stormwater and wastewater operators within the Hawke’s Bay region.

37. We are currently undertaking a review of the Compliance Monitoring Strategy for 2021-2026.

List of Reference Groups/Meetings

38. Table 2 below provides a summary of relevant resource user groups, committees, and working groups that have been established to improve the environmental and cultural outcomes of resource use within the Hawke’s Bay region.

Table 2: Hawkes Bay relevant resource user groups, committees, and working groups

Reference Group	Resource Type
Joint Drinking Water Governance Group,	Drinking water
Joint Drinking Water Working Group (technical)	Drinking water
NCC Stormwater Working Group	Stormwater
HDC Stormwater Project Steering Group	Stormwater
CHBDC Stormwater Project Steering Group	Stormwater
Regional Waste Officers Forum	Solid Waste
NCC Tangata Whenua Working Group	Wastewater
HDC Tangata Whenua Wastewater Joint committee	Wastewater

Decision Making Process

39. 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 “Territorial Local Authority (TLA) Compliance Programmes” staff report.

Authored by:

Jack Blunden

Team Leader Compliance - Urban & Industrial

Rob Hogan

Manager Compliance

Approved by:

Katrina Brunton

Group Manager Policy & Regulation

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

18 August 2021

Subject: 2020-21 Annual Interim Results and Carry Forwards for 2020-21

Reason for Report

1. This item provides the Corporate and Strategic Committee with interim financial results for the 2020-21 financial year to 30 June 2021, prior to audit, and requests to carry forward expenditure budgets from 2020-21 to 2021-22.

Officers’ Recommendations

2. Council officers recommend that the Committee receives the interim financial results and recommends to Council the approval of the budget allocations for carry forward to the 2021-22 financial year as proposed.

Executive Summary

3. 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.

4. As reported to the Finance, Audit and Risk Sub-committee (FARS) the audit of the 2020-21 annual report is not expected to commence until October, with adoption scheduled for December 2021 (prior to the new statutory deadline of 31 December).

5. The end-year financial statements presented with this report are likely to change as officers refine information as part of the audit process.

6. Overall 2020-21 produced a pleasing result, with investment returns in particular significantly ahead of the Covid-19 adjusted Annual Plan budget. As usual there are unders and overs across the various Council activities, however, the overall result, based on the interim calculations, is positive.

Comprehensive Revenue and Expense – Schedule A

7. The operating deficit of $8.7m is greater than the forecast deficit of $4.4m due to the inclusion of a new provision of $21.7m provision linked to the ACC agreement signed in 2013.

8. Excluding the provision delivers a $13m operating surplus for the year against a budgeted Annual Plan deficit of $4.4m.

9. Realised and unrealised gains from the managed funds totalled $14.7m compared to a budget of $9.5m and dividends from HBRIC totalled $5.2m compared to a budget of $3m.

10. Fair value gains from investment property, forestry crops, carbon credits returned a gain of $14.2m compared to a budget forecast of $3.1m (see first 2 tables in Schedule C).

11. The valuation of HBRIC decreased by $11.5m due to the drop in the Napier Port Holdings share price compared to a forecast growth of $37.9m (the budget was incorrectly recorded against intangible assets in the 2020-21 Annual Plan).

12. Total other comprehensive revenue and expense showed a deficit of $6.2m compared to a budget surplus of $41.1m due to the changes in valuations referred to in paragraphs 10 and 11.

Other Commentary

13. The balance sheet reflects the capital expenditure and valuation adjustments and the draw down of $16.3m in new debt.

14. Operating expenditure across the groups of activities was $1.1m below the carry forward adjusted budget and operating income was $1.6m above budget. The net funding requirement from general rates and investment income was favourable down by $0.9m.

15. Capital expenditure was $5.3m below the adjusted budget and income was $0.8m ahead of budget. The net funding requirement was favourable down by $0.7m.

16. Shovel ready projects not included in the Annual Plan budgets provided an additional $2.15m capital and $300k operating expenditure with an additional $1.8m in external funding.

17. Group Managers have requested to carry forward $3.1m of budgeted operating expenditure and $9.9m of budgeted capital expenditure.

Background to the Commentary

18. The FY2020-21 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.

19. All revenue and expenditure accrued (carried forward) at the end of the 2019-20 financial year has been recognised in the 2020-21 actuals.

20. All revenue and expenditure accruals at the end of the 2020-21 financial year are included in the results.

Operating Income and Expenditure to 30 June (Schedule B)

Groups of Activities

21. Expenditure is at 98% ($1m less than budget) across all activities.

21.1. Transport is 26% ($1.5m) over budget due to the increased costs associated with the operation of the bus service and reduced fee revenue. The increased costs and reduced covid related fee revenues are met by NZTA Waka Kotahi subsidies with the overall result being a minor decrease in the net funding requirement.

22. Income is 5% ($1.6m) above budget due, primarily to the additional funding from NZTA for Transport.

Regional and Other Income

23. Net Income from managed funds is 79% ($4.4m) ahead of budget reflecting returns exceeding the conservative, Covid-19 adjusted plan.

24. HBRIC Dividends for FY20-21 were 73% ($2.2m) ahead of budget due to the improved results and dividends from Napier Port and HBRIC’s managed funds.

25. Net revenue (rental income less fees due to ACC) from Endowment Leasehold Rent is $94km ahead of budget. Total rental income was $258k below budget due to the freeholdings since the budget was set.

26. $829k was paid to ACC as their share of the gain in the value of those properties freeholded in 2020-21. When a tenant freehold the property, ACC receives the net present value of the future unpaid rent plus two-thirds of the difference between that amount and the sale price of the freehold (less sales costs).

Fair Value Movements (Schedule C)

27. Investment Property grew by $9.1m ($6.7m ahead of budget) reflecting the performance of the property market and a reduced discount rate.

28. The valuation of the forestry investments comprising both crops and carbon credits grew by $5.1m ($4.4m ahead of budget). The price of carbon credits has increased from $31.90 to $43.45 per unit during the year.

29. The value of financial assets showed a reduction in the value of HBRIC by $11.5m due to the drop in the share price from $3.60 to $3.40 of Napier Port Holdings Limited offset by the performance of the managed funds returning an unrealized gain of $3.9m.

30. The growth in the value of the Endowment Leasehold Properties has triggered the addition of a $21.7m provision to reflect the share of the sale price of these properties that would have to be paid to ACC. This is a new provision to adjust the value of our Napier leasehold land down to the amount HBRC is likely to receive. Our auditors will be reviewing this calculation as part of the 2020-21 audit process.

Capital Expenditure to 30 June (Schedule D)

31. Capital Expenditure across the group of activities is at 78% of budget:

31.1. IT projects are $1.4m below budget due to delays in recruiting appropriately qualified resources to gather requirements and manage projects.

31.2. Asset Management is $2.9m below budget due to delays in projects (Clive River dredging awaiting consents), further work on design deferring expenditure, renewal work not being required as the assets were in better condition than anticipated, and resources being prioritized on other work.

31.3. Integrated Catchment Management expenditure is 13% ($1.3m) ahead of budget due to the continued success of the Sustainable Homes programme which is $3.5m ahead of its budget offsetting reduced expenditure in the Ruataniwha Groundwater Modelling, 3D Aquifer Mapping (SkyTEM) and LiDAR mapping projects caused by delays and unavailability of resource. Carry forward requests have been included for these projects.

31.4. Regional Income capital expenditure is behind budget by $2.3m. An unbudgeted $600k was spent on bridging and roadworks in the Tutira forestry blocks to permit harvesting. The Regional Water Security Scheme remains underspent due to earlier Covid-19 related impacts and the availability of technical expertise both internally and externally. While solid technical progress is being made on the Central Hawkes Bay Managed Aquifer Recharge pilot project and Heretaunga Water Security upper catchment investigations, attempts to initiate early mana whenua engagement in accordance with HBRC's undertakings to iwi leaders through the Waiwhakaata forum have either failed (Te Tua project) or resulted in delays (Central Hawkes Bay Managed Aquifer Recharge Cultural Impact Assessment).

31.5. Property, Plant and Equipment purchasing is at 55% of budget ($2.5m under). $1.9m variance relates to the timing of the accommodation project. Building work has begun on the Station Street office and the $2m allocated to this project is expected to be spent by the end of 2021-22 but will be dependent on the availability of architects and builders.

Balance Sheet (Schedule E)

32. Non-Current Assets have decreased by $4.1m from prior year. This comprises increases in Property, Plant and Equipment, Infrastructure Assets and Intangible Assets as a result of the capital work programme, fair value movements affecting Intangible Assets, Investment Property, Forestry Assets and Financial Assets plus an increase in Financial Assets through an additional $3.9m in Community Loans (Clean Heat and Sustainable Homes programme).

33. Current Assets have increased by $1.9m from prior year predominantly due to a $1.6m increase in cash held at year end.

34. Fair value reserves have decreased by $6.2m due to the changes in fair value of the carbon credits, HBRIC shareholding and unrealized gains in managed funds.

35. Accumulated funds have decreased by $7.5m due to the changes in reserves and the forecast operating deficit of $11.6m.

36. Non-current Liabilities have increased by $12.1m following the drawdown of $16.3m in new debt, repayment of $3.1m in existing debt, and reduction in other liabilities (including the ACC rent provision) by $1m.

Other Information (Schedule F)

37. Rates receivables are marginally up from June 2020, but rates payments received in advance has increased by $1.3m as additional ratepayers pay by direct debit (which is collected in advance) and sustainable homes participants pay, on average, 6 months in advance prior to the issuance of the rates demand.

38. Accounts Payable has increased compared to the same period prior year due to the growth in the work programme and the additional costs from the external contractors.

Carry Forward requests to add budgets to 2021-22

39. Carry Forwards is a common practice within Councils and allows for unspent funds against projects to be moved forward so that projects can be completed. These include the funding of final costs of projects and contracts that were unable to be completed by the financial year end and the carry forward of external income received for specific projects. Officers have compared the carry forwards against the spend in 2020-21 and against the 2021-22 budgets to ensure they are required:

40. The funding types are categorized below:

40.1. General funding is from General Rates which includes investment income

40.2. Reserve funding is from targeted rates that have flowed through to Reserves and funding from Reserves

40.3. External is external funding received for specific projects

40.4. Debt is for debt funding not drawn down this year and is covered by interest and principal repayments that are already included in the LTP.

Operating Expenditure Carry Forward Requests

191 Operating - Regional Coastal Plan

41. Policy & Regulation seeks to carry forward $121,925 to fund the delayed review of the Regional Coastal Environmental Plan. This work has been delayed as the Senior Policy Planner has been delivering the Regional Land Transport Plan and TANK (Tūtaekurī, Ahuriri, Ngaruroro and Karamū) hearings, while acting as the Transport Manager until the organisational structure review was completed.

41.1. Financial Assessment: Project 191 was underspent by $121,925 in general funding which could be carried forward. Policy & Regulation are requesting total carry forward of $354,932 across their projects against a general funding underspend of $198,993.

41.2. Recommendation: That Council approves the carry forward of $121,925 in general funding.

192 Operating – Strategy & Planning

42. Policy & Regulation seeks to carry forward $233,007 to cover forecast expenditure to complete the TANK (Tūtaekurī, Ahuriri, Ngaruroro and Karamū) hearings. The hearings have not closed, and the work associated with an extra 1-2 hearing days will require additional financial support for the commissioners, legal advice, internal time, potential caucusing and expert advice/input, meeting expenses etc.

42.1. Financial Assessment: Project 192 was underspent by $254,854 in general funding which could be carried forward. Policy & Regulation are requesting total carry forward of $354,932 across their projects against a general funding underspend of $198,993.

42.2. Recommendation: That Council approves the carry forward of $254,854 in general funding.

240 Operating – Makara Flood Control Scheme

43. Asset Management seeks to carry forward $44,693 to cover the cost of the de-siltation of the Makara No. 4 dam.

43.1. Financial Assessment: Project 240 was underspent by $44,693 comprising $42,032 of targeted rates and $2,661 in general funding which could be carried forward. Asset Management underspent its general funding by $215,748.

43.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

322 Operating – Coastal Processes

44. Asset Management seek to carry forward $96,341 to cover the additional costs forecast for the Coastal Hazards Strategy in relation to project management, iwi engagement and transition planning. This is directly related to the proposal to transfer all responsibility for administration of the Coastal Hazards Strategy to HBRC (currently shared responsibility HBRC/NCC/HDC).

44.1. Financial Assessment: Project 322 was underspent by $96,341 in general funding which could be carried forward. Asset Management underspent its general funding by $215,748.

44.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

312 Operating – Tukipo Wetland

45. ICM seeks to carry forward $41,000 of external funding received from Fonterra as sponsorship of wetland development work that has not yet been completed. This funding should be carried forward, to satisfy our obligation to our external partner.

45.1. Financial Assessment: Project 312 had an underspend of $5,237 in general funding

45.1.1. Overall ICM underspent its general funding for operational expenditure by $16,497 ($380,000 underspend before a reduction in revenues from s36 charges) but seeks to carry forward a total of $724,422 of operational expenditure across all projects into 2021-22. Carrying forward the $41,000 would change the overall result to an overspend in general funding.

45.2. Recommendation: That Council approves the carry forward of the external funding.

339 Operating – Land Science Research

46. ICM seeks to carry forward $40,000 comprising $26,000 in general funding and $14,000 in external funding. The contractor’s camera equipment used for the aerial riparian surveys is broken and the replacement has not arrived from Switzerland delaying the work.

46.1. Financial Assessment: Project 339 had an underspend of $205,025 in general funding. As per the explanation in 45.1.1 carrying forward the $40,000 would change the overall ICM result to an overspend in general funding.

46.2. Recommendation: That Council approves the carry forward of the external funding.

354 Operating – Whakaki Lake Protection & Enhancement

47. ICM seeks to carry forward $269,422 in general funding. Note that Council is in Deed with MfE for this project, which is part of the Freshwater Improvement Fund project. Per this Deed, we have committed a total of $1.6m over the life of this 5-year project. If we can't carry this funding forward, we will need to find funds from future budgets to meet our agreement, and to ensure we can still deliver this project.

47.1. Financial Assessment: Project 354 had an underspend of $269,440 in general funding. As per the explanation in 45.1.1 carrying forward the $269,440 would change the overall result to an overspend in general funding.

47.2. Recommendation: That Council approves the carry forward of the external funding.

379 Operating – Erosion Control Scheme

48. ICM seeks to carry forward $1,275,511 in debt funding.

48.1. Financial Assessment: No impact to general funding in 2021-22 as the project is fully debt funded and the debt repayments have been included in future budgets.

48.2. Recommendation: That Council approves the carry forward of the planned debt funding.

662 Operating – Biodiversity

49. ICM seeks to carry forward $374,440 in external funding from Te Uru Rakau. Te Uru Rakau 1 Billion Trees funding was received in 2020-21 for 88 planting projects, however, plantings have been delayed due to the dry conditions. This funding is 100% committed but will not be spent until July/August/Sept when groups send in evidence of plantings. As per the explanation in 45.1.1 carrying forward the $374,440 would change the overall result to an overspend in general funding. If we can't carry this funding forward, we will need to find funds from future budgets to meet our agreement, and to ensure we can still deliver this project.

49.1. Financial Assessment: No impact to general funding in 2021-22 as the work is externally funded but there would be an impact on general funding in 2020-21.

49.2. Recommendation: That Council approves the carry forward of the external funding.

Recovery Funding

50. ICM seeks to carry forward $600,000 from the recovery fund. The C&S committee approved $700,000 from the recovery fund for three ICM multi-year projects. $100,000 has been spent on the Tukipo wetland project, but the remaining two projects leveraging funds from the Department of Conservation (DoC) Jobs for Nature Private Land Biodiversity Fund, and the MFE Freshwater Improvement Fund for the Porangahau catchment group (a total of $300k each) will begin in 2021-22. Each project requires $100k per annum in 2021-22, 2022-23 and 2023-24 (i.e. a total of $200k per annum of debt funding).

50.1. Financial Assessment: No impact to general funding in 2021-22 as the project is fully debt funded and the debt repayments have been included in future budgets.

50.2. Recommendation: That Council approves the carry forward of the planned debt funding.

Capital Expenditure Carry Forward Requests

287 Renewal – HPFCS Flood and River Control

51. Asset Management seeks to carry forward $1,115,904 in targeted rates and reserve funding to complete the Clive River Dredging. This has been delayed due to resource consent issues.

51.1. Financial Assessment: No impact to general funding as this project is fully funded from the scheme reserve.

51.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

291 Renewal – HPFCS Flood and River Control

52. Asset Management seeks to carry forward $79,237 in targeted rates and reserve funding to upgrade the pump station building and complete some capital work to maintain operations in the interim. This work has been identified during engineering evaluations carried out in 2020-21.

52.1. Financial Assessment: No impact to general funding as this project is fully funded from the scheme reserve.

52.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

310 Capital – Ruataniwha Goundwater Modelling

53. ICM seeks to carry forward $389,102 in debt funded expenditure. This work is a critical part of the science decision support for Plan Change 6 implementation and the Kotahi Plan change, however, due to unavoidable delays, a carry forward is needed.

53.1. Financial Assessment: No impact to general funding in 2021-22 as the project is fully debt funded and the debt repayments have been included in future budgets.

53.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

313 Capital – Hydrodynamic Model

54. ICM seeks to carry forward $25,000 in debt funded expenditure. This funding is the final tranche towards a University of Waikato PhD project developing a hydrodynamic model of Hawke Bay coupled with sediment delivery.

54.1. Financial Assessment: No impact to general funding in 2021-22 as the project is fully debt funded and the debt repayments have been included in future budgets.

54.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

333 Capital – 3D Aquifer Mapping (SkyTEM)

55. ICM seeks to carry forward $543,715 in debt funded expenditure. Project milestones have been delayed with $400,000 for processing SkyTEM data and resistivity interpretation and $143,715 for additional data collection (GNS laboratory work).

55.1. Financial Assessment: No impact to general funding in 2021-22 as the project is fully debt funded and the debt repayments have been included in future budgets.

55.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

334 Capital – LiDAR Mapping

56. ICM seeks to carry forward $410,493 in debt funded expenditure. The timelines for delivery of mid-project milestones have slipped with Covid-19 impacting on the operation of the supplier undertaking the work. The mid-project milestones that were forecast to be completed during 2020-21 are expected to be reached during the first quarter 2021-22. It's currently forecast that the project will run through to December 2021.

56.1. Financial Assessment: No impact to general funding in 2021-22 as the project is fully debt funded and the debt repayments have been included in future budgets.

56.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

995 Capital – Water Security

57. Asset Management seeks to carry forward $2,872,387 in reserve funded expenditure. The programme remains behind schedule due to a combination of PGF application and contracting delays, Covid-19 delays and general internal and external capacity constraints.

57.1. Financial Assessment: No impact to general funding in 2021-22 as the Council’s portion of the funding is from the Long-term Investment Fund.

57.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

913 Capital – System Integration Projects

58. IT seeks to carry forward $1,430,000 in budgeted expenditure. The programme has been funded from the asset replacement reserve and debt. The programme remains behind schedule due to the challenges recruiting suitable resources to perform the work.

58.1. Financial Assessment: No impact to general funding in 2021-22 as the remaining project work is fully debt funded and the debt repayments have been included in future budgets.

58.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

IT Asset Purchases

59. IT seeks to carry forward $577,000 in budgeted expenditure. The programme is funded from the asset replacement reserve and debt. This programme comprises a range of projects including rural aerial imagery (delayed by procurement issues with Hastings District Council), various infrastructure replacement projects (meeting room technology, storage systems) that are taking longer than expected and other work on hold until the regional sector initiative is launched.

59.1. Financial Assessment: No impact to general funding in 2021-22 as the project is debt and reserve funded and the debt repayments have been included in future budgets.

59.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

Buildings

60. Corporate Services seeks to carry forward $1,915,000 in debt funded expenditure. The project to refurbish the Station Street offices, convert the Raffles Street building to a science lab and refurbish the Dalton Street offices has been delayed while staff and executive consultation was completed, and delays were incurred obtaining architects and builders due to the high demand in the market.

60.1. Financial Assessment: No impact to general funding in 2021-22 as the project is fully debt funded and the debt repayments have been included in future budgets.

60.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

Monitoring Drilling

61. ICM seeks to carry forward $369,549 in debt funded expenditure for the Ruataniwha state of the environment groundwater monitoring programme. Council has been unable to obtain drilling services until Aug/Sept 2021 due to the limited capacity of drilling companies. The programme of work will be completed by Dec 2021.

61.1. Financial Assessment: No impact to general funding in 2021-22 as the project is fully debt funded and the debt repayments have been included in future budgets.

61.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

Science Equipment Purchases

62. ICM seeks to carry forward $136,500 in budgeted expenditure. The programme is funded from the asset replacement reserve and debt. The replacement of data loggers has been delayed pending the outcome of the trial of a new model and the new sonde for the Esk catchment has been deferred to 2021-22.

62.1. Financial Assessment: No impact to general funding in 2021-22 as the project is funded from reserve and debt and the debt repayments have been included in future budgets.

62.2. Recommendation: That Council approves the carry forward of the budgeted expenditure.

Options Assessment

63. Option 1: Council approves the carry forwards from 2020-21 to 2021-22 to enable all the projects to be completed, service levels to be achieved, commitments to external organisations to be fulfilled and the future work to be funded.

64. Option 2: Council approves the carry forward of all non-general funded expenditure (i.e. targeted rate, reserve, debt and externally funded expenditure) with the general funded carry forward expenditure met through additional debt funding in 2021-22.

65. Option 3: Council does not approve the carry forwards and provides officers with guidance on which carry forwards, if any, should be approved.

Significance and Engagement Policy Assessment

66. In accordance with the Council’s Significance and Engagement policy, this matter has been assessed as being of some importance. The projects to be completed and the funding requirements for future work affect the affordability of rates for future ratepayers.

Financial and Resource Implications

67. The interim financial results indicate that HBRC has underspent its general funding requirement by $7.3m.

68. To carry forward an additional $747k in general funding and $429k in external funding from 2020-21 to 2021-22 will reduce the surplus in 2020-21 to $6.1m.

69. Reserve and debt funded expenditure can be carried forward with no impact to general funding as this has been included in the LTP.

70. Funding from targeted rates will be automatically carried forward through the associated reserve to enable the funds to be drawn down to complete the work in subsequent years.

71. External funding may be used to meet a shortfall in the current year but general funding in 2021-22 will be required to meet the HBRC’s obligations to the provider to complete the work or repay the funds.

Decision Making Process

72. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded:

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

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

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

72.4. The persons affected by this decision are ratepayers of Council.

72.5. 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

1. That the Corporate and Strategic Committee receives and considers the “2020-21 Annual Interim Results and Carry Forwards for 2020-21” staff report.

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 or persons likely to have an interest in the decision.

2.2. Approves the carry forward of all expenditure requests from the 2020-21 to the 2021-22 budget; being:

Operating Expenditure Carry Forward Requests

Capital Expenditure Carry Forward Requests

Authored by:

Tim Chaplin

Senior Group Accountant

Ross Franklin

Acting Chief Financial Officer

Approved by:

James Palmer

Chief Executive

Attachment/s

1 ⇩

Interim Financial Statements June 2021

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

18 August 2021

Subject: 2020-21 Annual Report – Interim Non-financial Results

Reason for Report

1. This item provides the Corporate and Strategic Committee with the interim non-financial results for inclusion in the 2020-21 Annual Report.

2. There are two items attached.

2.1. Part 1 – Introduction, provides results or progress made to date on the achievement of the 23 community outcomes, which are articulated in Council’s 2017-21 Strategic Plan

2.2. Part 3 – Groups of Activities, reports performance by Council’s groups of activities against the level of service measures and performance targets set in the 2018-28 Long Term Plan.

Background

Community outcomes

3. Under section 23 of schedule 10 of the Local Government Act 2002, the Council must report the results of any measurement undertaken during the year of progress towards the achievement of community outcomes.

4. We use our time-bound strategic goals from our Strategic Plan as community outcome measures. These demonstrate a desire to shift from reporting activity or outputs, to managing for and reporting on outcomes – things that matter to the community. Typically, we do not have full control over the achievement of these outcomes but have a clear statutory role in achieving them. Where possible, the outcomes align with national targets or an existing Hawke’s Bay strategy or plan.

5. The outcome measures are grouped by our four focus areas: Water, Land, Biodiversity and Infrastructure/Services. The four areas are interconnected and mutually reinforcing meaning that success in one area cannot be at the expense of another. For example, the work we are doing on farms to keep soil on the land directly contributes to water quality.

6. The status against the target is described as completed, on-track, underway or off-track. Work is underway to give the outcome measures a baseline and show a timeseries and projected pathway for achievement.

Levels of Service

7. The purpose of the non-financial performance measures, as specified in the Local Government Act 2002, is to enable the public to assess the actual versus intended level of service achieved for major aspects of groups of activities. In other words, to demonstrate we have done what we said we would do.

8. We report on the actual performance against targets set in the 2018-28 Long Term Plan as achieved, partially achieved, not achieved or not measured. 2020-21 is the third and final year of the 2018-28 Long Term Plan. We also include the previous two years’ results, commentary to provide context and more information on the performance result.

9. As per the 2018-28 Long Term Plan, we report on seven groups of activities (as opposed to the now six in the 2021-31 Long Term Plan) as this pertains to the 2020-21 financial year.

10. The groups of activities are:

10.1. Governance and Partnerships

10.2. Strategic Planning

10.3. Integrated Catchment Management

10.4. Asset Management

10.5. Consents and Compliance

10.6. Emergency Management

10.7. Transport.

Information subject to auditing

11. The auditing of performance achieved against the community outcomes and the level of service measures is still underway so may change. This information has been presented now to familiarise Councillors with the results prior to adoption.

Discussion

Aggregated results for community outcomes

12. Of the 23 community outcomes, 1 was completed, 15 are on-track, 4 are underway and 3 are off-track.

13. Staff analysis suggests the reasons for being off-track generally fall into the following areas:

13.1. aspirational time-bound targets, e.g. highly erodible land under tree cover and restoring prioritised terrestrial ecosystem sites.

13.2. results outside our direct control (but important outcomes that we have a statutory role in contributing to), e.g. contaminants from urban and rural environments into waterbodies.

Aggregated results for levels of service performance measures

14. Of the 60 measures, 43 were achieved, 4 were partially achieved, 8 were not achieved and 5 were not measured (or awaiting measure).

15. Staff analysis suggests the reasons for not achieving the targets generally fall into the following areas:

15.1. high targets set by ourselves e.g. planting on highly erodible land, kilometres of riparian margins; compliance monitoring.

15.2. results outside our direct control e.g. road toll, preparedness for CDEM events, consent compliance.

15.3. continuation of a downward trend e.g. public transport passenger numbers.

16. Commentary has been added to the quantitative results to provide context, and in particular, explain why measures have not been achieved. The full Annual Report document will also include highlights by geographical area to describe what we did in 2020-21 in more detail.

17. Where data allows, graphs illustrating trends have been included to give visual context.

Next Steps

18. The Annual Report is planned to go to Audit NZ for auditing in October 2021 and to Council for adoption in December 2021.

Decision Making Process

19. 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 Annual Report – Interim Non-financial Results” staff report.

Authored by:

Sarah Bell

Team Leader Strategy & Performance

Desiree Cull

Strategy & Governance Manager

Mandy Sharpe

Project Manager

Approved by:

James Palmer

Chief Executive

Attachment/s

1 ⇩	Interim Part 1 - Community Outcomes
2 ⇩	Interim Part 3 – Groups of Activities

GENERAL SUBJECT OF THE ITEM TO BE CONSIDERED	REASON FOR PASSING THIS RESOLUTION	GROUNDS UNDER SECTION 48(1) FOR THE PASSING OF THE RESOLUTION
Confirmation of the Public Excluded Minutes of the 19 May 2021 Corporate & Strategic Committee Meeting	s7(2)(j) 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 prevent the disclosure or use of official information for improper gain or improper advantage.	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.

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