Agenda of Corporate and Strategic Committee

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

16 March 2022

Subject: Clifton to Tangoio Coastal Hazards Strategy - Memorandum of Transition

Reason for Report

1. This item presents a proposed Memorandum of Transition (MoT) to confirm Council roles and responsibilities for the implementation of the Clifton to Tangoio Coastal Hazards Strategy (Strategy).

Officers’ Recommendations

2. Staff recommend that the Committee endorses the Memorandum of Transition as proposed, for Council adoption and execution by the Chief Executive.

Executive Summary

3. A proposed MoT has been developed to give effect to the outcome of the Funding Review, led by Raynor Asher, QC.

4. The MoT has been endorsed by Napier City Council (NCC) and Hastings District Council (HDC).

5. Hawke’s Bay Regional Council (HBRC) has received further advice to assist in its consideration of the MoT, and a decision is now being sought.

6. If HBRC endorses the MoT, a public consultation process will follow in the form of a proposal by HBRC under s.16 of the Local Government Act.

Background

7. All Partner Councils have agreed in principle to the outcomes of the funding review led by Raynor Asher, QC.

8. As the first phase of implementing the funding review outcomes, the Technical Advisory Group (TAG) has prepared a draft MoT.

9. The purpose of the MoT is to provide a mechanism for HBRC, HDC and NCC to confirm the agreed arrangements for implementing the Strategy and the associated transfer of assets recommended by the funding review.

10. These implementation arrangements, if confirmed, would be actioned through a proposal by HBRC to amend its Long Term Plan by proposing to undertake a significant new activity under s.16 of the Local Government Act.

11. The MOT will also provide the means for HBRC to complete the s.16 process without objection from territorial authorities in the region (including Wairoa District Council and Central Hawke’s Bay District Council).

12. Associated with the MoT, an advisory committee was recommended by Mr Asher to support HBRC’s functions as the lead agency for implementing the Strategy. This advisory committee will in effect replace the Clifton to Tangoio Coastal Hazards Strategy Joint Committee and provide for an ongoing forum for collaboration between tāngata whenua and the councils.

13. The MoT is provided as Attachment 1 to this paper.

14. A draft terms of reference for the proposed advisory committee is included as Schedule One to the MoT.

15. In December 2021, the MoT was endorsed by HDC and NCC. Both Councils have delegated authority to their Chief Executives to execute the MOT on their behalf.

16. HBRC considered the MoT in workshop in December 2021, however, it deferred a decision to endorse the MoT pending receipt of further advice and analysis.

17. This advice and analysis was presented in workshop and in the Council meeting on 23 February 2022. As a result of advice received, Councillors sought minor amendments to the MoT and instructed staff to discuss these proposed changes with HDC and NCC.

18. The amendments sought by HBRC are shown as tracked changes in Attachment 1. Amendments are proposed to Clause 7.2 and a new proposed clause 7.10 has been inserted. For completeness, TAG has also proposed that the Whakarire Avenue revetment is removed from the MoT at this stage, as the works are consented but not yet constructed. This change is also shown as tracked.

19. Staff have consulted with HDC and NCC on the changes proposed by HBRC. Both councils have confirmed their agreement to the proposed changes through their Chief Executives.

Options Assessment

20. The MoT is a key next step in confirming the outcome of the funding review led by Raynor Asher.

21. HDC and NCC have confirmed their agreement to the MoT, and have subsequently accepted changes proposed by HBRC from their meeting on 23 February 2022.

22. HBRC is now asked to consider and endorse the final MoT. Staff consider that this presents HBRC with two options, as follows.

Option One (Recommended Option)

23. Council endorses the MoT, as attached, and instructs the Chief Executive to execute this on behalf of Hawke’s Bay Regional Council following satisfaction of consultation requirements under Clause 7 of the Hawke’s Bay Region’s Triennial Agreement for the Triennium October 2019 – 2022.

Advantages

23.1. Council has previously agreed in principle to the outcome of the funding review, and has considered the proposal, as outlined in the MoT, in some detail along with further advice and analysis.

23.2. Mr Asher has set out, in his advice, detailed reasons for his recommendation that that the Regional Council is the organisation best placed to take charge of all aspects of adapting to coastal hazards in the Clifton to Tangoio Coastal area.

23.3. The process of confirming roles and responsibilities for strategy implementation between councils has raised important and significant questions, and has taken some time to work through. More significant work lies ahead, including determining how to fairly apportion costs between ratepayers for coastal hazards mitigation. Endorsing the MoT will clear the way for this next important phase of work to commence.

Disadvantages

23.4. The MoT proposes that HBRC take on a significant new activity. This will result in increased costs for the organisation, and increased resourcing and capability requirements.

Option Two – Status Quo

24. Council does not endorse Memorandum of Transition and instructs officers to revisit Funding Review outcomes.

Advantages

24.1. HBRC would not be exposed to the cost and resource implications associated with leading strategy implementation.

Disadvantages

24.2. This option is not supported by officers. As noted above, Mr Asher has outlined with sound reasoning why HBRC is best placed to lead strategy implementation. The draft MOT has had significant input from the strategy’s Technical Advisory Group, has had legal input from Simpson Grierson, and has been endorsed by the Joint Committee which includes representatives from HBRC, HDC and NCC. The MoT has also been formally endorsed by HDC and NCC.

24.3. HBRC has been presented with, and had the opportunity to further consider, advice relative to the potential liabilities, costs and resourcing implications associated with its endorsement of the MoT.

24.4. If the MoT is not endorsed by HBRC, the Strategy itself has no agreed mechanism for implementation. Other options, which were assessed by Mr Asher but were found to be far less effective and desirable, would need to be considered.

Strategic Fit

25. Climate Change is at the heart of everything we do. The coastal strategy aims to provide coastal communities, businesses and critical infrastructure from Clifton to Tangoio are resilient to the effects of coastal hazards. Climate change and the corresponding sea level rise is the primary hazard being mitigated through this strategy.

26. The strategy would sit under the sustainable and climate-resilient services and infrastructure HBRC Strategic Objective.

Why the Strategy is a Priority

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

Climate Change Impacts

28. The climate assumptions that underpin our infrastructure investments and decisions are changing rapidly. We must ensure our assets and services are future proofed for climate change impacts, which supports the leading edge adaptive pathways approach of the strategy.

Strategic Outcome

29. The region has resilient physical, community and business infrastructure to unlock potential growth and prosperity from our natural resource base, which aligns with the coastal strategy’s vision.

Significance and Engagement Policy Assessment

30. If endorsed by HBRC, the MoT will be actioned through a proposal by HBRC under s.16 of the Local Government Act. This requires full community consultation. HBRC would make a final decision following the outcome of that consultation process.

31. Further to the s.16 process, more detail on the delivery model, programme and funding will be developed for consultation through the 2024-2034 Long Term Plan.

Considerations of Tāngata Whenua

32. The MoT has been endorsed by the Strategy’s Joint Committee, which includes representation from the Maungaharuru-Tangitū Trust, Mana Ahuriri Trust and Heretaunga Tamatea Settlement Trust (although the Joint Committee is waiting to confirm new representatives for Mana Ahuriri Trust and Heretaunga Tamatea Settlement Trust).

33. A Mana Whenua Engagement Strategy has also been activated as part of work under the Strategy and this work is ongoing.

34. As noted, if HBRC endorse the MoT, a s.16 consultation process will follow, providing further opportunity for input from tāngata whenua. The Mana Whenua Engagement Strategy has been designed to support and facilitate this input.

Financial and Resource Implications

35. Staff presented financial analysis in the report to Council on 23 February 2022, HBRC Internal Review – Coastal Hazards Strategy Implementation.

36. This analysis included an assessment of indicative potential costs and rating impacts for the 2021-2031 LTP 10 year period should HBRC agree to implement the strategy.

37. Rather than repeat this analysis here, this report is provided as Attachment 2.

38. Full financials and rating methodology will be developed for consultation as part of the proposed 2024-2034 LTP (refer Table 1).

Next Steps

39. Staff propose to take the MoT and the recommendations of this Committee to full Council on 30 March 2022.

40. Should HBRC agree to endorse the MoT, the following sequential steps will occur:

40.1. Agreement will be sought from Wairoa District Council and Central Hawke’s Bay District Council that they do not object to the MoT, and the s.16 proposal that will follow from it.

40.2. Hastings District Council will consult with ratepayers who may be affected by the proposed transfer of the Waimarama seawall.

40.3. The Chief Executives of HBRC, NCC and HDC will be invited to execute the MoT, in accordance with the resolutions passed by each Council.

40.4. The Minister of Local Government will be informed of the proposal and the reasons for it, in accordance with the requirements of s.16(2) of the Local Government Act

40.5. HBRC will notify the proposal under s.16 of the Local Government Act (this is targeted to occur in May 2022).

41. Further decision-making steps are outlined below in Table 1.

Table 1: Strategy Consultation and Implementation Timeframes

Timing	Critical Tasks + Decision Gateways
To end of Feb 2022	- Pre-consultation Mana whenua engagement, community workshops, community engagement
Decision Gateway 1: Memorandum of Transition
Oct 2021 – May 2022	- Memorandum of Transition development and approval - LTP Amendment preparation Councillor workshops / consultation material preparation

Timing	Critical Tasks + Decision Gateways
Decision Gateway 2: Notification of LTP Amendment
May-June 2022	- Consultation LTP Amendment notified as s.16 proposal (significant new activity for HBRC)
July-August 2022	- Hearings / deliberations / decisions
Decision Gateway 3: Adoption of LTP Amendment & Strategy
August 2022	- Consenting process commences for physical works (est. 2 years)
October 2022	- Local Body Elections
March 2024	- Triennial LTP review to include funding for physical works
Decision Gateway 4: Adoption of LTP including funding provisions
July 2024	- Strategy implementation rating commences
September 2024 (est.)	- Construction phase commences

Decision Making Process

42. 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:

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

42.2. The use of the special consultative procedure is proposed to occur in accordance with s.16 of the Local Government Act, in order to give effect to the proposal as set out in the MoT.

42.3. The decision to endorse the MoT is not itself significant under the criteria contained in Council’s adopted Significance and Engagement Policy.

42.4. The persons affected by this decision are the ratepayers of the Napier and Hastings Districts, and they will be provided with the opportunity to participate as part of the s.16 consultation process.

43. 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 to endorse the MoT without consulting directly with the community or others having an interest in the decision. It is noted that this decision will lead to the development of a proposal under s.16 of the Local Government Act that will be the subject of a public consultation process.

Recommendations

1. That the Corporate and Strategic Committee receives and notes the Clifton to Tangoio Coastal Hazards Strategy - Memorandum of Transition 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. Endorses the Memorandum of Transition as proposed.

2.3. Instructs the Chief Executive to execute the Memorandum of Transition on behalf of the Hawke’s Bay Regional Council following satisfaction of consultation requirements under Clause 7 of the Hawke’s Bay Region’s Triennial Agreement for the Triennium October 2019 – 2022.

2.4. Delegates to the Chief Executive authority to approve changes to the Memorandum of Transition should they be required by the Hastings District Council and Napier City Council in consultation with the Hawke’s Bay Regional Council members of the Clifton to Tangoio Coastal Hazards Strategy Joint Committee.

Authored by:

Simon Bendall

Coastal Hazards Strategy Project Manager

Approved by:

Chris Dolley

Group Manager Asset Management

Attachment/s

1 ⇩	Memorandum of Transition
2 ⇩	Report: HBRC Internal Review – Coastal Hazards Strategy Implementation, 23 February 2022

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

16 March 2022

Subject: Order of Candidates Names on Voting Documents

Reason for Report

1. This item seeks a decision on the order of candidates’ names on voting documents for the next (2022) local body elections.

Officers’ Recommendations

2. Staff recommend that the Council chooses to list candidates names in random order on the 2022 local body election voting documents. Staff consider that is the fairest order as it removes name order bias and is increasingly adopted by councils in local body elections.

Background

3. Regulation 31 of the Local Electoral Regulations 2001 provides the opportunity for Council to choose the order of candidate names appearing on the voting documents from three options - alphabetical, pseudo-random (names drawn out of a hat with all voting documents printed in this order) or random order (names randomly drawn by computer with each voting document different).

4. Council has used alphabetical order for all previous elections.

5. The decision on the order of candidate names must be made in early 2022 to enable printing of voting documents. If no decision is made, the order of names defaults to alphabetical.

Options

Alphabetical Order

6. Alphabetical order is simply listing candidate names alphabetically and is the order traditionally used in local authority and parliamentary elections.

Pseudo-random Order

7. Under this arrangement, the candidates’ names for each issue (election) are placed in a hat (or similar receptacle), mixed together, and then drawn out of the receptacle, with candidates’ names being placed for all voting documents for that issue in the order they are drawn.

8. The regulations provide that if a council has determined that pseudo-random order is to be used, the Electoral Officer must state, in the public notice required to be given, the date, time and place in which the order of the candidates’ names will be arranged. Any person is then entitled to attend while the draw is in progress.

Random Order

9. Under this arrangement, the names of the candidates for each issue (election) are shown in a different order on each and every voting document, utilising software which enables the names of candidates to be printed in a different order on each paper.

Advantages and disadvantages of the options

10. The advantage of alphabetical order is that it is familiar and easier to understand for voters. Where there is a large number of candidates competing for a position, it is easier for a voter to find a candidate they wish to vote for if the names are listed alphabetically.

11. It is also easier for a voter if the order of names on the voting document follows the order of names in the directory of candidate profile statements accompanying the voting document.

12. Random order (both random and pseudo-random) removes the potential for name order bias, but the pseudo-random order of names simply substitutes a different order for an alphabetical order. Any first-name bias will transfer to the name at the top of the pseudo-random list. Therefore the only effective alternative to alphabetical order is random order.

13. A disadvantage for both the random options is voter confusion as it is not possible for the supporting documents such as the candidate profile statement booklets to follow the order of a random voting paper. Making voting more difficult carries the risk of deterring the voter from taking part.

Research on name order bias

14. Research on voting patterns has indicated that candidates with a surname starting at the top end of the alphabet may have a slight advantage over others with a lower alphabetical ranking.

14.1. Delbert A. Taebel showed that not only did candidates listed first enjoy a favourable advantage, but that this advantage was greater in contests further down the ballot. This advantage did not, however, hold when voters had high recognition of candidate names. This suggests that presidential elections, where there is generally much higher name recognition than in primary and off-year elections, are less likely to be influenced by name-order effects. The flip side of this was that in this study, low name recognition meant that voters were less likely to make any choice at all for those unknown candidates. The Effect of Ballot Position on Electoral Success Delbert A. Taebel American Journal of Political Science Vol. 19, No. 3 (Aug., 1975), pp. 519-526 (8 pages) Published by: Midwest Political Science Association.

14.2. More recently, Jonathan G. Koppell and Jennifer A. Steen studied an actual election in which the names were rotated on the ballots by precincts. In 71 of 79 New York City Democratic Primary contests, candidates received a greater proportion of votes when they were listed first compared to any other position they were listed in. For 7 of the 71 contests where this was the case, the advantage of first position exceeded the winner’s margin, “suggesting that the ballot position would have determined the election’s outcomes if one candidate had held the top spot in all precincts.” The Effects of Ballot Position on Election Outcomes The Journal of Politics Vol. 66, No. 1 (Feb., 2004), pp. 267-281 (15 pages) Published by: The University of Chicago Press on behalf of the Southern Political Science Association.

14.3. A study by Nuri Kim, Jon Krosnick and Daniel Casasanto found, in an experiment embedded in a large (USA) national Internet survey, participants read about the issue positions of two hypothetical candidates and voted for one of them in a simulated election in which candidate name order was varied. The expected effect of position appeared and was strongest (1) when participants had less information about the candidates on which to base their choices, (2) when participants felt more ambivalent about their choices, (3) among participants with more limited cognitive skills, and (4) among participants who devoted less effort to the candidate evaluation process. The name-order effect was greater among left-handed people when the candidate names were arrayed horizontally, but there was no difference between left- and right-handed people when the names were arrayed vertically. These results reinforce some broad theoretical accounts of the cognitive process that yield name-order effects in elections. Political Psychology Vol. 36, No. 5 (OCTOBER 2015), pp. 525-542, published by International Society of Political Psychology.

National and local context

14.4. A Government response to the Report of the Justice and Electoral Committee on its Inquiry into the 2013 local authority elections stopped short of recommending that the order on all ballot papers in local authority elections be completely randomised, but did encourage councils to consider adopting the randomisation of names under the existing provision.

14.5. Random order for voting papers has been increasingly adopted by local councils. For the 2019 elections all of the region’s councils except Wairoa District and Hawke’s Bay Regional councils resolved to use random order.

Financial and Resource Implications

15. Technological developments for the printing of voting papers is such that there is no difference in either cost or quality for the printing of alphabetical or randomised voting papers. Costs are provided for in existing budgets.

Decision Making Process

16. 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:

16.1. The decision is provided for under Regulation 31 of the Local Electoral Regulations 2001

16.2. The persons affected by this decision are candidates and voters in the local body elections.

16.3. Given the nature of the issue to be considered and decided Council can exercise its discretion and make the relevant decisions 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 Order of Candidates Names on Voting Documents staff report.

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

2.2. Resolves that the names of candidates at the 2022 Hawke’s Bay Regional Council elections and any intervening by-elections be arranged in random order.

Authored by:

Leeanne Hooper

Team Leader Governance

Approved by:

Desiree Cull

Strategy & Governance Manager

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

16 March 2022

Subject: Proposal to Participate in Regional Sector Council-Controlled Organisation

Reason for Report

1. This report asks the Committee to recommend participation in a Regional Sector Shared Services Council Controlled Organisation, subject to consultation.

2. The Council is required under section 56 of the Local Government Act 2002 (LGA) to undertake consultation before establishing or becoming a shareholder in a CCO. This paper asks the Committee to recommend a streamlined consultation approach as detailed below.

3. Mark Donnelly the General Manager of RSHL (Regional Software Holdings Limited) will be in attendance via Zoom to answer questions.

Background

4. The 16 Regional Councils and Unitary Authorities in Aotearoa New Zealand work together on areas of shared interest, but now wish to take this arrangement a step further through the creation of a shared services company. This is in response to:

4.1. Increased demands from Central Government to deliver a broad range of reform packages.

4.2. Capacity and capability challenges and competition between councils to attract and retain talent.

4.3. Expectations from our communities for councils to do more with less.

5. At the Regional Chief Executives Group meeting on 3 August 2021, the business case for the creation of a Regional Sector Shared Services Organisation was tabled for approval. The creation of a Regional Sector Shared Services Organisation was considered as a step forward for the sector, and an important foundational building block for future collaboration and delivery of shared services and initiatives.

6. The business case recommended the creation of an organisation that all regional councils and unitary authorities will invest in, fairly sharing the benefits, costs, and risks of the investment. This change will enable improved outcomes from investment into national programmes of work. It will also improve access to specialist and expensive resource, reducing costs and sharing risk.

Structure

7. The company will be created by restructuring RSHL (Regional Software Holdings Limited), a pre-existing Council Controlled Organisation (CCO) created by six regional councils for this purpose. The six existing shareholders do not need to consult.

8. A council-controlled organisation can be a company, partnership, trust, arrangement for the sharing of profits, union of interest, co-operation, joint venture or other similar arrangement in which one or more local authorities, directly or indirectly, controls the organisation.

9. It is intended that the Regional Sector Shared Services organisation will be a company, with up to 16 shareholders, being the 16 regional councils and unitary authorities in New Zealand.

10. The table below shows each Council’s intention as at 28 January 2022.

Council	Intend to join
Environment Southland	Yes (existing RSHL shareholder)
Horizons Regional Council	Yes (existing RSHL shareholder)
Northland Regional Council	Yes (existing RSHL shareholder)
Taranaki Regional Council	Yes (existing RSHL shareholder)
West Coast Regional Council	Yes (existing RSHL shareholder)
Waikato Regional Council	Yes (existing RSHL shareholder)
Otago Regional Council	Yes
Bay of Plenty Regional Council	Yes
Gisborne District Council	Yes
Greater Wellington Regional Council	Maybe
Environment Canterbury	Maybe
Tasman District Council	Maybe in 2023
Marlborough District Council	Talking to Council
Nelson City Council	Talking to Council
Auckland Council	No

11. Depending on the final adopted structure of the council-controlled organisation, the Council may hold shares or some other form of ownership. The Council will contribute to the operating costs of the council-controlled organisation, these contributions will replace existing contributions to national programmes, and will be at a similar level.

12. The Council will maintain its ownership of the CCO as long as it continues to operate and the Council continues to utilise the services provided by the council-controlled organisation.

Operation

13. Once established, the CCO will prepare a statement of intent. This statement of intent will form the basis of key performance targets and other measures by which the performance of the company may be judged.

Nature and scope of activities

14. RSHL will provide a framework for collaboration between the shareholders and across the regional sector. It will support the procurement or development of shared solutions in a manner that provides greater consistency in how council operate their core processes. RSHL will provide a more cost-effective alternative than individual councils can achieve on their own.

15. The company will operate by facilitating collaborative initiatives between councils and through managed contractual arrangements.

16. The initial scope of activities for the company is limited to pre-existing shared services programmes.

17. A business case will be developed for any additional service that is not part of the original company. The business case will be approved by the shareholders prior to any new service proceeding. The investigation of any new services will be fully funded by councils that wish to promote that service.

Council policies and objectives relating to CCOs

18. Council does not have any significant policies or objectives about ownership and control of a company as a vehicle for shared services. Council has a policy on the appointment and remuneration of directors, which is currently under review and available on request. The constitution of any company structure set up for this project will have the principles according to which the company will be operated and governed. This includes shareholders’ rights and the appointment of directors. The annual statement of intent identifies the activities and intentions of the company for the year and the objectives to which those activities will contribute.

Performance targets

19. Performance targets relate to the level of services that the company will achieve to deliver on its stated outcomes. It is envisaged that these targets will change as new services are developed.

19.1. Customers will be surveyed annually to ensure that there is at least 75 per cent satisfaction with the services provided.

19.2. Expenditure shall not exceed that budgeted by more than 5 per cent unless prior approval is obtained from the shareholders.

19.3. The organisation will demonstrate material benefit to the regional sector and shareholders.

Benefits of joining

20. The CCO is intended to be the delivery mechanism for the projects that are identified by the regional sector special interest groups (SIGs) and prioritised by the regional sector CEOs through the ReCoCo (Regional Council Collaboration) programme. RSHL is well placed to deliver this:

20.1. RSHL is already responsible for the management and delivery of sector programmes with an annual budget of $2.5-$3m.

20.2. RSHL also has a good track record of delivering technology projects, such as the original design and build of the IRIS regulatory software.

21. Involvement in the CCO won’t require any additional funding initially, the operating costs will be covered by existing ReCoCo subscription fees that are paid by all regional councils. Additional costs are incurred when each Council decides to participate in and contribute funding towards a work programme.

22. Council has a long standing relationship with RSHL, which has delivered benefits through access to:

22.1. cost-effective solutions that are specifically designed for the unique functions of a regional council

22.2. a sector-wide body of knowledge of Council business processes in the IT, regulatory, biodiversity and land management functions of a regional council.

23. The CCO proposal is an appropriate next step in the evolution of our long-standing relationship with RSHL. Becoming a shareholder moves us from being a customer, into a more influential role as a stakeholder. This role will enable us to actively contribute to the design of processes and solutions that drive the sector alignment and efficiencies that the shared services work programme is intended to deliver.

IRIS Next Generation Work Programme

24. The first CCO work programme of significance to Council is the IRIS Next Generation programme. This programme is intended to deliver sector alignment through consistent good practice business processes that are embedded in modern extensible software. The scope of the programme covers the regulatory, land management and biodiversity functions of regional councils. All three of these functions are on Council’s roadmap for system improvements and have been budgeted for in the current LTP IT capital work programme.

25. The ten year cost to HBRC for participating in the IRIS Next Generation programme is $2.78m (details attached). This is not the full cost of the implementation, but the cost compares favourably when benchmarked against the external costs of our recent system implementations. Partnering with RSHL for these implementations will enable Council to leverage the collective capabilities of all councils, which will help mitigate current project delivery risks that are driven by talent shortages.

Consultation Process

26. As noted above, the Council must consult prior to becoming a shareholder of a CCO. In accordance with section 82 Principles of Consultation, the Council has discretion to decide the form the consultation takes.

27. Staff consider that this is a relatively procedural matter and therefore a streamlined consultation is sufficient to comply with Local Government Act 2002 consultation requirements.

28. It is proposed that the Council invites submissions and feedback over a period of two weeks in early May to avoid Easter and the school holidays. Submissions will then be collated, heard if required, and the final decision to join the CCO made in time for the new financial year - from 1 July 2022.

29. Consultation channels will include:

29.1. Hawke’s Bay Regional Council’s website

29.2. Hawke’s Bay Today

29.3. Direct engagement with our Territorial Authorities, and

29.4. Email to interested and affected parties via the Council’s ‘Stakeholder Update’.

Next steps

30. If the Committee supports participating in the new CCO, provisionally named ‘Regional Sector Shared Services’, a Statement of Proposal (SOP) for consultation will be brought to the 30 March Council meeting for adoption. A similar SOP is intended to be used by all participating councils who are required to consult.

31. Key dates include:

16 March 2022	C&S Committee decision to recommend to Regional Council
30 March 2022	Council adopts Statement of Proposal for consultation
1 May 2022	Consultation opens
15 May 2022	Consultation closes
1 June 2022	Hearings at C&S Committee meeting (if required)
29 June 2022	Council decision

Decision Making Process

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

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

32.2. The use of the special consultative procedure is not prescribed by legislation but consultation is required under section 56 of the LGA.

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

Recommendations

1. That the Corporate and Strategic Committee receives and notes the Proposal to Participate in Regional Sector Council-Controlled Organisation 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 in accordance with section 56 and 82 of the Local Government Act.

2.2. Agrees to participate in a Regional Sector Shared Services Council Controlled Organisation subject to consultation.

2.3. Agrees to the ‘streamlined’ public consultation process proposed.

Authored by:

Andrew Siddles

Chief Information Officer

Desiree Cull

Strategy & Governance Manager

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

1 ⇩	Shared Services Briefing
2 ⇩	HBRC Proportion of Member Contributions to Shared Services CCO

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

16 March 2022

Subject: Updated HBRC Appointment and Remuneration of Directors Policy

Reason for Report

1. This paper seeks committee recommendations to Council for amendments to the Policy on the appointment and remuneration of directors to the Council’s investment company, the Hawke’s Bay Regional Investment Company (HBRIC), and its subsidiaries, in order to support changes to the investment mandate of the company made in the Investment Policy contained within the 2021-2031 Long Term Plan.

Officers’ Recommendations

2. Council officers recommend a series of amendments to the Appointment and Remuneration of Directors Policy to clarify the roles of councillors and independent appointees as directors of HBRIC and its subsidiaries, and thereby ensure that Council’s more active investment objectives are appropriately governed to support optimum investment performance, while maintaining appropriate oversight and accountability by Council.

Executive Summary

3. The 2021-31 Long Term Plan included a revised Investment Strategy enabling HBRIC, to grow its investment portfolio by up to $100m over the next decade. It is therefore likely HBRIC will expand the number of entities in which it has a shareholding interest, necessitating decisions on governance representation.

4. HBRIC should continue to be governed by a blend of commercial and council affiliated directors to support integrated objectives setting and strategic alignment with Council, while ensuring the perspectives and expertise of independent commercial directors complement that of councillor directors. It is recommended that the Policy states a preference for the Chair of HBRIC to be an independent director.

5. It is recommended that board fees be payable to councillor directors of HBRIC only in the event they are until that point remunerated at the base councillor salary rate, and that remuneration for HBRIC director duties be equivalent to the difference between the base councillor salary and that of a Council committee chair.

6. HBRIC acts as a holding company for Council’s investment assets. To maintain separation between active commercial investment activity and the role of councillors as community representatives overseeing this activity, it is recommended that the Policy state that councillors should not be eligible for appointment as directors to subsidiaries of HBRIC.

7. Transitional arrangements for Councillors serving on the boards of two HBRIC subsidiaries, Napier Port and HBRIC CCO FoodEast are recommended to manage the transition to the new arrangements to minimise disruption to the relevant commercial entity.

8. It is recommended that the Policy provide for the appointment of Council executives from time to time to the board of a CCO to represent its interests in a apolitical manner, where this provides for particular skills and expertise, or development opportunities for executives.

9. Following the decisions of the Corporate and Strategic Committee, council officers will prepare a revised draft policy to be considered by Council alongside the recommendations of the committee on 30 March 2022.

Background /Discussion

10. An Appointment and Remuneration of Directors Policy (the Policy) is a statutory requirement regarding the appointment and remuneration of directors to all Council organisations. Under section 57 of the Local Government Act 2002 (the LG Act), the Council must adopt a policy that sets out an objective and transparent process for:

10.1. the identification and consideration of the skills, knowledge, and experience required of directors of a council organisation (including consideration of whether knowledge of tikanga Māori is relevant to its governance); and

10.2. the appointment of directors to a council organisation; and

10.3. the remuneration of directors of a council organisation.

11. The current policy on Appointment and Remuneration of Directors was last reviewed and adopted on 22 February 2017, with specific matters related to Napier Port updated in 2019 as part of the Initial Public Offering.

12. Historically Council was required to only make appointments of directors to its sole Council Controlled Trading Organisation HBRIC (which in turn made appointments to its sole subsidiary Napier Port). Appointments to HBRIC have typically been a mix of councillor and independent directors.

13. However, the 2021-31 Long Term Plan (LTP) has enabled HBRIC to grow its investment portfolio and it is therefore likely that HBRIC will expand the number of entities in which it has shareholding interest (including the formation of Council Controlled Trading Organisations, where shareholding interest exceeds or is equal to 50%) necessitating decisions on governance representation.

14. Following the adoption of the Investment Strategy in the 2021-31 LTP it was considered timely to review the governance and remuneration structure for HBRIC and its subsidiaries, including Council’s policy position around Councillor appointments to external board / directorship positions and their remuneration.

15. Within the Investment Strategy Council decided its commercial interests are generally best managed by its investment company, HBRIC, unless there are good reasons, such as tax treatment to manage such interests in an alternative manner.

16. Council officers presented options for amending the Policy to Council workshops on 17 November 2021 and 23 February 2023. In preparation of advice for the workshops reference was made to industry advice and Office of the Auditor-General (OAG) best practice where applicable. The recommendations in this paper reflect the direction provided to officers on amendments to the Policy arising from the workshops.

Options Assessment

Councillor Directors

17. Council has, until now, appointed councillors to the board of HBRIC to ensure the company pursues the strategic investment objectives of Council and undertakes its activities in a many that is in the best interests of Council and its ratepayers. It is recommended that Council continues to appoint councillor directors to the board of HBRIC and the Policy reflects this.

18. At the Council workshops councillors expressed a preference for HBRIC to continue to be governed by a blend of commercial and council affiliated directors to support integrated objectives setting and strategic alignment with Council, while ensuring the perspectives and expertise of independent commercial directors complement that of councillor directors HBRIC. This reduces risks to Council by improving the quality of governance and decision making at the HBRIC board table. Rather than a balanced board, with equal numbers of councillor and independent directors, councillors have expressed a preference for flexibility in the composition of the board of HBRIC. Council officers recommend that the Policy requires a minimum of two independent directors within an overall maximum of up to 8 directors overall for the board of HBRIC.

19. HBRIC acts as a holding company for Council’s investment assets, active commercial activity is undertaken via subsidiaries or funds management, and HBRIC not itself directly engaged in commercial trading activity. Councillors have expressed a preference that HBRIC not appoint councillor directors to HBRIC subsidiaries and CCO’s in the future. This would maintain separation between active commercial investment activity and the role of councillors as community representatives overseeing this activity, and thereby enable the governance of these active investments to be entirely commercially focussed, with councillors remaining able to hold the investment entities accountable for their performance without being conflicted. It is therefore recommended that the Policy state that councillors should not be eligible for appointment as directors to subsidiaries of HBRIC.

20. Council may make exceptions to the Policy by formal resolution of Council and there may be special circumstances in which the appointment of councillors to a HBRIC subsidiary is deemed necessary or desirable. In the event that Council does suspend the Policy to enable councillors to be considered for appointment by HBRIC to a subsidiary company, by resolution in response to special circumstances, it is recommended that the Policy state that the appointment is to be made by independent directors of HBRIC. This will ensure councillors being appointed to commercial entities attracting market-based fees are only appointed following an objective and apolitical assessment of the suitability of their skills for the role.

21. For reasons of efficiency and consistent with the purpose of HBRIC, Councillors have indicated that HBRIC should be delegated the authority to appoint directors to its subsidiaries, in consultation with Council, and it is recommended that the Policy reflect this.

Skills

22. To maximise the performance of commercial CCOs, it is essential that CCOs have a skills-based board, constituted of directors with the relevant industry experience and knowledge, governance and commercial skills. It is therefore recommended the Policy state that relevant skills are the most important criteria for all director appointments to HBRIC subsidiaries and CCOs.

Independence & Chair

23. Councillor tenure by the nature of the triennial election process, presents continuity uncertainty that can be disruptive to a CCO, particularly to a commercial entity. To mitigate this uncertainty, it is recommended that the Policy states a preference for the Chair of HBRIC to be an independent director.

24. In the event Council resolves to appoint a Councillor director to the chair of HBRIC, including on an interim basis, it is recommended that the Councillor be eligible for remuneration at the same rate as the independent chair.

Diversity & Transparency

25. It is recommended that the Policy explicitly states that Council values and supports the benefits that diversity of thought, experience and skills brought to CCO boards. This recognises that increasing diversity and fostering inclusive board culture is an important element in supporting high performing boards, driving long-term success and delivering better outcomes.

26. It is further recommended that Council commits to supporting and initiatives that lead to an inclusive recruitment and selection process for board appointments, which are open and transparent, uphold Council’s commitments to Equal Employment Opportunities, and achieve diversity and inclusion.

Councillor Remuneration

27. The OAG recommends as standard practice that councillor directors receive directors' remuneration in addition to their remuneration as councillors. A CCO director is responsible for the governance of the CCO. The position, if discharged properly, involves work, so remuneration is appropriate.

28. Board members’ fees will typically compensate board members for their normal contribution to the board, including attending board and Committee meetings, meeting preparation, stakeholder management and any other agreed tasks. However, with publicly owned entities the OAG advises that board members’ fees may reflect the element of public service in serving on the board of a CCO and be set at or below the average for comparable private sector entities.

29. In the case of HBRIC, councillor directors have not received board members’ fees to date, on the premise that participation in this board has been an extension of the role of councillors, with HBRIC operating as a supervisory arm of Council. This has been deemed appropriate with HBRIC acting as a holding company for the Council’s portfolio of investments, that is not itself directly engaged in commercial trading activity. However, board duties for HBRIC directors still involve a regular attendance at board meetings, a substantial volume of board papers and periodic decision making which can be expected to increase with the more active investment mandate for HBRIC.

30. At present all HBRIC councillor directors hold other Council committee chair responsibilities that attract a higher level of remuneration than the base salary of councillors, as determined by the Remuneration Authority. Councillors have indicated that they believe this higher level of remuneration compensates for additional duties, including directors’ duties on the board of HBRIC. It is therefore recommended that board fees be payable to councillor directors only in the event they are until that point remunerated at the base councillor salary rate, and that remuneration for HBRIC director duties be equivalent to the difference between the base councillor salary and that of a Council committee chair.

Council Executive Director Appointments

31. Council may from time to time wish to appoint a Council executive to the board of a CCO to represent its interests in a non-political manner, where this provides for particular skills and expertise, or development opportunities for executives. Council chief executives are routinely appointed to CCOs around New Zealand to represent Council interests in a non-political and electorally stable manner. For example, the Chief Executive of the Bay of Plenty Regional Council is a director of Quayside Holdings Ltd.

32. It is recommended that the Policy provide for the appointment of executive directors to HBRIC subsidiaries and CCOs, and that any directors’ fees such an appointment may attract should be paid by the subsidiary or CCO to the parent company, unless otherwise agreed as part of a modified remuneration package for the executive that reflects adjusted responsibilities and accountabilities.

Transitional arrangements

33. Council is presently represented by councillors on the boards of two HBRIC subsidiaries, Napier Port and HBRIC CCO FoodEast, which reflects historic circumstances related to the Initial Public Offering of shares in Napier Port and the establishment of the FoodEast entity in partnership with the Crown, Hastings District Council and Progressive Meats.

34. In light it is recommended that the councillor director on the Port of Napier board serves the remainder of this term to the Annual General Meeting of Napier Port in December 2022 to enable an orderly transition to a new non-councillor director. With respect to FoodEast, it is recommended that the councillor director continue their board role until completion of the establishment stage and a decision is made to commence construction of the FoodEast facility.

35. Both councillor directors of these CCTOs have undertaken significant work in addition to their councillor duties, as well as taking on significant commercial and legal responsibilities, in their HBRIC subsidiary board roles. It is therefore recommended that they be eligible for payment of full board fees as determined by their respective boards for work undertaken to date and for the remainder of their terms.

Port of Napier

36. Prior to the Initial Public Offering (IPO) of shares in Napier Port directors of the company were appointed by HBRIC, in consultation with Council. As part of the IPO process Council resolved to maintain board representation of the strategic interests of the region and regional ratepayer as the majority shareholder. Council resolved to nominate two directors for appointment by the shareholder of the company at the applicable Annual General Meeting.

37. To ensure Council visibility of the board’s decision making and governance of the Port through the transition to a public company Council nominated a Councillor and a council affiliated commercial director in 2019.

38. It is recommended that the Policy be amended to state that Council will nominate two directors to the board of Napier Port for as long as a majority shareholding is held by Council via HBRIC.

Strategic Fit

39. Leveraging the Council’s balance sheet and taking a more active approach to Council’s investment activity is an important element of the Council’s overall financial strategy to fund more activity to achieve greater impact in the Council’s strategic outcome areas. This paper supports these objectives.

Significance and Engagement Policy Assessment

40. Council officers have assessed the significance of the decisions in this report as being low and therefore not requiring community engagement.

Climate Change Considerations

41. There are no specific climate change considerations related to the policy proposed for amendment in this paper. However, the Council has specific climate change related objectives within its investment strategy and the maintenance of councillor director influence on the board of HBRIC assists in ensuring the Council’s strategic objectives in this regard are achieved.

Considerations of Tangata Whenua

42. There are no direct considerations for tangata whenua arising from this paper. The recommended inclusions in the Policy, with respect to diversity and transparency, are intended to create opportunities for Te Ao Maori perspectives to be brought to the governance of HBRIC and its subsidiaries.

Financial and Resource Implications

43. There are no direct financial implications arising from this report. Director remuneration is provided via revenue generated from the investment activity that is governed by the directors. A high standard of governance arrangements assists in managing risks to the Council’s investment portfolio and protecting asset values and revenues.

Consultation

44. Consultation is not required for the decisions in this paper as they relate to administrative arrangements to facilitate the more substantive matter of Council’s investment strategy that was consulted upon as part of the 2021-2031 Long Term Plan.

Decision Making Process

45. 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:

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

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

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

45.4. The persons affected by this decision are all ratepayers and residents as beneficiaries of the Council’s investment portfolio.

45.5. 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:

1.1. receives and considers the Updated HBRC Appointment and Remuneration of Directors Policy staff report.

1.2. Agrees the Appointment and Remuneration of Directors Policy be amended to reflect the following preferences.

1.2.1. HBRIC should continue to be governed by a blend of commercial and councillor directors to support integrated objectives setting and strategic alignment between Council and HBRIC, while incorporating independent perspectives and commercial skills, with a minimum of two independent directors within an overall maximum of eight directors.

1.2.2. Councillor directors are to be paid for their director duties on the board of HBRIC only if they are not already remunerated for higher duties as Council committee chairs or Council Chair or Deputy, and in such event are to be paid the difference between a base councillor salary and that of a Council committee chair.

1.2.3. In the event a Councillor director is appointed Chair of HBRIC, remuneration should be equivalent to that which would be paid to an Independent Chair.

1.2.4. HBRIC’s commercial subsidiaries should be run for commercial objectives by independent directors only, in order to maintain separation between active commercial investment activity and the role of councillors as community representatives overseeing this activity via HBRIC and Council, enabling councillors to hold the investment entities accountable for their performance without being conflicted.

1.2.5. In the event that Council, by resolution, suspends the Policy in respect of 1.2.4 above and enables councillors to be considered for appointment by HBRIC to a subsidiary company in response to special circumstances, the appointment is to be made by independent directors of HBRIC to ensure councillors being appointed to commercial entities attracting market-based fees are only appointed following an objective and apolitical assessment of the suitability of their skills for the role.

1.2.6. Commercial subsidiaries and CCOs must have skills-based boards, constituted of directors with the relevant industry experience and knowledge, governance and commercial skills.

1.2.7. All boards of entities for which HBRIC holds significant shareholdings are required to consider how they support diversity and inclusion, with open and transparent appointment processes.

1.2.8. HBRIC is delegated the authority to appoint directors to its subsidiaries in consultation with Council.

1.2.9. The Chair of HBRIC should be an Independent Director.

1.2.10. Board fees should be paid for all non-councillor Director positions, and that Council supports payment of market-based fees.

1.2.11. Existing councillor directors on HBRIC subsidiaries should stand down from their roles in a managed transition that minimises disruption to the commercial interests of their entities, and Council with board fees paid for all work to that point.

1.2.12. In consultation with Council, HBRIC may appoint executive directors to HBRIC subsidiaries with directors’ fees paid by the subsidiary or CCO to the parent company, unless otherwise agreed as part of a modified remuneration package for the executive that reflects adjusted responsibilities and accountabilities.

1.2.13. Council will nominate two directors for the board of Napier Port for as long as a majority shareholding is held by Council via HBRIC.

1.3. Instructs Council officers to provide a revised Appointment and Remuneration of Directors Policy to the Council meeting on 30 March 2022 that incorporates the amendments resolved in 1.2.1 through 1.2.13 above.

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

2.2. Adopts the Appointment and Remuneration of Directors Policy as amended to incorporate the Corporate and Strategic Committee’s preferences resolved by resolutions 1.2.1 through 1.2.13 above.

Authored by:

Desiree Cull

Strategy & Governance Manager

Kishan Premadasa

Management Accountant

Approved by:

Jessica Ellerm

Group Manager Corporate Services

James Palmer

Chief Executive

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

16 March 2022

Subject: HBRIC and Foodeast Draft Statements of Intent

Reason for Report

1. This item presents the draft Statement of Intent for Hawke’s Bay Regional Investment Company (HBRIC) and Foodeast Limited Partnership (Foodeast) for the Committee’s feedback.

Background /Discussion

2. To meet Local Government Act 2002 (LGA) legislative timeframes, HBRIC and Foodeast are required to submit their Draft Statement of Intent (SoI) to Council (as shareholder and local authority with indirect control). The Draft SoIs, which outline the CCO’s role, strategic direction and objectives for the year ahead, were approved by the respective Boards in February (Attachments 1 & 2).

3. The Committee is asked to provide feedback to HBRIC and Foodeast on amendments to be considered for incorporation into the final Statement of Intent.

4. In accordance with the LGA, HBRIC and Foodeast are required to consider any comments received from Council prior to submitting the final SoI for Council’s approval by 30 June each year.

HBRIC SoI

5. There have been no significant changes to the SoI from the 2021-2022 year.

6. The HBRIC Board recently approved the company’s investment framework and strategy and will present this to Council in the near future.

7. The Board is focused on growing and diversifying investment returns in the coming years.

8. Distributions to Shareholder have been presented as a range ($8-11m). The HBRIC Board is confident of delivering dividends within these target ranges, noting that dividend payments to Council are dependent on future market and trading conditions that Napier Port Holdings Ltd may encounter.

9. Council’s Annual Plan dividend expectation from HBRIC for the FY2022-23 year is $10.5m which is within the SoI range, albeit the upper end.

10. HBRIC’s Chairman will be present to answer questions.

Foodeast SoI

11. Following a review of the Foodeast SoI, the Directors of HBRIC intend to provide the below feedback to Foodeast. It is recommended that the Committee provides any additional feedback on the Foodeast SoI to HBRIC, so that it can be included with HBRIC’s feedback to Foodeast.

11.1. Page 5, section 4, Vision: recommend adding “to create 500+ jobs and add over $100m to the Gross Domestic Product (GDP) for the Hawke’s Bay region”

11.2. Page 5, section 6, Purpose: recommend shortening the purpose to be “To construct and operate a food innovation hub, whilst making a commercial return consistent with the requirements of its shareholders and as outlined in Foodeast’s Limited Partnership Agreement”

11.3. Page 6-7, Financial Performance Targets: recommend adding a target to generate commercial returns equalling a minimum of 6% per annum (capital gains and income) over time, consistent with the requirements of the majority shareholder Hawke’s Bay Regional Investment Company

11.4. We note the project is working through the impact of cost inflation associated with the construction sector, which has delayed the development. Please provide an update on the status of construction planning and any impact on shareholders associated with the development as part of the final SOI.

Decision Making Process

12. 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:

12.1. The Statements of Intent for HBRIC Ltd and Foodeast are required to be prepared under section 64 of the Local Government Act 2002. This is a statutory requirement and is not subject to consultation under the provisions of the Act.

12.2. 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 HBRIC and Foodeast Draft Statements of Intent staff report, with agreed feedback to the HBRIC Board of Directors for potential incorporation into the final 2022-2023 Statement of Intent.

If required

2. Agreed feedback being:

2.1. That the HBRIC Statement of Intent is edited to include …

2.2. That the Foodeast Statement of Intent is edited to include …

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

3.1. 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.

3.2. Further considers the HBRIC Ltd 2022-2023 draft Statement of Intent (SoI) and undertakes to provide any additional feedback on the Draft SoI to HBRIC Ltd by 1 May 2022 (LGA Sch8 cl3) to enable delivery of the completed Statement of Intent to Council on or before 30 June 2022 for adoption.

Authored by: Approved by:

Kishan Premadasa

Management Accountant

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

1 ⇩	HBRIC Draft Statement of Intent 2022-2023
2 ⇩	Foodeast Draft Statement of Intent 2022-2023

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

16 March 2022

Subject: HBRIC Quarterly Update

Reason for Report

1. This item provides Council with a quarterly update on the activities of Hawke’s Bay Regional Investment Company (HBRIC) for the second quarter of the FY2021-22 financial year.

Financial Reporting

2. HBRIC’s Financial Statements for the half year ending 31 December 2021 are attached to this report.

3. Key Items to note:

3.1. Statement of Financial Performance – Surplus of $5.2m (excluding fair value movements through other comprehensive income)

3.2. Statement of Financial Performance – $5.1m of dividend revenue received from Napier Port Holdings Limited (NPHL) in December 2021

3.3. Other Comprehensive Income – Loss of $33m, driven by a drop in the NPHL share price (loss on revaluation)

3.4. Statement of Financial Position – A reduction in net assets by $30m due to the drop in NPHL share price

3.5. Net Assets of $415m as at 31 December 2021.

Managed Funds

4. The funds remain under management in compliance with Council’s Statement of Investment Policy and Objectives (SIPO).

5. The value of managed funds with HBRIC as at 31 December 2021 amounted to $48.9m, a movement of approximately +$1.7m (3.5%) year to date.

6. In December 2021, HBRIC divested $1.3m from the managed funds after protecting its capital value.

HBRIC Capital Structure

7. The Board of HBRIC is continuing to progress the development of a clear capital structure and investment mandate to support the growth of the company, as agreed with Council. When this is finalised, it will be shared with Council.

Foodeast

8. HBRIC has invested $1.7m of its planned $4m investment, with further capital drawdowns to occur during the life of the investment.

9. The project has encountered construction cost inflation above budget, upon receipt of the final construction tender. This has resulted in a delay to the commencement of construction, while re-design work is undertaken.

10. A further update will be provided in the next quarterly update.

Napier Port

11. In November Napier Port reported on its full financial year ended September 2021.

12. For the year revenue rose 9% to $109.5m from $100.4m in the prior year, driven by record log exports of 3.02 million tonnes.

13. Underlying Net Profit after tax increased 7% to $22m from $20.5m and Reported Net Profit after tax increased 5.2% to $23.2m.

14. A final dividend of 4.7 cents per share (cps,) was declared, totalling 7.5 cps for the 2021 financial year, up from 5 cps for the prior year.

15. Napier Port’s annual report is available at: https://www.napierport.co.nz/corporate/annual-reports/.

16. For the first quarter to December 2021 compared to the same period in the prior year, trade volumes increased 3.4% for bulk cargo led by increased log exports. Containerised cargo volume decreased by 7.7%, principally due to less container repositioning activity and continued container shipping schedule disruption.

17. The share price has fluctuated throughout the year, driven by global/local equity markets and rising interest rates, contrary to the Port’s positive underlying operating performance.

18. No. 6 Wharf is more advanced than the original timeline; it’s now expected to be operational in the second half of the 2022 financial year and the expected cost has reduced from $173m to $179m (previously up to $190m).

19. Continuation of container-based supply chain and shipping disruptions is expected and there is potential for log export market driven volume volatility during 2022.

20. The Port has introduced robust COVID response plans, including mandatory vaccinations and testing regimes.

21. The kororā sanctuary had a strong 2021-2022 breeding season in 2021 with 13 chicks successfully fledging by the new year, occupying up to eight nesting boxes at one time.

HBRIC Name Change

22. HBRIC received endorsement and feedback from the Māori Committee on 2 February 2022 for a proposal to re name/ rebrand HBRIC to Te Matau Investments Ltd.

23. The next step for HBRIC is to develop a brand logo and typography, incorporating the feedback from the Māori Committee. Options will be presented to the Māori Committee and Council when completed.

Decision Making Process

24. 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 HBRIC Quarterly Update.

Authored by:

Kishan Premadasa

Management Accountant

Approved by:

Jess Ellerm

Group Manager Corporate Services

Attachment/s

1 ⇩	Statement of Financial Performance December 2021
2 ⇩	Statement of Financial Position December 2021

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

16 March 2022

Subject: Report from the 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 2 March 2022 and are now presented for the Committee’s consideration alongside any additional commentary the Sub-committee Chair wishes to offer.

Agenda items

2. The Six-Monthly Enterprise Risk Report item provided the sub-committee with the six-monthly update of Council’s enterprise risk profile. Discussions noted:

2.1. Risk is defined as ‘the effect of uncertainty on objectives’. The breadth and depth of external uncertainties are resulting in several emerging risks impacting all risk types (operational, strategic and financial) for Council. Therefore the overall residual risk profile for Council has increased despite implementing additional controls in response to the uncertainties.

2.2. Uncertainties highlighted include:

2.2.1. regulatory change

2.2.2. Covid19 outbreak with illness and isolation requirements impacting staff availability and supply chains, low unemployment rates and the competitive domestic labour market

2.2.3. domestic economic outlook with increases in inflation and interest rates

2.2.4. increasing geo-political tensions and the impact on financial markets and fuel prices

2.2.5. climate change action delays as the world responds to immediate risks of pandemic, and global economic instability (including asset bubbles).

2.3. The residual risk ratings elevated from the previous six-monthly report included:

2.3.1. Risk 2 – Financial (increased from low to medium)

2.3.2. Risk 8 – Business Interruption (increased from low to high)

2.3.3. Risk 9 – People Capability (increased from medium to high).

3. The Risk Maturity Update item provided an update to the sub-committee on the implementation of the risk framework across the business. Discussions noted that:

3.1. Risk maturity is now focussed on delivery of phase four, the final phase, of the risk maturity roadmap. However, in response to current levels of business interruption and staff resourcing pressures the focus will shift from each Group developing a risk profile for risk aggregation to the Risk Team working collaboratively with the Strategy and Performance Team to strengthen risk and performance metrics within the Organisational Performance report.

3.2. The FARS expressed concerns around the ability for the current risk system to aggregate risks from the operational business that relate to key service deliverables. In response, management will consider the feasibility of commencing the development of Group Risk profiles over the next reporting period focussing specifically on the enterprise ‘Risk 3 People, Community and Environmental Health’.

4. The Internal Audit Annual Plan Status Update FY2021-2022 item noted that progress on the FY21-22 annual internal audit plan is on track with the Fraud Management internal audit in progress and scheduled for presentation to the May 2022 FARS meeting.

5. The Annual Internal Assurance Plan 2022-2023 item discussions noted the Council’s ‘Audit Universe’ and coverage of previous assurance reviews against the Enterprise Risks. The final draft of the Annual Internal Assurance Plan will be present to the FARS at the May 2022 meeting for approval. Council’s internal auditors, Crowe, will attend the May meeting to discuss recommendations and provide more details on audit trends.

6. The 2020-2021 Annual Report Audit Update item on the status of the Audit of Council’s annual report was discussed in a Public Excluded session with the auditor, Karen Young, and is covered in the Public excluded report from the FARS agenda item.

7. The Quarterly Treasury Report for 1 October – 31 December 2021 item discussions highlighted:

7.1. For the quarter to 31 December 2021, HBRC was compliant with all measures in its Treasury policy except for the Mercer SIPO investment allocation, which has since been corrected.

7.2. There is a strong cash position due to timing of the rates collection, and lower than planned borrowing. As Council progresses further into the financial year additional borrowing will be required.

7.3. Investment returns for the first 6 months met budget expectations, however, due to market volatility and a significant financial market adjustment in January 2022, it is too early to predict the returns for the full financial year. The fluctuation in January erased most of the gains of the first 6 months so a recovery in the markets is required to deliver target returns for the year. Staff advice is to watch and wait, corrective action is not required, and the portfolio is well balanced for the long term.

7.4. The Council’s overall cash position is strong, and operational and capital expenditure is behind budget for the 6 months to 31 December. The full year net funding requirement will be forecast and commentary provided to the 1 June Corporate and Strategic Committee meeting.

8. The Scope for Fund Manager Review item discussions covered:

8.1. Feedback to staff on frequency and criteria for a review of the fund managers

8.2. Interest in a review of the fund managers’ performance compared to their peers and a review to test the fees / fee structures

8.3. FARS feedback will be incorporated and an updated Scope presented to the 10 August 2022 FARS meeting for agreement to undertake the review.

9. The HBRC Forestry Update and Tūtira Mānuka Plantation Update items (Attachment 1) provided the sub-committee with background, current status and objectives of these assets. Sub-committee discussions included:

9.1. Investments for soil erosion, carbon and biodiversity benefits as well as commercial.

9.2. Requests for additional information regarding linkages between lessons learned from the HBRC forests and mānuka plantation to the Right Tree, Right Place Project and fire risk management in HBRC forests (additional information in Attachment 2).

9.3. The need for a Carbon Policy was noted. Development of a Carbon Policy is a priority for the Finance team. The CFO is to identify an owner and resource to undertake this work and report progress to the next committee meeting.

10. The Internal Assurance Dashboard - Corrective Actions Status Update item noted:

10.1. In general significant progress has been made by the business to respond to previous internal audits with many actions closed.

10.2. Particular attention was paid to individual internal audit findings where corrective action progress is tracking red.

11. The Talent Management Internal Audit Update item provided the sub-committee with an update on addressing the recommendations from the internal audit and commentary is included in the Public excluded report from the FARS agenda item.

Decision Making Process

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

12.1. All items were considered at the Finance, Audit and Risk Sub-committee in accordance with the Terms of Reference, specifically in relation to the 2 March 2022 meeting, its delegated responsibility and authority to:

12.1.1. Conduct a sub-committee members-only session with Audit NZ to discuss any matters that the auditors wish to bring to the sub-committee’s attention and/or any issues of independence (6. 2020-2021 Annual Report Audit Update)

12.1.2. Review the objectives and scope of the internal audit function, and ensure those objectives are aligned with Council’s overall risk management framework (4. Internal Audit Annual Plan Status Update FY2021-2022 and 5. Annual Internal Assurance Plan 2022-2023)

12.1.3. Ensure that recommendations in audit management reports are considered and, if appropriate, actioned by management (11. Internal Assurance Dashboard - Corrective Actions Status Update, 12. Talent Management Internal Audit Update and PE. Internal Assurance Dashboard – Cyber Security Corrective Actions Status Update)

12.1.4. Review whether Council management has a current and comprehensive risk management framework and associated procedures for effective identification and management of the council’s significant risks in place (2. Six Monthly Enterprise Risk Report and 3. Risk Maturity Update)

12.1.5. Undertake periodic monitoring of corporate risk assessment, and the internal controls instituted in response to such risks (2. Six Monthly Enterprise Risk Report)

12.1.6. Monitor the performance of Council’s investment portfolio (7. Quarterly Treasury Report for 1 October – 31 December 2021, 8. Scope for Fund Manager Review and 9. HBRC Forestry Update and Tūtira Mānuka Plantation Update)

12.2. This item is for reporting purposes in accordance with the Finance, Audit and Risk Sub-committee Terms of Reference, specifically to report to the Corporate and Strategic Committee to fulfil its responsibilities for:

12.2.1. 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

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

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

12.3. This item is for information and noting only; there are no decisions required, and therefore the LGA decision making provisions do not apply.

Recommendations

1. That the Corporate and Strategic Committee receives and notes the report from the Finance, Audit and Risk Sub-committee, including the sub-committee recommendations, being that the Finance, Audit and Risk Sub-committee:

Six Monthly Enterprise Risk Report

1.1. 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.

Risk Maturity Update

Reports to the Corporate and Strategic Committee that:

1.2. Delivery of phase IV of the roadmap was re-evaluated to identify a less resource-intensive approach for embedding risk-based thinking into the business due to the level of business disruption from Covid19 and the tight labour market, and

1.3. The revised delivery plan for phase IV of the roadmap still aligns to Council’s overall risk maturity strategy of embedding risk-based thinking into the business.

Internal Audit Annual Plan Status Update FY2021-2022

1.4. 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 to respond to findings and recommendations from completed internal audits.

Annual Internal Assurance Plan 2022-2023

1.5. Receives and considers the draft Annual Internal Assurance Plan 2022-2023 staff report.

2020-2021 Annual Report Audit Update

1.6. Receives and notes the 2020-21 Annual Report Audit Update staff report.

Quarterly Treasury Report for 1 October – 31 December 2021

1.7. Receives and notes the Quarterly Treasury Report for 1 October – 31 December 2021.

1.8. Confirms that the performance of Council’s investment portfolio has been reported to the sub-committee’s satisfaction.

HBRC Forestry Update

1.9. Receives and notes the HBRC Forestry Update staff report.

Tūtira Mānuka Plantation Update

1.10. Receives and notes the Tūtira Mānuka Plantation Update staff report

Internal Assurance Dashboard - Corrective Actions Status Updates

1.11. Receives and notes the Internal Assurance Dashboard - Corrective Actions Status Update staff report and accompanying dashboard.

1.12. Confirms that management actions undertaken or planned for the future adequately respond to the findings and recommendations of the internal audits.

1.13. Confirms that the dashboard reports provide adequate information on the progress of corrective actions and the progress of the approved Annual Internal Audit programme.

1.14. 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 to respond to findings and recommendations from completed internal audits.

Talent Management Internal Audit Update

1.15. Receives and notes the Talent Management Internal Audit Update staff report.

1.16. Confirms that management actions undertaken or planned for the future adequately respond to the findings and recommendations of the 2021 internal audit.

1.17. Reports to the Corporate and Strategic Committee, the sub-committee’s satisfaction that the Talent Management Internal Audit Update provides adequate evidence of the adequacy of the management actions undertaken or planned to respond to the findings and recommendations from the Crowe audit of the Council’s talent management strategies and processes undertaken in April 2021.

Scope for Fund Manager Review

1.18. Receives and considers the Scope for Fund Manager Review staff report

1.19. Provides feedback, particularly on the staff recommendations made, sufficient to enable preparation of a formal scoping document that includes timeframes, objectives and milestones.

Authored by:

Christopher Comber

Chief Financial Officer

Ben Douglas

Forests and Reserves Officer

Ross Franklin

Finance Consultant

Leeanne Hooper

Team Leader Governance

Helen Marsden

Risk & Corporate Compliance Manager

Liana Monteith

Manager People and Capability

Kishan Premadasa

Management Accountant

Approved by:

Chris Dolley

Group Manager Asset Management

Jessica Ellerm

Group Manager Corporate Services

James Palmer

Chief Executive

Attachment/s

1 ⇨	HBRC Forestry Update and Tūtira Mānuka Plantation Update FARS agenda items		Under Separate Cover
2 ⇨	Additional Forestry and Manuka Information		Under Separate Cover

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

16 March 2022

Subject: Financial Report for the Period 1 July - 31 Dec 2021

Reason for Report

1. This item provides the Committee with financial results for the first half of the 2021-2022 financial year.

Executive Summary

2. Operating expenditure for the Groups of Activities for the six months to 31 December 2021 was $31.1m, $5m (14%) below budget. Operating income for the same period was $32.4m, $1m (3%) above budget. This results in an operating surplus of $1.3m for the period compared to a budget deficit of $4.8m. The planned budget deficit was to be funded by borrowing as per the long term plan financial strategy.

3. The operating expenditure underspend includes Asset Management ($1.8m) due to vacancy related delays in flood control, coastal hazards and open spaces, Integrated Catchment Management (ICM) ($1.4m) across environment enhancement and erosion control and Policy & Regulation ($1m) mainly in the Kotahi plan change project.

4. Capital expenditure is $11m (54%) below budget and income is $1m (11%) behind budget. Asset Management is $8.5m behind budget, ICM $1m, (Information Communication Technology (ICT) $1.2m and vehicles and building works are $1m behind budget. The underspends are due to a range of reasons including delays in consents and assessments, supply chain delays and other Covid-19 impacts explained in detail within the report.

5. Staff and overhead cost centres are largely within $300k (2%) budget with overspend offsetting capital budgets. Variance within cost centres is detailed following.

6. Covid-19 has impacted the Regional Council in several ways. There have been additional costs incurred but offset by project delays, world-wide supply chain issues for purchasing vehicles, supplies and equipment, staffing issues due to border closures and a reduced ability to progress engagement with community groups as many in the community are also facing business and personal disruptions through responding to the current environment themselves. Many of these financial impacts offset each other; the most significant impact will likely be the loss of investment income this financial year.

Background

7. All revenue and expenditure accrued (carried forward) at the end of the FY2020-21 financial year has been recognised in the FY2021-22 half year actuals.

8. The depreciation included in the actuals is an estimate and matches the depreciation calculated in the Long-Term Plan. Fixed assets have not yet been transferred to TechOne but we have a mitigating process in place to ensure estimates adequately reflect the additions and disposals during the year.

9. Reserve movements and loan funding have not been included as these are calculated at year end.

10. With the introduction of Enterprise Budgeting in TechOne some of the FY2021-22 budgets are now phased to recognise the seasonality of the expenditure, particularly planting activity. However, we are in the first year and phasing will continue to be improved over future budget iterations to further ensure that phasing variances are minimised.

11. Groups of activities income and expenditure include each activity’s share of overheads, general rates, UAGCs, targeted rates and investment income as per the FY2021-22 budget.

12. The nine month financials presented to the 1 June 2022 Corporate & Strategic Committee will provide full year forecasts, funding impact requirements, proposed carry forwards and rating impacts.

Operating Income and Expenditure

13. Asset Management is $1.8m behind budget operational spend.

13.1. Flood Protection and Control Works is $1m behind budget. Expenditure on all drainage schemes is behind budget with the largest being Napier/Meeanee and Karamu. Some river maintenance activities including budgeted inspections, repair work design and river cross sections have not yet been carried out within the Heretaunga Plains Flood Control Scheme (HPFCS). The Upper Tukituki scheme is also behind budget. These shortfalls are due to a lack of human resources due to vacancies and training new staff.

13.2. Coastal Hazards is $300k below budget but more monitoring and research work is expected in the second half of the financial year.

13.3. Open Spaces is $200k below budget. Tūtira Regional Park is on track while expenditure on other parks is delayed pending co-ordination with external contractors but the work is expected to be completed.

14. Integrated Catchment Management is $1.4m behind budget operational spend.

14.1. Expenditure on water science projects is below budget by $200k due to difficulties securing contractors and limited staff availability driven by scientist vacancies to carry out research and investigations

14.2. Catchment Management is behind budget by $1.2m from a range of projects.

14.2.1. The Tūtira and Whakaki environmental enhancement projects are $450k behind budget with work progressing and expenditure weighted towards the end of the financial year.

14.2.2. The Erosion Control Scheme (ECS) is $340k behind budget which is mostly due to undersubscription to the fund so far this year (approx. $900k uncommitted). New grant contracts being signed up now are more likely to be delivered next FY, meaning the underspend will remain.

14.2.3. The Hill Country Erosion Fund/ECS Booster is behind budget by $450k due to variations in the funding agreement meaning the LTP budget is now outdated. Expenditure in this budget is funded externally, therefore the overall impact will be neutral.

14.2.4. Right Tree Right Place is $100k below budget due to delays driven by project complexity and stakeholder management.

15. Policy and Regulation is $1m below budget operational spend.

15.1. Most of the shortfall in expenditure is in Strategy & Planning ($700k), due to significant delays in the Kotahi project. Covid-19 is impacting the ability to progress iwi engagement, and Governance is still working through partnership arrangements.

15.2. Compliance and Pollution response is $300k below budget due to high staff turnover, delays in recruitment and training replacement staff affecting seven positions.

16. Transport is $600k behind budget operational spend.

16.1. Reduced activity in Road Safety due to Covid-19 restrictions and key staff being unavailable due to illness. Reduced number of Total Mobility trips due to Covid-19. Reduced staff costs due to delays in filling vacant roles and staff being away due to illness.

16.2. Work on the Regional Public Transport Plan was not undertaken in the first half of the year and is planned to be completed in the second half of the year.

17. Emergency Management and Governance & Partnerships are close to budget.

Investment Income

18. Managed Funds returned gains of $4.2m in the six months to 31 December 2021 and the budgeted amount of $1.8m has been allocated to the Groups of Activity as investment income subsidy resulting in an excess of $2.4m. Global events since the start of 2022 have eroded all of these gains and it is possible that the full year managed fund return will not be realised. If this is the case we have sufficient leeway in our treasury requirements to enable this to be covered by borrowing.

19. HBRIC returned $2m in dividends in the six months to 31 December 2021 and the budgeted amount of $5m has been allocated to the Groups of Activity as investment income subsidy resulting in a shortfall of $3.02m. The full year budget dividend revenue of $10m has been split equally during the year with a half yearly budget of $5m. In consultation with HBRC, HBRIC delivered a dividend of $2 million in the first half of the year, while retaining cash received from Port dividends to fund investments that were being considered at the time.

20. HBRIC are expecting to return the full dividend for the year (subject to the Napier Port dividend) and the shortfall in the first half of the year was just a timing difference as a significant new investment was considered.

21. Leasehold rent received net revenue of $772k from the Napier and Wellington leasehold portfolios in the six months to 31 December 2021 and the budgeted amount of $724k has been allocated to the Groups of Activity as investment income subsidy resulting in an excess of $48k.

Overheads

22. Overhead costs overall are in-line with budget, however, within cost centres there is significant variance.

22.1. Activity cost centres hold the staff related costs for teams that work directly on Council ‘activities’. These are $1m behind budget with recruitment and retention issues affecting many cost centres.

22.2. Finance is $230k over budget reflecting the increased staffing levels to support the TechOne implementation.

22.3. ICT operating expenditure is $500k over budget through additional staffing costs. The operational overspend offsets a capital underspend. The additional staff have been brought on as employees, as opposed to contractors, because this is the preferred way to secure the skillsets required to deliver the IT capital programme. These costs have been on-charged to the ICT capital expenditure projects reducing contractor expense. Staffing costs in both Finance and ICT require further review within the full year accounts to ensure that they are capitalised appropriately. This is complicated by technical decisions still to be resolved around what Software as a Service (SaaS) costs can be amortised over the life of systems rather than expensed directly. The operating overspends are offset by underspends on capital projects.

22.4. People and Capability (P&C) is above budget due to additional consultancy costs to support the Covid-19 vaccination policy, high take up of workplace support services, and increased health and safety training.

22.5. Strategy and Governance is below budget following delays recruiting the climate change ambassador and reduced costs for the Annual Plan due to the no consultation approach.

22.6. Maori Partnerships (Iwi) is below budget due to vacant positions in the first half of the financial year.

Capital Income and Expenditure

23. Capital expenditure is $11.8m below budget.

24. Asset Management expenditure is $8.5m behind budget.

24.1. Flood protection and control works is $5.8m behind budget.

24.1.1. Infrastructure Reference Group (IRG) expenditure is delayed. Significant commitments relating to the Taradale stopbank reconstruction will be payable in the second half of the financial year and the LTP split years 2 and 3 of the Level of Service and Gravel Extraction projects equally, but year 3 expenditure will be materially higher.

24.1.2. Budgeted expenditure of $150k on the Karamu Enhancement Scheme and Mary Doyle walking track will start in the second half of the year.

24.1.3. Consent for the Clive River dredging has been notified and requires a hearing, leading to further delays in commencing work and a shortfall in expenditure of $550k.

24.1.4. Other work costing $550k is delayed including the Plantation pump station upgrade (not started due to design delays with the subcontractor), replacement of the Karamu stream and other smaller scheme drainage assets have not started and may not be required.

24.2. Open Spaces is below budget by $400k with Hawea Park development, Waitangi Park stage 3 and Pekapeka improvements all behind schedule. The Waipatiki Park playground was completed under budget.

24.3. Regional Water Security is behind budget by $2.5m.

24.3.1. CHB Water Security is $875k behind budget. The project team is currently awaiting completion of the Cultural Impact Assessment following a series of engagements with mana whenua groups and kaumatua in October-December 2021. This process of engagement was initiated in September 2020 but has been impacted by delays due to Covid-19 and general capacity.

24.3.2. Te Tua Water Security is $350k behind budget, with no progress this year.

24.3.3. The overall project has not begun to spend the $2.8m carried forward from the previous year ($1.4m to 31 December 2021).

24.4. Income is reduced reflecting the shortfall in expenditure on the IRG projects as funding is received in line with expenditure.

25. Integrated Catchment Management expenditure is $900k below budget

25.1. The largest single shortfall ($400k) is in the 3D Aquifer Mapping project. GNS staff resourcing has been impacted significantly by Covid-19 as they typically recruit internationally, but have also been losing more international staff returning home.

25.2. The technical equipment replacement project is behind schedule due to the supply chain issues ($227k). No risk to critical functions yet, just a slower pace of replacements.

25.3. Right Tree Right Place is behind budget by $250k. Commercial and legal advice is still being progressed on farm planting plans before the pilot farm work begins, and planting will likely now be spread across multiple years to reduce the plant survival risk.

26. ICT expenditure is $1.2m down on budget.

26.1. Projects are $1m behind budget with the delays driven by recruitment challenges, organisational readiness and business disruption from Covid-19. Estimates for full year expenditure are $2.2m resulting in a full year shortfall of $2m. Some of this is offset by overspends on operating expenditure as discussed earlier.

27. Vehicles/Buildings/Furniture expenditure is behind budget by $1.1m.

27.1. Expenditure on new and replacement vehicles is $300k behind budget due to delays in the vehicle supply chain.

27.2. The accommodation refurbishments are experiencing delays due to the supply of contractors and workers.

27.3. The Raffles Street building refurbishment ($500k) is on hold following the structural report concluding that the building was earthquake prone.

27.4. Work on upgrading the Radio Telephone network and equipment has not started but the contract has just been signed so work is expected this year.

Covid-19 Impact

28. Covid-19 has impacted the Council in several ways: increasing unit costs, supply chain and recruitment issues, volatility in inflation and investment returns and the direct impact on our teams through uncertainty and changing working conditions. Although some costs have increased, there have also been reductions in expenditure where projects have been delayed, technical expertise has not been available or appropriate engagement has not been able to take place. It is very difficult to quantify specific impacts related to Covid-19, especially with the other global factors now present.

29. As an organisation we have invested in our people by ensuring that business-critical people have a basic home office setup and making available a $400 working from home allowance to all staff. P&C has incurred additional costs through workplace support, Covid-19 vaccination policy, and health and safety.

30. We will continue to operate in a high inflation environment with a challenging, competitive and constrained labour market. Delivering a large scale capital works programme relies on a technically skilled workforce so staff retention and recruitment is paramount to deliver outcomes.

31. Some more specific Covid-19 related impacts across the Council include:

31.1. Emergency Management has incurred delays to some projects due to their continued work on the Covid-19 response.

31.2. Transport has had to reduce the number of road safety events run and Total Mobility claims are down.

31.3. Purchasing of vehicles and science equipment has been delayed due to the world-wide supply chain issues from the pandemic leading to long delivery times and non-availability.

31.4. The Kotahi project under Policy and Regulation has incurred the most delays from Covid-19 where contracts for only one region have been set up to support iwi engagement. This has not progressed due to the reduced ability to progress engagement with mana whenua groups.

31.5. The CHB Water Security project has been impacted with Covid-19 delaying the engagements with mana whenua groups and kaumatua as part of the cultural impact assessment.

31.6. The weir being built at Whakaki as part of the Enviro Enhancements project has been impacted by cost of materials and supply shortages.

31.7. The sub-contractor for the 3D aquifer mapping project has been impacted by staffing issues due to the border closures and inability to recruit and retain international specialists.

Decision Making Process

32. 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 Financial Report for the Period 1 July - 31 December 2021.

Authored by:

Tim Chaplin

Senior Group Accountant

Christopher Comber

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

16 March 2022

Subject: Organisational Performance Report for the Period 1 October - 31 December 2021

Reason for Report

1. This item provides the Organisational Performance Report for the second quarter of the 2021-2022 financial year which is the period 1 October to 31 December 2021.

Content of the Report

2. The attached report contains three parts, and an Executive Summary with highlights and lowlights for the quarter.

2.1. Corporate Service Metrics 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.

2.2. Level of Service Measures by group of activities with adopted targets, traffic light status and commentary by exception (measures flagged amber and red only).

2.3. Activity Reporting by group of activities with non-financial traffic light status and commentary.

3. This is the thirteenth Organisational Performance Report to be presented. As with the last quarter, the status and commentary reporting has been rolled up from ‘cost centre’ to activity level. Commentary by cost centre is still available to committee members via the dashboard.

4. As with the previous report, this quarter does not include financial information due to the implementation of the new financial system. Financial information by activity for the half year is included on the agenda in a separate report.

5. Staff complete their reporting in a software tool called Opal3. For level of service measures and activity reporting, staff select the status (red, amber, green) of non-financial results and provide commentary on what they did in the quarter.

Carbon footprint

6. Commentary on carbon credits and HBRC’s carbon portfolio is included.

7. Since quarter one 2021-22, electricity use at Guppy Road, Wairoa and Raffles Street offices has been included in the report in addition to the main office at Dalton Street.

8. From this quarter, fuel use by all HBRC vehicles, including Works Group equipment/plant, is included.

Activity reporting

9. Level of service measures from the Long Term Plan 2021-2031 are reported. There are 40 measures that are green, 9 amber, 1 red and 8 not measured/recorded.

10. Activities from the Long Term Plan 2021-2031 are also reported. There are 19 activities that are green and 3 that are amber.

Dashboard

11. The dashboard is produced using PowerBI to give a visual representation of the results over time. The Organisational Performance Report document is produced from the dashboard.

12. The dashboard also provides committee members with the ability to delve deeper into activities of interest (via cost centres) and all level of service measures results (not just by exception).

13. Annual community outcome results (which are the same as the 24 strategic goals from the Strategic Plan 2020-2025) are reported on at the end of the financial year only.

14. To access the dashboard, please open your PowerBI app on your iPad. The dashboard will be on your homepage.

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

Future developments

16. The Strategy and Performance team will be working with the Risk and Corporate Compliance team to incorporate risk monitoring and corrective actions by determining tolerance levels (particularly across our Corporate Metrics). These will then be incorporated into future reporting.

17. Financial reporting will be re-introduced to the report as soon as we are able.

18. Further improvements, particularly around the Corporate Metrics, will be incorporated when data can be tested and reported with confidence to provide additional information.

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 Organisational Performance Report for the Period 1 October - 31 December 2021.

Authored by:

Kelly Burkett

Business Analyst

Sarah Bell

Team Leader Strategy & Performance

Approved by:

Desiree Cull

Strategy & Governance Manager

Attachment/s

1 ⇩

Q2 October - December 2021 Organisation Performance Report

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

16 March 2022

Subject: Corporate Plan Implementation

Reason for Report

1. This item provides the Committee with an update on progress implementing the 2021-2024 Corporate Plan, with specific focus on the IT capital work programme delivery. Also included are an overview of the Finance System Implementation Project, which has now completed, and context for next steps of the TechnologyOne system integration.

Background

2. The 2021-2024 LTP was supported by the creation of the first Corporate Plan, recognising a need to better manage and assist the coordination of the many competing priorities and change initiatives of the corporate, people management and governance functions of Council.

3. Consolidating rapid growth over the past five years, and some urgency to move toward a more mature operating model to reduce risk in corporate frameworks, while balancing the pace and cost of change for our people and our community, continues to be an ongoing challenge.

4. The Corporate Plan comprises:

4.1. Corporate Support

4.2. Finance and Procurement

4.3. Governance and Strategy

4.4. Information and Communication Technology (ICT)

4.5. Marketing and Communications

4.6. People and Capability

4.7. Risk and Assurance.

Update

5. Despite the first 9 months of the current LTP period being a disruptive and challenging time to deliver change, and significant focus and resource being directed toward the Finance System Implementation project, many of the Y1 initiatives are well under way, as highlighted in Attachment 1 Initiatives that help deliver our strategy.

6. As we progress, we are having to work against many factors, specifically external, such as a restricted labour market, continual business disruptions, and supply chain uncertainties. The plan has evolved in response to those challenges and we are learning as we go and we are still making good progress.

7. Staff will be present at the 16 March meeting to discuss the highlighted initiatives and some of the challenges and success in more detail with the Committee. A separate public excluded item on the 16 March agenda discusses the People and Capability Strategy and specifically the plan to address challenges in mentioned within this report relating to retention and recruitment.

8. Some key areas of progress are highlighted as follows.

Customer Experience

9. Great progress has been made in customer experience (CX) with the creation of a Contact Centre. Supporting a customer focus and a significant shift in business maturity in this space is providing a more structured approach to how we interact with the community.

10. New systems, Zendesk and PureCloud, are high quality tools that are working well, and the CX team is growing their confidence in their new way of working every day. An ability to measure and monitor data provides valuable information to the organisation about the type of enquiries we receive and will proactively drive improvements in customer satisfaction levels.

11. The team is now the first point of contact and resolution of all general enquiries, rates enquiries, transport enquiries and sustainable homes enquiries. This new model has taken some time to embed, but has largely been a very smooth transition - a well-delivered project which combines technical solutions with strong people, process and change aspects combined.

12. This project has created a strong foundation for the CX team and the rest of HBRC to build on. It was delivered $150k under budget (from a total $400k budget) and has provided the tools to deliver on its objectives to:

12.1. improve the quality and consistency of service for customers

12.2. improve HBRC CX team operational efficiency

12.3. reduce impact of customer contact on non-CX HBRC staff

12.4. build business continuity for our customer service function to be managed remotely when required, e.g. COVID disruptions or emergency events

12.5. aim for customer excellence by bringing visibility to the quality of service offered to the community

12.6. use data to drive improvements.

ICT

13. Significant capital investment was committed to deliver a revised and comprehensive technology approach that strives to get the right information to the right people at the right time – a key aspect of the Corporate Plan.

14. Year 1 aimed to deliver an implementation plan for the $30m IT capital work programme. The plan includes:

14.1. project portfolios

14.2. technology architecture

14.3. project delivery and resourcing plans, and

14.4. further detailed project scoping.

Update

15. Project portfolios, technology architecture and project delivery plans are all ahead of schedule. Resource plans are also on track. Scoping is the most challenging area, due to the shortage of business analysis capacity, however we are mitigating this via active recruitment and by building internal capabilities.

16. The headwinds and future risks that we are planning for include a highly competitive talent market, data quality issues, organisational change readiness and technical complexity (from ‘dis’-integrated architecture and ‘dis’-aggregated infrastructure).

17. Chief Information Officer (CIO), Andrew Siddles, will be in attendance on 16 March to discuss how the IT capital work programme and the project prioritisation timeline (Attachment 2) continue to shift and flex in response to the changing landscape we operate within.

18. A key strategic project within the IT capital work programme that has been completed within the current financial year is the delivery of TechologyOne, the new integrated Financial Management Information System - the project referred to internally as FUSE. This was a transformational project that touched the entire organisation and was challenging due to:

18.1. a tight timeframe

18.2. challenges recruiting technical resources

18.3. unprecedented turnover

18.4. a global pandemic

18.5. delivering a big change project of this kind for the first time at HBRC.

19. An overview of the project is provided as follows.

FUSE - What did we do?

20. The project was started in 2018 with a series of workshops to understand requirements and a subsequent solution evaluation through Government Electronic Tender Service.

21. The TechnologyOne solution was identified as the preferred system due to the fact it was a full Enterprise Resource Planning System (ERP) designed for councils which had the ability to meet current financial system requirements, as well as being able to expand into future areas such as a Human Resource Information System (HRIS) and Asset Management system. The Tenders Committee accepted the proposal to proceed with TechnologyOne OneCouncil solution on 27 May 2020.

22. The implementation project commenced in July 2020 with a view to having all initial modules and functionality implemented by 1 July 2021 to align with the Long Term Plan financial year timeframes.

23. Enterprise Budgeting was implemented first in October 2020 to enable development of the LTP budgets within the new software, which would prepare the solution for implementation of other financial processes at the start of the 2021-2022 financial year.

Why did we do it?

24. The previous finance systems were overdue for replacement, were unsupported, and presented Council with significant risks that could have led to data corruption, security compromise, system instability or unavailability.

25. Many of the financial processes were also highly dependent on manual data entry, with significant effort within the Finance team spent checking and double-checking data in paper reports to ensure errors were not made. Data had to be retrieved from a network of different solutions and manually compiled to generate the budget and reporting outputs that underpinned critical decision making.

What were the challenges?

26. The project consistently operated with a shortage of suitably skilled resources in both IT and Finance. This amplified the difficulty of delivering a highly ambitious project scope in a compressed timeframe.

27. Now that the solution is implemented, the bulk of the challenges are not with the solution itself, but with the process changes it has introduced and employee capacity, ability and desire to adapt to them. Change of this type is always hard, and this is a transformational project impacting almost every Council employee at one level or another.

28. Our Finance team is impacted the most, as they are tasked with understanding new ways of working in almost all aspects of their role while concurrently coping with loss of capacity and knowledge caused by staff turnover and multiple vacancies. Vacancies included the Chief Financial Officer (CFO) role, which created gaps in understanding the rationale of configuration decisions and delayed decision leadership to drive and embed process change.

What did we do to address the challenges?

29. As each of the challenges arose, we adapted to address them. We focused on building more capacity in the key roles of CFO and CIO while we embedded the significant process and technology changes being introduced.

30. The Group Manager Corporate Services stepped into the CFO role to provide leadership and direction for the Finance team while we negotiated the project transition phase. This also enabled the previous acting CFO to increase Finance team capacity to address and understand processes and any issues that arose.

31. Technical support arrangements with our suppliers are also being refined to help us through the peak transition workload.

Budget

32. A budget of $2M was allowed over the 2030-2021 and 2021-2022 financial years. This budget was exceeded by $400K (<20% overspent), with the overspend being largely attributable to understated internal labour costs and underestimated project resource requirements. This has served to enable improved budgeting for future projects with a clearer understanding of actual costs.

33. One key learning from this project is that greater contingency is required, given the uncertainties with current labour markets when planning for these types of projects. We had to be creative and recruit additional resources in order to mix and match the skillset requirements.

Our Current Status

34. We are exactly where we would expect to be at this stage of a major system implementation. We have implemented a solution that is working as it was designed, and are now focused on embedding the significant business process changes that it has introduced.

35. The rapid pace of our implementation has left us with some technical work that still needs to be done, but we have managed to retain critical technical staff to address this. Their focus is currently on assisting their colleagues with understanding processes and resolving any issues that occur. Soon we will shift our focus to optimising the deployment and improving the processes implemented.

36. We now have a modern integrated financial solution that replaces numerous legacy systems, and that provides a solid platform for future enhancement and extended functionality.

37. The project delivered functionality to the required deadline of 1 July 2021 which enables users to create budgets, record timesheets, manage leave, create and approve purchase orders, as well as manage accounts payable and accounts receivable processes.

38. The FUSE project is the first step in the deployment of a full ERP solution for HBRC. Subsequent stages and projects are now being planned. These include a project to review and extend already deployed functionality including Contract Management and Reporting, as well as projects to implement Property & Rating, Human Resources and Asset Management as originally intended. A presentation of the integration roadmap will be made at the 16 March meeting.

Revenue and Financing Policy Review

39. This project was planned to start in Year 1 of the Corporate Plan but, due to the redeployment of the resource earmarked to work on this project as acting CFO and the implementation of the new finance system, it is only now gaining momentum.

40. The first principles review of our Revenue and Financing Policy will be undertaken over the next 18 months via a series of council workshops to decide the funding mix of each rate. The aim of the review is to improve transparency and fairness for who pays what, ensure legal compliance and simplify the policy thereby providing more flexibility in application without the need to consult. Consultation is planned to take place towards the end of 2023 prior to the next Long Term Plan when the amount rated may change. Separating the two processes is important as it enables us to distinguish between the impact on a ratepayer from the policy change versus a level of service or cost change.

41. It is proposed that one of the first rates to be reviewed is the Upper Tukituki Flood Control Scheme. This was promised to scheme ratepayers as part of the consultation topic in the 2021-2031 Long Term Plan to leverage central government funding to accelerate the removal of gravel from the scheme. The review will look at the differential categories for the Tukituki flood protection scheme with the goal to spread the costs more appropriately across urban and rural beneficiaries.

Decision Making Process

42. 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 Corporate Plan Implementation staff report.

Authored by:

Desiree Cull

Strategy & Governance Manager

Tim Price-Walker

Organisational Change Manager

Stacey Rakiraki

Corporate Operations Manager

Andrew Siddles

Chief Information Officer

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

1 ⇩	Initiatives that help deliver our strategy
2 ⇩	HBRC Pathway to a Full ERP

Topic	Raised by