Agenda of Finance and Performance Committee


Membership:	10
Meeting Cycle:	Meets on a six weekly basis, as required or at the requisition of the Chair
Quorum:	Half of the members
Reports to:	Council

HUTT CITY COUNCIL

Finance and Performance Committee

Meeting to be held in the Council Chambers,

2nd Floor, 30 Laings Road, Lower Hutt on

Wednesday 3 May 2017 commencing at 5.30pm.

ORDER PAPER

Public Business

1. APOLOGIES

2. PUBLIC COMMENT

Generally up to 30 minutes is set aside for public comment (three minutes per speaker on items appearing on the agenda). Speakers may be asked questions on the matters they raise.

3. CONFLICT OF INTEREST DECLARATIONS

4. Recommendations to Council - 23 May 2017

a) Urban Plus Limited - Amendment to Constitution (17/667)

Report No. FPC2017/2/122 by the Portfolio Manager, Urban Plus 4

Chair’s Recommendation:

“That the recommendations contained in the report be endorsed.”

b) Appointment of Trustees to Hutt City Community Facilities Trust (17/549)

Report No. FPC2017/2/103 by the General Manager Community Services 26

Chair’s Recommendation:

“That the recommendations contained in the report be endorsed.”

c) Response to Fraser Park Business Case (17/603)

Report No. FPC2017/2/121 by the General Manager Community Services 34

Chair’s Recommendation:

“That recommendations (i) and (ii) contained in the report be endorsed, and recommendation (iii) be amended as follows:

(iii) agrees that a condition of annual funding will be, that FPS formally report to Council on a six monthly basis within its annual report and in particular progress against the Business Case.”

5. Finance Update (17/602)

Report No. FPC2017/2/104 by the Chief Financial Officer 109

Chair’s Recommendation:

“That the report be noted.”

6. Information Item

Finance and Performance Work Programme 2017 (17/625)

Report No. FPC2017/2/69 by the Committee Advisor 144

Chair’s Recommendation:

“That the report be noted.”

7. QUESTIONS

With reference to section 32 of Standing Orders, before putting a question a member shall endeavour to obtain the information. Questions shall be concise and in writing and handed to the Chair prior to the commencement of the meeting.

8. EXCLUSION OF THE PUBLIC

CHAIR'S RECOMMENDATION:

“That the public be excluded from the following parts of the proceedings of this meeting, namely:

9. Response to Hutt City Community Facilities Trust Funding Proposal (17/605)

The general subject of each matter to be considered while the public is excluded, the reason for passing this resolution in relation to each matter, and the specific grounds under section 48(1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution are as follows:

(A)	(B)	(C)

General subject of the matter to be considered.	Reason for passing this resolution in relation to each matter.	Ground under section 48(1) for the passing of this resolution.


Response to Hutt City Community Facilities Trust Funding Proposal.	The withholding of the information is necessary to enable the local authority to carry out, without prejudice or disadvantage, commercial activities (s7(2)(h)).	That the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding exist.

This resolution is made in reliance on section 48(1) of the Local Government Official Information and Meetings Act 1987 and the particular interest or interests protected by section 6 or 7 of that Act which would be prejudiced by the holding of the whole or the relevant part of the proceedings of the meeting in public are as specified in Column (B) above.”

CHAIR’S RECOMMENDATION:

“That Mr Alister Skene and Mr Peter Healy, of Hutt City Community Facilities Trust, be permitted to remain after the public during consideration of item 9 -“Response to Hutt City Community Facilities Trust Funding Proposal” as they have knowledge of the matter to be discussed that will assist the Committee in relation to this item.”

Annie Doornebosch

COMMITTEE ADVISOR SECRETARIAT SERVICES

4 03 May 2017

Finance and Performance Committee

12 April 2017

File: (17/667)

Report no: FPC2017/2/122

Urban Plus Limited - Amendment to Constitution

Purpose of Report

1. The purpose of this report is to seek Council approval to amend the Constitution of Urban Plus Limited (UPL), to enable its Directors to provide indemnity to Directors and employees of its current and any future subsidiary companies relating to potential liabilities arising from the performance of their duties as directors.

Recommendations

That the Committee recommends that Council:

(i) approves the amendment to the UPL Constitution attached as Appendix 3 to the report, regarding the ability for Urban Plus Limited (UPL) Directors to provide indemnity to Directors and employees of its current and future subsidiary companies; and

(ii) notes that a Deed of Indemnity will also have to be entered into as part of this proposal; and

(iii) notes that the purpose is to provide indemnification to previous (retired), current and future Directors and employees of UPL subsidiary companies.

Background

2. With the approval from Hutt City Council’s Chief Executive, UPL has created a subsidiary company Fairfield Waters Limited (FWL) via a Limited Partnership structure - Fairfield Limited Partnership (FLP). The purpose of this structure is to manage a residential housing development in Fairfield.

3. External legal and tax advice was sought from Price Waterhouse Coopers (PWC) prior to setting up the limited partnership structure, as well as to prepare and execute the appropriate documentation with the Companies Office.

4. The external (PWC) legal advice was also peer reviewed by Greenwood Roche.

5. At the March 2017 Board Meeting, the UPL Chairman queried whether UPL Directors had sufficient authority within the UPL Constitution to provide indemnity to the Directors and employees of its subsidiary company FWL.

6. As a result of 5. above, the UPL Chairman also requested that enquiries be made to ascertain whether the indemnification covers previous (retired), current and future directors and employees of these subsidiaries. If it did not, then this should also be incorporated into the amendment actions.

7. A subsequent review of UPL’s Constitution by Greenwood Roche has indicated that the current Indemnity and Insurance clause is considered insufficient (‘does not contain a broad enough power’) for this purpose as the current Constitution does not expressly authorise this action, and that an amendment would enable the indemnification issue to be resolved.

8. Further, as per the Greenwood Roche advice, should the Indemnity and Insurance clause of UPL’s Constitution be amended accordingly, a deed of indemnity could then be entered into for the current and future subsidiaries.

Discussion

9. The advice from Greenwood Roche outlines the issue and suggests that an amendment be made to enable wider indemnity coverage for current and future subsidiary companies of UPL – attached as Appendix 1 to the report.

10. The current UPL Constitution is attached as Appendix 2 to the report. Note UPL was originally known as De Luien Developments Limited.

11. Attached as Appendix 3 to the report is the proposed wording to be inserted into the UPL Constitution.

Options

12. There are two options open to Council: that is to either agree to amend UPL’s Constitution or not. Council could ask for more information before making this decision.

Consultation

13. UPL officers have sought external legal advice including peer review assessments on several occasions (PwC and Greenwood Roche), in the creation and setting up of the subsidiary company structure, as well as seeking in-house (Council) legal review prior to HCC approval to create FWL. The request to amend the Constitution will not be publicly advertised or notified.

Legal Considerations

14. External legal advisors Greenwood Roche have provided advice (refer Appendix 1 attached), which considers Section 162 of the Companies Act 1993 and other relevant legal aspects.

Financial Considerations

15. No financial implications are anticipated.

Other Considerations

16. In making this recommendation, officers have sought external legal advice which has given careful consideration to the Companies Act 1993 – specifically section 162. Officers believe that these recommendations support the intent of these subsidiary companies, as well as provide prudent company management powers to its Directors.

Appendices

No.	Title	Page
1 ⇩	Greenwood Roche Memorandum re Indemnification of Directors	7
2 ⇩	UrbanPlus Limited (previously De Luien Developments Limited) Constitution	12
3 ⇩	UrbanPlus Limited Constitution - proposed amendment re Indemnity and Insurance Clause	24

Author: Daniel Moriarty

Portfolio Manager, Urban Plus

Reviewed By: Brent Kibblewhite

Chief Financial Officer

Reviewed By: Joycelyn Raffills

General Manager, Governance and Regulatory

Approved By: Craig Walton

Chief Executive, Urban Plus

26 03 May 2017

Finance and Performance Committee

27 March 2017

File: (17/549)

Report no: FPC2017/2/103

Appointment of Trustees to Hutt City Community Facilities Trust

Purpose of Report

1. This report seeks Council’s approval to establish a selection panel to identify, assess and recommend to Council up to three independent Trustees to be appointed to the Hutt City Community Facilities Trust (CFT).

Recommendation

That the Committee recommends that Council:

(i) approves the appointment of a selection panel consisting of the General Manager Community Services, outgoing CFT Chair (subject to his agreement) and a Councillor to identify, assess and approach potential candidates for the position of up to three independent Trustees on the Hutt City Community Facilities Trust (CFT), in accordance with the Council’s policy for the Appointment of Directors; and

(ii) approves this process for future appointments to the board of the CFT; and

(iii) delegates to the selection panel the power to negotiate and decide an amount to be paid as an honorarium for the new Chair up to the existing remuneration level.

Background

2. Council established the CFT as a Council Controlled Organisation (CCO) in 2012.

3. The CFT will own and administer leisure and community facilities in Hutt City, redevelop facilities in future in line with the integrated facilities model and Integrated Facilities Plan, and help raise funds for the redevelopments. The CFT is administered by a Trust Board made up of between three and seven trustees (one of whom is a Councillors representative).

4. Current Trustees are Alister Skene (Chair), Andy Leslie, David Butler, Kirsten Patterson, Max Flowers and Cr Margaret Cousins.

Discussion

5. Sumati Govind resigned as a Trustee in October 2016. At its October Board meeting the CFT agreed to advise Council of the resignation but leave the matter of a replacement Trustee to be considered in the new year.

6. At the CFT meeting on 20 March 2017 the Trust discussed the resignation of the Chair, Alister Skene (with effect from 30 June 2017) and the term of another Trustee, Max Flowers, which is due to expire on 13 August 2017. In addition, another Trustee, Andy Leslie, has recently resigned, with effect from 30 June 2017.

7. Council’s policy on appointing trustees for CCOs is the same as the policy for the appointment of Directors. This policy follows best practice for governance appointments. This process involves appointing a selection panel which will undertake a selection process. A copy of the policy is attached as Appendix 1 to the report.

8. It is suggested that the panel be made up of the General Manager Community Services, the outgoing Chair (if he agrees) and a Councillor representative.

Consultation

9. No consultation has been carried out in the drafting this report.

Policy Considerations

10. The Hutt City Community Facilities Trust Deed of Trust provides that:

“9.2 Trustee Appointment and Removal: Subject to clause 9.1, the Council has the power at any time:

9.2.1 Appointment: to appoint an additional Trustee or Trustees;

9.2.2 Reappointment: to reappoint any retiring or retired Trustee as a Trustee; and

9.2.3 Removal: to remove a person from office as a Trustee;

and such appointment, reappointment or removal must be notified in writing by the Council to the Trustees.”

Other Considerations

11. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of the local government in that it supports the CFT which is providing community services. It does this in a way that is cost-effective because it is going through an internal process involving no additional costs.

Appendices

No.	Title	Page
1 ⇩	Hutt City Council - Appointment and Remuneration of Directors Policy August 2013	29

Author: Matt Reid

General Manager Community Services

Approved By: Joycelyn Raffills

General Manager, Governance and Regulatory

Attachment 1

Hutt City Council - Appointment and Remuneration of Directors Policy August 2013

APPOINTMENT AND REMUNERATION OF DIRECTORS POLICY

Division	General Manager, Governance and Regulatory
Date created	August 2008
Publication date	August 2008
Review period	August 2015
Owner	General Manager, Governance and Regulatory
Approved by	General Manager, Governance and Regulatory

Version	Author	Date	Description
V 1.0	Joycelyn Foo	25/8/2008	Approved by Council
V 2.0	Joycelyn Foo	22/8/2013	Reviewed

Contents

1. Section 57 of the Local Government Act 2002 provides: 3

2. Appointment of Directors. 3

3. Process for making appointments. 3

3.1 Preparation of a person specification. 3

3.2 Advertising the position. 4

3.3 Assessment of candidates. 4

3.4 Exceptions. 4

4. Tenure and Reappointment 5

5. Conflicts of interest 5

6. Remuneration of directors. 5

7. Terms. 6

1.Section 57 of the Local Government Act 2002 provides:

(1) A local authority must adopt a policy that sets out an objective and transparent process for---

(a) the identification and consideration of the skills, knowledge, and experience required of directors of a council organisation; and

(b) the appointment of directors to a council organisation; and

(c) the remuneration of directors of a council organisation.

(2) A local authority may appoint a person to be a director of a council organisation only if the person has, in the opinion of the local authority, the skills, knowledge, or experience to---

(a) guide the organisation, given the nature and scope of its activities; and

(b) contribute to the achievement of the objectives of the organisation.

Note: The term Director includes Trustee or Manager of a Council Organisation as per section 6 of the Local Government Act 2002.

2. Appointment of Directors

The Council is empowered to make appointments to a wide range of organisations.

In all cases the decision as to the appointment will be made at a full Council meeting.

In each case, the Council will appoint a person who the Council considers to show the following:

§ The skills, knowledge and experience needed to undertake the relevant role;

§ Sound judgement.

§ A high standard of personal integrity.

§ An understanding of the governance requirements for the type of organisation concerned.

§ The ability to work as part of a team.

3. Process for making appointments

Identifying skills, knowledge, and experience required of directors

In each case, the selection and assessment process will involve the following:

3.1 Preparation of a person specification

In each case a person specification will be prepared setting out the skills, knowledge, and experience required of a director/s. In preparing this person specification consideration will be given to the following:

§ The nature and scope of the council organisation, its future direction and requirements in its constitutional documents.

§ The objectives of the organisation and the attributes, skills, knowledge, and experience required to contribute to the achievement of those objectives.

§ The skills of any existing directors.

§ Outstanding skills, knowledge, and experience required.

§ Any future skills, knowledge, and experience required.

3.2 Advertising the position

In most cases, the position will be advertised (at least in the local newspaper) and any potential candidates known to Council may be approached and asked if they would consider applying for the position.

3.3 Assessment of candidates

The assessment process will be as follows:

§ All applications will be assessed by a selection panel comprising an elected member, senior officer/s and if appropriate relevant external people and HR expertise (the panel). The panel will consider all applications received, shortlist, interview and prepare a report on the candidates for Council’s consideration. The panel may make a recommendation if it wishes to do so.

§ The final appointment/s will be made in committee (thus protecting the privacy of natural persons) by resolution of the full Council. Public announcement of the appointment will be made as soon as practicable after the Council has made its decision.

§ If an elected member is under consideration to fill a particular vacancy, that elected member cannot take part in the discussion or vote on their appointment or on any other proposed appointees being considered for the same Board at the same meeting.

3.4 Exceptions

Elected member appointments

In the case where Council is considering the appointment of an elected member to a council organisation, there will be no need to advertise the position. This is because the potential pool of applicants for the position will be limited to elected members only. It will remain necessary for the assessment process to be followed in relation to the potential elected member candidates.

Existing pool of potential candidates

There may also be cases where, because of a recent appointment process, Council has a number of potential applicants for a position who have already submitted applications and who have agreed that their personal details could be used for consideration for future appointments. In such a case, the panel may elect not to advertise the position and may recommend to Council a potential appointee from this group of potential applicants. In such a case, the panel will include in its report to Council, for Council’s consideration, an explanation of the reasons that the advertising process was not followed. Where Council makes an appointment without advertising the position, Council will record that fact and the reasons for not advertising the position in the minutes of the relevant meeting.

Other situations where advertising not required

There may also be other situations where it is considered appropriate not to follow a full public advertising process in selecting potential applicants for appointment to Council organisations. In all cases where the decision is made not to advertise the vacancy publicly, the panel must include in its report to the Council the reasons that a public advertising process was not followed. Where Council makes an appointment without advertising the position, Council will record that fact and the reasons for not advertising the position in the minutes of the relevant meeting.

4. Tenure and Reappointment

All appointments will specify the term of the appointment. Council may decide that, to prevent unwanted vacancies occurring during an election period, an appointment will be specified to extend beyond the end of a local government triennium. In such a case, it is prudent to specify that the appointment will last until the first ordinary meeting of the new triennium.

Where an elected member is appointed to a Board because one of the conditions is that the director be an elected member, the term of the appointment will cease on the same date the elected member ceases to be an elected member, if that date is prior to the expiry date of the term of the appointment.

In relation to a Council Controlled Organisation, directors may be reappointed to a Board for a second term and, where there is a compelling reason, a director may be appointed for further periods. Second and third terms are not automatic, and the Council will make its decision based on the company’s business needs, the availability of candidates for the role (including the incumbent), the incumbent’s performance and the make-up of the Board.

If a reappointment is made without having first completed the process outlined above, Council will record in the minutes of the meeting at which the appointment is made the reasons for not having followed that process.

5. Conflicts of interest

Hutt City Council expects that directors of council organisations will avoid situations where their actions could give rise to a conflict of interest. To minimise situations of conflict arising:

The council requires directors to be guided by the Institute of Directors in New Zealand’s Ethics (2003/1) and Conflicts of Interest (1996/3): Statements of Best Practice for New Zealand Directors.

Unless otherwise stated in the organisation’s constitutional documents, all directors are appointed at the pleasure of Council and may be dismissed for disregarding those guidelines.

6. Remuneration of directors

The remuneration of directors of a council organisation will be determined by the nature of the business of the organisation and the financial situation of the organisation.

Where Council is the sole shareholder in a particular organisation the Council will set the directors’ remuneration either by resolution at the annual general meeting or resolution of Council. The resolution will state whether the remuneration is set as a fixed cap for Board remuneration, to be allocated by the Board, or specifying the salaries to be paid for directors and the Chairperson.

Remuneration for directors of council-controlled organisations will be determined by an analysis of market rates for comparable positions at the commencement of every triennium.^{^[1]}

Remuneration for directors of other council organisations (if any) will be determined on a case by case basis taking into account the form and purpose of the organisation and any previous level of fees paid by the shareholder.

7. Terms

The terms used in this policy have the meaning set out in section 6 of the Local Government Act 2002.

34 03 May 2017

Finance and Performance Committee

05 April 2017

File: (17/603)

Report no: FPC2017/2/121

Response to Fraser Park Business Case

Purpose of Report

1. To provide the commentary, feedback and a recommendation to Council regarding the Business Case presented by Fraser Park Sportsville (FPS).

Recommendations

That the Committee recommends that Council:-

(i) recommends to the Community Plan Committee, subject to Council approval, an operating grant to Fraser Park Sportsville (FPS) of:

a) $150,000 for the first full year of operation;

b) $125,000 for the second year; and

c) $100,000 for every year thereafter; and

(ii) agrees for this operating grant to be reviewed after three years of FPS operating; and

(iii) agrees that a condition of annual funding will be, that FPS formally report to Council on an annual basis its annual report and in particular progress against the Business Case.

Report Headlines

2. Fraser Park Sportsville (FPS) has submitted a business case to Hutt City Council as a requirement of obtaining a capital funding contribution. A copy of the business case is attached as Appendix 1 to the report.

3. The business case presented is professional and to a high standard. Information presented is supported by detailed data, analysis and research.

4. Council’s Long Term Integrated Communities Facilities Plan identifies Fraser Park as its major sport and recreation hub – offering significant economic and social development opportunities.

5. Officers conclude the FPS business case financial projections, whilst presenting some challenges, are ultimately achievable.

6. Officers support an annual Council financial contribution towards operating costs – most specifically as a contribution towards increasing community participation and running large regional, national and/or international events.

7. When fully operational FPS will provide Hutt City with a sport and recreational hub of regional and national importance, that will generate significant social and economic benefits, and advance Hutt City as a great place to live, work and play.

Background

8. Council has been proactively working with the Hutt City Community Facilities Trust (CFT) and Fraser Park Sportsville for the last five years to develop a significant sport and recreation hub on Fraser Park.

9. Sportsvilles originated from a Council led initiative in partnership with Sport NZ, Sport Wellington, NZ Community Trust and Pelorus Trust.

10. Fraser Park Sportsville was launched in 2009. The FPS founding clubs signed the Sportsville constitution in April 2010, signalling their commitment to the partnership. In June 2010 an independent Board was appointed to lead the new entity. FPS is an Incorporated Society and also registered under the Charities Act.

11. FPS key responsibilities and work include driving and promoting participation, club collaboration and facility rejuvenation.

12. In 2013 Council approved its Long Term Integrated Community Facilities Strategic Plan that maps out Council’s vision and direction regarding community facilities. Identified in the strategic plan are several significant regional opportunities. These include the Fraser Park/Taita Sport Zone – comprising Fraser Park Sportsville and the Walter Nash Centre.

13. With 27 hectares of land, Fraser Park is Council’s largest recreational ground. With the development of the Walter Nash Centre in close proximity, this represents an excellent opportunity for the City and region. As such Fraser Park was identified as a key strategic asset that will not only support local community sport, but also play an important role in driving participation as well as attracting significant regional, national and/or international events.

14. Fraser Park Sportsville has been identified as a project of regional importance and is the first Sportsville which Council committed capital funding to. Capital funding levels currently allocated by Council are at comparable levels with other Councils on similar projects around New Zealand. Fraser Park Sportsville is Hutt City’s major sport and recreation hub. The same level of Council funding should not be expected for other Sportsvilles.

15. Nationally this is a project of significance, with interest from other Councils and Sport New Zealand on the process and end product.

16. FPS have clearly identified how this project aligns with the strategic vision of Hutt City Council (Healthy Families NZ, North East focus, rejuvenation of community facilities via hubbing), and notes that the plans for Fraser Park are endorsed by the regional sports associations that have member clubs on site.

17. No specific references to regional facility plan documents have been noted, however officers recognise that Capital Football, Wellington Rugby Football Union, Hutt Valley Softball Association, Wellington Hockey Association, Cricket Wellington and Squash Wellington have all contributed to the planning process undertaken by Fraser Park Sportsville.

18. Social outcomes that will be achieved through the high quality delivery of services enabled by the business case are very difficult to quantify in a dollar term, however it is imperative to note that social benefits of participating in sport, recreation and other ancillary activities have been proven to make significant positive impacts on communities.

19. There is clearly intention within the Fraser Park Sportsville board and staff to ensure the facility is well utilised by non-sporting and informal physical activity users. This provides opportunity to improve the wellbeing of the local area using this facility as the driver for change.

20. All of these opportunities provide significant economic and social benefits and enhance Hutt City as a great place to live, work and play.

21. Given the opportunity that Fraser Park represents for the city, Council allocated $12 million in its long term plan to FPS, of which approximately $3 million was committed to the stage 1 development completed in 2015.

22. Stage 1 was the development of artificial turfs which the FPS team has done an outstanding job managing and driving participation.

23. Council has thoroughly considered much earlier the many benefits of the Sportsville model. This paper does not address these, rather relates only to the Business Case presented by FPS.

24. A key condition set by Council for the release of the majority of stage 2 funding is the approval of the FPS business case. This has now been presented. This paper has been drafted to provide officers’ response and feedback to this business case.

Discussion

25. Overall FPS has presented a thorough and very professional business case and should be congratulated accordingly. They have assessed and analysed all forecast revenue and expenditure in detail – supported by clear research and assumptions.

26. Their business case includes an economic impact assessment that concludes a significant economic and social return to the City. Officers have reviewed the assessment and conclude it to be robust, perhaps conservative.

27. For the purposes of this report we have focused our attention on the forecast income and expenditure, including a request for annual Council funding support.

Summary of Forecast Revenue and Expenditure

Ø 10 years forecast

Ø Cash deficits are forecast for first four years – not exceeding $50k per annum.

Ø Including depreciation cost, losses are forecast to year 7.

Ø Income includes a Council Community Participation and Events Grant of $150,000 in year 1, $125,000 in year 2 and $100,000 per annum thereafter. This is consistent with FPS briefing to Council during 2016.

Ø There are multiple sources of income forecast. The most significant are:

§ Bar Income $146k - 21% of total year 3 income

§ Council $100k - 15%

§ Facility Hires $140k - 20%

§ Artificial Turfs Hires $80k - 12%

Ø Expenses are broken into the following categories

§ Property Costs $327k - 41% of total year 3 expenses

§ Facility Operating $73k – 9%

§ Employment $299k – 37%

§ Other $65k – 8%

§ Depreciation $40k – 5%

Note: year 3 numbers used as when forecast to be more fully operational.

Ø Depreciation costs relate only to assets that will be owned by FPS, ie the fit-out.

Ø Property costs per annum by year 3 are made up of:

§ Insurance $50k

§ Rates $79k

§ CFT Future Maintenance $62k

§ Artificial Turf Costs $96k

§ Other $40k

Ø CFT Future Maintenance – this relates to an annual payment to the CFT to ensure the asset is maintained and that funds are kept in reserve (by the CFT) to fund future medium term asset replacements – as per approach endorsed by Council.

28. There are several key questions here for Council consideration. These include:

Ø Is the forecast achievable?

Ø Can users pay more?

Ø What are the risks to Council?

Is the forecast achievable?

29. For any new business case there is an element of estimation and making assumptions. FPS have presented very clear and detailed supporting data and analysis behind almost every forecast budget line. This includes formal quotes, benchmarking data from similar operations, existing financial and membership data from current clubs, scenario analysis, professional research and other information.

30. FPS has deliberately and appropriately not forecast ‘best case’ scenarios for both income and expenditure. For some areas of expenditure they have included ‘worst case’ projections.

31. Overall the FPS approach to forecasting has been conservative and responsible.

Expenditure

32. Overall officers consider the expenditure forecasts to be reasonable.

33. Worthy of the most commentary is the forecast property costs which make up approximately 40% of total expenses. These, mostly fixed costs, clearly cause the most pressure to the FPS business case.

34. Council rates have been quoted to FPS at $79k per annum. This is largely attributable to the rateable value of the new asset, representing a real challenge. $79k per annum is approximately 600% greater than the total rates currently paid by all 9 member clubs. Benchmarking other similar sports hubs and facilities, eg Papatoetoe Sports Hub, the tenants are not responsible for paying rates. This is a complex issue and perhaps signals the need for Council to review its rating policy.

35. FPS forecast a $62k per annum expense to the CFT for a future maintenance/capital replacement fund. In addition to this, included in the forecast Artificial Turf Costs ($96K) is a further $20k per annum payment to a CFT future turf replacement fund. This approach is consistent with that endorsed by Council.

36. Basically FPS is being challenged to make a significant annual payment to fund future asset replacements. Very few sports and other community organisations would operate this way, ie very few sports clubs/ community groups have cash reserves to fund future asset replacements or medium/long term maintenance. Officers acknowledge the challenge this represents to FPS, however conclude that Council’s/CFT’s approach is entirely responsible and fair.

37. The other major expenditure forecast is for staff salaries. FPS will be managed by professional staff, led by a General Manager. Adequate operational staff are budgeted for, including a caretaker. All of the salary and hourly rate assumptions are reasonable. Given the Hub will be open seven days per week with extended hours, this is one area where the FPS Board have expressed some concern, indicating that more staff would be ideal. Officers conclude that staffing levels are adequate and ultimately all that can be afforded. Officers also suggest that moving forward under the new model efficiencies will be possible through even greater collaboration with paid staff of the member clubs.

Income

38. FPS is forecasting revenue from multiple sources including: bar, memberships, Council, catering, facility hires, rental, pay for use and other.

39. As listed in the summary above the most significant of these are for bar, membership fees, Council, facility hires and artificial turf usage.

40. Net income from the bar is initially set at $120k in the first year of operating. This is based on a gross bar income of $400k. $400k is slightly greater than the existing combined total bar income for the existing member clubs. On this basis and given the significant additional activity the new facility will generate, this forecast appears reasonable.

41. Membership fees are presented in some detail – including projections for increased membership to existing clubs as well as new clubs joining. The basic fee structure is that each adult member will pay an annual affiliation fee of $50 to FPS as part of general club membership fees. The junior affiliation fee is $25 per member.

42. Note: in addition to affiliation fees to FPS, each club member will also pay a regular membership fee to their respective club – this is to cover regional and national sport affiliation fees, programmes, uniforms, equipment, entry fees, travel, and other club specific related costs.

43. Affiliation fees have been carefully structured according to the total cost per club member as well as the overall financial viability of clubs. Given the ongoing pressure on club membership numbers, FPS is motivated to ensure fees are affordable and don’t significantly exceed what is currently paid. This is especially relevant given the local community demographics.

44. Total income to FPS from affiliation fees from Founding Members based on existing player numbers (2,404 members) is $59k per annum. Based on the attraction of a new facility, programmes and services FPS have assumed 3% growth per annum in members. This equates to an additional $1,700 per annum. In light of current club trends, 3% growth appear ambitious, although given the quality of the new offer, Officer’s believe 3% to be possible, if not a minimum expectations. Note: a significant variation to the 3% target does not have a material impact on the overall business case.

45. FPS also forecast membership growth in the first 3 years from new clubs of 1000 members. i.e. new clubs will seek to join the new facility. By year 3 this equates to an additional $35k per annum in income. Officer’s agree that new clubs will be motivated and attracted to join the new facility, however find it difficult to assess the likelihood without directly talking to clubs.

46. Artificial Turf income is forecast at $80k per annum. FPS now has two years of actual income analysis to support this. Based on current usage this income projection is very reasonable.

47. Facility Hires include rental of social spaces, meeting rooms, indoor activity spaces and mutli-purpose rooms. In year 1 this is forecast to be $64k rising to $170k by year 5. The charge rates have been benchmarked on other like facilities in the region and are reasonable.

48. Year 1 Facility Hires is based on 50% of the desired occupancy of target. The target is 3500 hours across the facility. Some hire spaces, especially activity spaces are expected to be close to capacity and other spaces (non activity eg meeting rooms) are more conservative.

49. Facility Hire income projections are reasonable although represent some challenge, especially in the participation/activity spaces. FPS has a proven track record and managing participation spaces as demonstrated by the results being achieved from the artificial turfs.

50. It is worth noting that reducing the overall business case risk is that FPS income is forecast to come from a number of different sources, ie they are not simply relying on one source of income. A reduction in one income stream doesn’t have a material impact on the overall business case.

51. Is the forecast achievable? Yes. Officers acknowledge some areas of risk and challenge, however overall agree that the business case is achievable.

Can users pay more?

52. A fair question and expectation is that given the quality of the new facility, shouldn’t its members and or users pay more?

53. FPS has carefully structured fees and charges to ensure they are transparent, fair and affordable. An obvious pressure of simply increasing fees is the likely impact that then has on membership numbers and therefore consequently participation.

54. Given the pressure and general national trend of declining membership to sports clubs, FPS has structured its fees to generally ensure club membership fees will not significantly exceed current membership fees.

55. When considering the total capital investment in the new facility, another fair question also concerns some sports getting greater benefit over others so should they pay more, eg squash.

56. Given the large number of other income streams, a significant increase in member fees does not have a large impact on the overall business case.

57. Can users pay more? FPS would argue strongly ‘no’. Officers think there is potential for greater user charges although note that it would not have a material impact on the overall business case. Given the motivation behind FPS is to drive participation, officers generally support the proposed fee structure and accept the forecast user charges are reasonable.

What are the risks to Council?

58. Ultimately FPS will be the tenant of a Council owned facility – albeit through the CFT. If FPS is unsuccessful this may place pressure on their ability to fund rent and other related costs to the CFT. Or worst case place pressure on their ability to even operate the facility – keeping the lights on.

59. Should FPS be unsuccessful Council would be unlikely to let such a significant facility fail. It could choose to operate the facility itself or seek interest from other external organisations experienced at running such facilities.

60. In assessing this risk perhaps the most significant consideration needs to be given to quality of leadership and governance. FPS to date has operated with incredibly strong governance with a very skilled and experienced Board. They have established sound governance systems and policies including demonstrating clear plans to ensure continuity. FPS operations to date have been professionally managed by very capable talent.

Council Operational Funding

61. FPS has requested as part of their business case operational funding from Council. There is a precedent within other Councils to provide operational grants to external organisations to manage Council owned facilities across a range of industries. In Hutt City this has not occurred previously within the sport and recreation sector outside of Walter Nash Stadium and our aquatic facilities.

62. Comparing the evidence presented in this business case and previous documentation supplied to Council from FPS to best practice planning processes, FPS have demonstrated an ability to conduct robust planning in line with industry requirements.

63. Good practices are observed in capital work planning and project management via establishment of a tripartite PCG group comprised of Council, FPS and CFT.

64. Fraser Park has requested an ongoing operational grant ($150,000, $125,000 respectively for years 1-2, then $100,000 each year after) to achieve the following outcomes for Hutt City Council and local residents:

· Proactively address the issue of deteriorating facility standards at Fraser Park

· Increase non-organised physical activity at Fraser Park

· Enable this facility to host national sports events, and increase the number of local events

· Strengthen member clubs processes, policies, and financial sustainability

· Increase formal membership levels

· Deliver new services and activities to the local community

· Be a destination sports ground for the region

· Assist the community to build positive relationships between players, coaches and other local leaders

· Development of networks of peers and colleagues

· Building personal skills in emotional control, confidence, discipline

· Improving children’s academic achievement

· Improving mental health and wellbeing of the community

· Improving life satisfaction

65. The request for operational funding can be compared to the management costs Hutt City Council has for the new Walter Nash Centre, aquatic facilities or libraries. In these instances Council manages the facilities internally, however all have associated operating budgets.

66. Officers support the request made by FPS for operational funding on the basis that:

· Council would be ensuring return on investment for a significant capital contribution;

· Fraser Park is noted as a regional/national facility which offers a variety of community benefits through high quality management;

· A robust business case has been supplied to Council detailing why an operational contribution is required and;

· There are precedents nationally and locally where community services and activities relating to physical activity and/or provision are funded by Councils.

67. If FPS is successful in achieving Council’s desired outcomes and the benefits highlighted above, arguably an annual investment of $100k per annum can be considered high quality value for money.

68. Theoretically the annual cost of depreciation and finance costs (associated with Council’s $12m investment) should also be considered. Estimated at $150,000 per annum this makes the notional contribution per annum to $250k. Again in consideration of the likely benefits and outcomes to the City this can be considered value for money.

Options

69. The alternative option is for Council to not agree to ongoing operational funding requiring FPS to be self-sufficient. This would represent a significant problem for FPS and they would be likely to not agree lease terms with the CFT accordingly.

Other Considerations

70. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of the local government act.

Appendices

No.	Title	Page
1 ⇩	Fraser Park Sportsville Business Case - March 2017	45

Author: Matt Reid

General Manager Community Services

Reviewed By: Brent Kibblewhite

Chief Financial Officer

Approved By: Tony Stallinger

Chief Executive

Attachment 1

Fraser Park Sportsville Business Case - March 2017

108 03 May 2017

Finance and Performance Committee

05 April 2017

File: (17/602)

Report no: FPC2017/2/104

Finance Update

Purpose of Report

1. The purpose of the report is to present the Committee with Council’s financial performance to 28 February 2017 and the 2016/17 forecast year-end financial position.

Recommendation

That the Committee notes the year to date financial performance and the forecast year-end position.

Background

2. The report provides information comparing year to date actual and year-end forecasts against budgets set by Council in its 2016/17 Annual Plan.

Summary

3. Year to date revenue and operating costs (excluding gains/losses) are under budget giving a favourable operating variance of $4.3M. At year end a $4.7M favourable variance is being forecast.

4. A significant portion of this variance relates to under spending on CFT projects and the Development Stimulus Package which are slightly offset by reduced subsidies due to delays in roading projects.

5. Capital expenditure is under budget to date by $21.5M with only $27.9M spent to date of an annual budget of $92.1M. A favourable year end variance of $24.4M is forecast.

6. Debt at year end is expected to be under budget by $29.5M.

Operating Position: (excluding Gains/Losses)

Year to Date

7. There is a Year to Date operating deficit of -$1.0M compared to a budgeted deficit of $5.3M giving a favourable variance of $4.3M.

8. Revenue is -$2.6M under budget due to capital subsidies (-$3.5M), and to a lesser extent operating subsidies (-$0.4M), principally due to the cycleway projects being behind their budgeted schedule.

9. Operating costs are under budget by $6.9M mainly due to delays with the Stokes Valley Community Hub project ($2.5M), roading maintenance ($1.0M), the Development Stimulus Package payments ($0.6M), plus reduced interest ($1.0M), and depreciation expense ($0.9M). These are partially offset by costs arising from the November earthquake and flood events which to date amount to $0.5M.

Year End Forecast

10. At year end there is expected to be a forecast deficit of -$9.9M compared to the budgeted deficit of -$14.6M, giving a favourable variance of $4.7M.

11. Revenue is forecast to be under budget by -$1.0M due to reduced capital subsidies of -$2.5M because of the deferral of some roading projects including the cycleway projects.

12. Operating costs are forecast to be under budget by $5.7M mainly due to an underspend in the operating grant payments to CFT for Fraser Park Sportsville of $5.4M, and savings in Interest costs of $1.4M due to underspend on capital projects plus lower than budgeted interest rates. The Development Stimulus Package payments are expected to be $0.5M underspent.

13. Council’s Parks and Reserves Division are forecasting a $0.4M overspend due to unbudgeted costs for remediation work to address soil contamination at the former Summit Road Depot, some of which has been recovered via associated landfill fees.

14. Unbudgeted costs arising from the November 2016 earthquake and flood events are expected to be about $1.0M (originally estimated to be $1.2M). Some of these costs have been offset by other operating savings.

15. Operating carryovers will be required for Capital subsidies of $2.8M, CFT grants of $5.5M, and $0.5M for Development Stimulus Package.

Revaluation of Financial Instruments:

16. Year to Date, the revaluation of interest rate swaps has resulted in an unrealised gain of $5.6M due to higher market floating interest rates relative to interest rates fixed by Council.

Capital Expenditure:

Year to Date

17. There is a favourable variance of $21.5M against a budget of $49.5M.

18. This is mainly due to delays in the following projects; $2.8M for Huia Pool; $2.9M for the Civic Events Centre project; and $9.6M for Roading and Traffic (including cycleways) projects.

Year End Forecast

19. At year end there is a forecast favourable variance of $24.4M against a budget of $92.1M.

20. This is mainly due to delays in some major projects including; $6.2M for Roading projects including cycleway / shared path projects and Civic Precinct parking; $1.3M for Stokes Valley Community Hub; $0.7M for Avalon Park; $1.2M for Riddiford Gardens; and $13.3M for the Civic Events Centre project. All of these projects will require carryovers.

21. At this stage a total of $24.3M will need to be carried over to 2017/18.

22. Most other projects at this stage are expected to be completed on time and within budget by year end.

Asset Sales

23. Asset Sales at this stage are forecast to be $2.0M for the year which is $1.0M above budget due to; a Council approved plan change for an area north of Avalon Park which will enable a sale this financial year; and the inclusion of two sales not completed in 2015/16.

Net Debt

24. Net Debt as at 28 February 2017 is $29.2M below budget which reflects the Year to Date favourable variances in operating and capital expenditure offset by an unfavourable variance in asset sales.

25. Forecast year end Net Debt is expected to be under budget by $29.5M mainly as a result of the forecast underspend in capital and the favourable variances in operating costs and asset sales.

Treasury Compliance

26. All limits within the Treasury Risk Management Policy have been fully complied with.

27. The Treasury Compliance Report as at 28 February 2017 is attached as Appendix 2 to the report.

Annual Leave Liability

28. There has been a slight increase in the annual leave liability during February which is expected following a large amount of leave taken over the Christmas / New Year holiday period.

29. Leave liability for both January and February were lower than for the same months last year.

Consultation

30. There is no requirement to consult.

Legal Considerations

31. There are no legal considerations.

Financial Considerations

32. The financial considerations are covered in the report.

Other Considerations

33. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of the local government in that it provides it provides Councillors with the necessary information to effectively undertake their governance role.

Appendices

No.	Title	Page
1 ⇩	Financial Report February 2017 FINAL	114
2 ⇩	Treasury Compliance Report February 2017	142

Author: Brent Kibblewhite

Chief Financial Officer

Approved By: Tony Stallinger

Chief Executive

Attachment 1

Finance and Performance Work Programme for 2017

Finance & Performance Committee Work Programme 2017

Description	Author	For Council
Cycle 3 – 2 August 2017
Finance Update	B Kibblewhite
Rates Postponement Scheme for Residential Ratepayers Aged 65 and over	B Kibblewhite
Insurance Update	B Kibblewhite
Risk and Assurance Update and Operational Risk Register	E Davids
Audit NZ Interim Management Report	D Newth
Activity Report – Information Technology	L Allott
Appointment of Directors CFT	B Cato	·
Finance & Performance Work Programme	A Doornebosch

Cycle 4 - 27 September 2017
Finance Update – 2016/2017 Provisional Year End Position	B Kibblewhite
Annual Reports for CCOs – UPL, SML, CFT	B Kibblewhite	·
Finance & Performance Work Programme	A Doornebosch
18 October 2017
Hutt City Council’s Annual Report	J Stevens	·
Annual Report for LGFA	B Kibblewhite

Cycle 5 - 29 November 2017
Finance Update	B Kibblewhite
Risk and Assurance Update and Strategic Risk Register	E Davids
Audit NZ Final Management Report	D Newth
Insurance Update	B Kibblewhite
Finance & Performance Work Programme	A Doornebosch

Other

Appointment of Directors SML and UPL – 31 March 2018

Council Asset Revaluations – Cycle 1 or 2, 2018

CCO Lending – due for review 30 June 2018

Review of Agreement with GWRC to collect rates – on or before 30 June 2018

Appointment of Directors to CFT – 10 July 2018

Libraries Clubhouse Teen Summit Travel 2018

Activity Report – Organisation – Cycle 5, 2018

[1] Updated April 2008 in line with Council minute 5(b)(iii) of 18/3/08

Deputy Mayor D Bassett	Cr G Barratt
Cr J Briggs	Cr M Cousins
Cr S Edwards	Cr M Lulich

Cr L Sutton	Mayor W R Wallace (ex-officio)


FINANCE AND PERFORMANCE COMMITTEE
Membership:	10
Meeting Cycle:	Meets on a six weekly basis, as required or at the requisition of the Chair
Quorum:	Half of the members
Reports to:	Council

Determine and monitor: