Agenda of Finance and Council Controlled Organisations Committee

Notice of Meeting:

I hereby give notice that an ordinary meeting of the Finance and Council Controlled Organisations Committee will be held on:

Date: Tuesday 11 September 2018

Time: 1.30 pm (or at the conclusion of the previous meeting, whichever is later)

Venue: Edinburgh Room, Municipal Chambers, The Octagon, Dunedin

Sue Bidrose

Chief Executive Officer

Finance and Council Controlled Organisations Committee

PUBLIC AGENDA

MEMBERSHIP

Chairperson	Mike Lord
Deputy Chairperson	Doug Hall
Members	David Benson-Pope	Dave Cull
	Rachel Elder	Christine Garey
	Aaron Hawkins	Marie Laufiso
	Damian Newell	Jim O'Malley
	Chris Staynes	Conrad Stedman
	Lee Vandervis	Andrew Whiley
	Kate Wilson

Senior Officer Dave Tombs, General Manager Finance and Commercial

Governance Support Officer Jenny Lapham

Jenny Lapham

Governance Support Officer

Telephone: 03 477 4000

Jenny.Lapham@dcc.govt.nz

www.dunedin.govt.nz

Note: Reports and recommendations contained in this agenda are not to be considered as Council policy until adopted.

Finance and Council Controlled Organisations Committee

11 September 2018

Part A Reports

Waipori Fund - Quarter Ending June 2018

Department: Finance

EXECUTIVE SUMMARY

1 The attached report from Dunedin City Treasury Limited provides information on the results of the Waipori Fund for the quarter ending 30 June 2018.

RECOMMENDATIONS

That the Committee:

a) Notes the report from Dunedin City Treasury Limited on the Waipori Fund for the quarter ending 30 June 2018.

BACKGROUND

2 Not applicable.

DISCUSSION

3 Not applicable.

OPTIONS

4 Not applicable.

NEXT STEPS

5 Not applicable.

Signatories

Author:	Richard Davey - Treasury Manager
Authoriser:	Dave Tombs - General Manager Finance and Commercial

Attachments

Title

Page

Waipori Fund - June 2018 Quarter

SUMMARY OF CONSIDERATIONS

Fit with purpose of Local Government

This report relates to providing local infrastructure, public services and regulatory functions for the community.

Fit with strategic framework

	Contributes	Detracts	Not applicable
Social Wellbeing Strategy	☐	☐	☒
Economic Development Strategy	☐	☐	☒
Environment Strategy	☐	☐	☒
Arts and Culture Strategy	☐	☐	☒
3 Waters Strategy	☐	☐	☒
Spatial Plan	☐	☐	☒
Integrated Transport Strategy	☐	☐	☒
Parks and Recreation Strategy	☐	☐	☒
Other strategic projects/policies/plans	☐	☐	☒

This report has no direct contribution to the Strategic Framework.

Māori Impact Statement

There are no known impacts on tangata whenua.

Sustainability

There are no known implications for sustainability.

LTP/Annual Plan / Financial Strategy /Infrastructure Strategy

The report fulfils the financial reporting requirements for Council.

Financial considerations

Not applicable – reporting only.

Significance

Not applicable – reporting only.

Engagement – external

This report has been prepared for and approved by the Board of Dunedin City Treasury Limited.

Engagement - internal

This report has been prepared for the Board of Dunedin City Treasury Limited.

Risks: Legal / Health and Safety etc.

There are no known risks.

Conflict of Interest

There are no known conflicts of interest.

Community Boards

There are no known implications for Community Boards.

Finance and Council Controlled Organisations Committee

11 September 2018

Financial Result - Year Ended 30 June 2018

Department: Finance

EXECUTIVE SUMMARY

1 This report provides the financial results for the year ended 30 June 2018 and the financial position as at that date.

RECOMMENDATIONS

That the Committee:

a) Notes the Financial Performance for the year ended 30 June 2018 and the Financial Position as at 30 June 2018.

b) Notes that the year end result is subject to final adjustments and external audit by Audit New Zealand.

BACKGROUND

2 This report provides a commentary of the financial performance of Council for the year ended 30 June 2018 and the financial position as at that date.

DISCUSSION

3 Section 1 to this Report shows that Council has a full year Net Deficit (excluding Waipori) of $7.8m which was $6.2m worse than the budgeted deficit figure of $1.6m. Various events occur throughout each financial year that cause variances between the actual operating surplus/deficit and the budgeted operating surplus/deficit.

4 Commentary on the full year result (Table in Section 1)

The unfavourable variance against budget was due to the following:

· $7.626 million higher than expected asset operations and maintenance expenditure primarily due to emergency repair work associated with the July 2017 flood event, and maintenance costs across the Property portfolio.

· $4.118 million higher fees & levies costs. This included costs associated with a number of initiatives across Council including: asset surveys, asset inspections, development of asset management plans, system & process reviews and assistance with Council-wide procurement activities. In addition Building Services expenditure is higher than expected to ensure consenting activity meets the required statutory deadlines.

· $2.992 million higher than expected depreciation expense following a revaluation of Three Waters assets including an increase in depreciable replacement cost (reflecting current market pricing) and a revision of useful lives.

· $2.226 million higher than expected personnel costs due to unbudgeted recruitment costs to resource activities across Council, and higher than expected FTE's as a result of this recruitment drive.

· $1.219 million higher materials, supplies & services expenditure. This included costs associated with the 2GP, flood relief expenditure and contracted services to assist in the management of the property portfolio.

· $1.168 million higher other expenses primarily driven by a write-down on some investment properties of $1.101 million as at 30 June.

5 These unfavourable variances were partially offset by:

· $5.216 million – higher than expected Other Operating Revenue. This favourable variance was mainly due to: Waste and Environmental Solutions revenue was greater than expected with additional tonnage through the Green Island landfill being the overflow from the closure of the Fairfield Landfill, higher than expected building consent activity in Regulatory Services and Parking revenue being higher than expected due to increased metered activity. The variance also included the unbudgeted impact of a positive revaluation of some of Council’s investment properties.

· $2.034 million – favourable interest expenditure driven by the lower debt level and favourable floating interest rate.

· $3.541 million higher than contribution revenue including development contributions and higher than expected income from vested assets.

· $2.498 million higher than expected grants revenue in Transport due to the emergency work discussed above, partially offset by lower capital subsidies due to delays being experienced in the capital programme (including cycleways and Peninsula projects).

6 Full year capital expenditure was less than budget by $15.587 million. Project delays have arisen across a number of portfolios while project scoping and design is finalised. The full year spend has been impacted by $5.7 million unbudgeted expenditure related to transport reinstatement work following the July 2017 flood event.

7 Total Council debt as at 30 June 2018 was $200.885 million or $10.517 million lower than budget. This variance reflected delayed expenditure on capital projects, partially offset by the higher level of operating expenditure discussed above.

OPTIONS

8 Not applicable.

NEXT STEPS

9 Not applicable.

Signatories

Author:

Gavin Logie - Financial Controller

Lawrie Warwood - Financial Analyst

Authoriser:

Dave Tombs - General Manager Finance and Commercial

Attachments

	Title	Page
a	Summary Financial Information	26
b	Statement of Financial Performance	27
c	Statement of Financial Position	28
d	Statement of Cashflows	29
e	Capital Expenditure Summary	30
f	Borrowing & Investment Policy	31
g	Statement of Public Debt	32
h	Operating Variance Summary	33
i	Financial Review	35

SUMMARY OF CONSIDERATIONS

Fit with purpose of Local Government

The financial expenditure reported in this report relates to providing local infrastructure, public services and regulatory functions for the community.

Fit with strategic framework

	Contributes	Detracts	Not applicable
Social Wellbeing Strategy	☐	☐	☒
Economic Development Strategy	☐	☐	☒
Environment Strategy	☐	☐	☒
Arts and Culture Strategy	☐	☐	☒
3 Waters Strategy	☐	☐	☒
Spatial Plan	☐	☐	☒
Integrated Transport Strategy	☐	☐	☒
Parks and Recreation Strategy	☐	☐	☒
Other strategic projects/policies/plans	☐	☐	☒

This report has no direct contribution to the Strategic Framework, although the financial expenditure reported in this report has contributed to all of the strategies.

Māori Impact Statement

There are no known impacts for tangata whenua.

Sustainability

There are no known implications for sustainability.

LTP/Annual Plan / Financial Strategy /Infrastructure Strategy

This report fulfils the internal financial reporting requirements for Council.

Financial considerations

Not applicable – reporting only.

Significance

Not applicable – reporting only.

Engagement – external

There has been no external engagement.

Engagement - internal

The report is prepared as a summary for the individual department financial reports.

Risks: Legal / Health and Safety etc.

There are no known risks.

Conflict of Interest

There are no known conflicts of interest.

Community Boards

There are no known implications for Community Boards.

Finance and Council Controlled Organisations Committee

11 September 2018

Insurance Renewal Year Ended 30 June 2019

Department: Finance

EXECUTIVE SUMMARY

1 This report provides a summary of the insurance renewal for the Dunedin City Council for the year ended 30 June 2019.

2 For the purposes of this insurance policy renewal, the DCC Group (where referenced) comprises the Dunedin City Council and any Council Controlled Organisation and/or subsidiary company more than 50% owned by the Council – including but not limited to: Dunedin City Holdings Limited; Dunedin City Treasury Limited; City Forests Limited; Dunedin International Airport Limited; Dunedin Stadium Property Limited; Dunedin Venues Management Limited; Dunedin Railways Limited; The Theomin Gallery Management Committee (Olveston); and Dunedin Transport Limited.

Note: Some CCOs and subsidiaries hold individual policies and/or have particular policy terms, conditions and limits.

3 This report details the changes that have been negotiated around policy terms, conditions, coverage, excesses and premiums applied.

4 The material damage premium for 2018/19 have been impacted by a number of factors including: increase in insured values (4.5%) and tightening of market pricing and capacity following recent insurance events (Kaikoura earthquakes and Edgecumbe flooding). The note 14 graph does however highlight the continued increase in asset value covered while maintaining a relatively low cost per dollar insured.

RECOMMENDATIONS

That the Committee:

a) Notes the Insurance Renewal Year Ended 30 June 2019.

BACKGROUND

5 The Council historically placed its insurance cover with New Zealand underwriters only. The risk with this strategy became evident following the Christchurch earthquakes when capacity in this market became constrained.

6 As part of the 2014/15 insurance renewal Council was able to place 35% of its core cover into the international market, which provided significant risk mitigation in relation to market capacity, but also delivered the opportunity to extend cover to infrastructure assets as well as creating market tension to ensure other renewal terms and conditions were favourable.

7 In the most part of 2016 insurers were actively competing to protect existing market share while new entrants were seeking to gain market share. Unfortunately the November 2016 Kaikoura earthquake (and consequential damage caused elsewhere including Wellington) has quickly seen the market tighten as insurers reassess their exposures in the New Zealand region.

DISCUSSION

8 The current insurance market is driven by continued pressure on capacity for natural disaster cover and the limited availability of infrastructure cover.

9 The approach to the market for the 2018/19 financial year was to secure the conditions of the current programme, while minimising the level of premium increase.

10 The placement achieved is consistent with 2017/18 as follows - local placement set at 60% and international placement set at 40%. The international placement is split: 30% full cover and 10% on the basis of a $750.0 million limit any one occurrence or in the aggregate for the natural disaster cover.

11 What this means is Council will continue to be self-insured beyond this $750.0m limit for 10% of any claim.

12 Infrastructure cover is provided on the understanding that Central Government will contribute 60% of funding towards reinstatement. The limits and excesses noted for this cover are for the DCC's portion only. Therefore a loss would need to exceed $5.0 million before the insurers would contribute to any claim i.e. 40% of $5.0m being the current excess of $2.0m.

13 Table A provides a comparison of insurance premiums between 2017/18 and 2018/19. All figures are quoted exclusive of GST.

14 The following graph provides a historically perspective on value insured and the associated unit premium.

Policy Limits

* This limit applies to 90% of the assets insured. The remaining 10% is limited to
$750.0 million any one claim or in the aggregate ie: 10% self-insured for claims in excess of $750.0m.

** Natural Disaster Perils include earthquake, volcanic eruption, tsunami, geothermal activity, hydrothermal activity and, in respect of the outfalls only cover extended to include storm (Force 10). This definition excludes the impact of floods.

Policy Excesses

Uninsured Risks/Emerging Insurance Trends.

15 It is acknowledged that with any insurance cover the Council will accept a degree of uninsured risk, whether it be reflected as higher excesses, policy limits and/or uninsured assets. In terms of particular risks associated with the current programme the following should be noted:

· Policies do not provide cover for automatic reinstatement of the sum insured in the event of fire or Natural Disaster losses. If a significant loss occurs additional insurance cover may need to be purchased.

· While Asset Schedules have been extensively reviewed and updated, any assets excluded from the schedules will not be covered, and those incorrectly valued may not be adequately covered.

· Liability Policy limits will need to be continually reviewed in light of claims history, emerging trends and because these policy limits are held as group limits.

· Emerging trends that remain under consideration include an extension of current policy coverage for more robust Cyber Risk protection, as well as risks posed by terrorism, climate change, contagious disease, pollution and weather tight home claims.

· An increasing recognition of the extent of asbestos risks and the potential costs of identification/ maintenance/ removal activities may necessitate further Policy reviews.

· The Material Damage - Fire First Loss limit of $250m needs to be sufficient to provide cover for fire following any cause including Natural Disaster losses (it incorporates all assets insured by the Group). While this limit is still considered sufficient, it will continue to be reviewed annually.

· Government Levies – fire service and earthquake commission levies are subject to change outside the control of Council. Notably, there has been an amalgamation of the urban and rural fire services into one organisation (Fire and Emergency New Zealand). The funding structure for this new organisation has impacted these levies for the 2018/19 financial year with a 40% increase over 2017/18.

Options

16 Not applicable.

Next Steps

17 The DCC Group Insurance cover is subject to an annual review and renewal.

18 Additional and ongoing Policy review, monitoring and negotiation activities will be undertaken by Council staff and representatives of the Crombie Lockwood Insurance Programme Service Team to ensure adequate coverage remains in place for the DCC and DCC Group Companies.

Signatories

Author:	Gavin Logie - Financial Controller
Authoriser:	Dave Tombs - General Manager Finance and Commercial

Attachments

There are no attachments for this report.

SUMMARY OF CONSIDERATIONS

Fit with purpose of Local Government

The financial expenditure detailed in this report relates to providing local infrastructure, public services and regulatory functions for the community.

Fit with strategic framework

	Contributes	Detracts	Not applicable
Social Wellbeing Strategy	☐	☐	☒
Economic Development Strategy	☐	☐	☒
Environment Strategy	☐	☐	☒
Arts and Culture Strategy	☐	☐	☒
3 Waters Strategy	☐	☐	☒
Spatial Plan	☐	☐	☒
Integrated Transport Strategy	☐	☐	☒
Parks and Recreation Strategy	☐	☐	☒
Other strategic projects/policies/plans	☐	☐	☒

This report has no direct contribution to the Strategic Framework, however the financial expenditure noted in this report is reflected within the Financial Strategy and the Insurance Policy contributes to the effective and ongoing realisation of all DCC strategies.

Māori Impact Statement

There are no known impacts for tangata whenua.

Sustainability

There are no implications for sustainability.

LTP/Annual Plan/Financial Strategy

The planned insurance programme is as noted in the LTP.

Financial considerations

The budget for insurance cover plus brokerage 2018/19 is $3.102 million. The quoted premium exceeds this budget by $79k reflecting the tightening insurance market.

Significance

Not applicable – reporting only.

Engagement - external

· The insurance programme has been developed in conjunction with our insurance brokers and key staff from Council and CCOs.

Engagement – internal

The insurance programme has been developed in conjunction with DCC insurance brokers and key staff from Council and CCOs.

Risks: Legal/Health and Safety etc.

This report identifies a small number of risks that remain untreated or are emerging as factors that require further review.

Conflict of Interest

There are no identified conflicts of interest.

Community Boards

There are no known implications for Community Boards.

	Title	Page
a	Register of Interest	7