Ōpō ki District Council

Pre-Elec on Report 2016

Aileen Lawrie, CEO

From the Chief Execu ve The district is undoubtedly seeing a rapid upturn in its economy. This creates some challenges for Council but mostly in the category of “good problems to have”. The backbone industry of dairy con nues to deliver for us despite the challenges faced in that industry. Development of the kiwifruit, manuka products, aquaculture and tourism industries along with a buoyant property market is placing demands on business as usual func ons of council with projec ons that these demands will con nue to increase. As an organisa on we are preparing for the years ahead and have focussed on strategically up-resourcing to meet the increased demands, increased legisla ve standards and to deliver the projects we discuss further into this report. Likewise we are developing many internal systems and processes to meet modern audit requirements, for improved financial management and opera onal efficiencies. In the past Council has struggled in staff recruitment, however in the last year we have been able to a ract talented and experienced people in the first adver sement round, adding to our competent and dedicated staff. We also con nue to share with, or contract services from, other councils where these make sense.

The way the community wants to engage with us is changing. Our dwindling number of submissions to annual planning processes, and the growing social media interac ons reflects the communi es desire for us to be more interac ve and responsive. Our connec on to internet fibre and the development of online services and social media, as well as our annual pop up shop, have proved useful ways of engaging and responding in a more agile manner, par cularly to simple opera onal requests that should not have to wait un l an annual process. Further internal development of our service request system and procedures has streamlined the way we deal with, and track, requests from ratepayers.

Introduc on to the Pre-Elec on Report The prepara on and ming of this report is a mandatory requirement of the Local Government Act 2002. This report has been prepared by the Chief Execu ve and has not had any input from elected members.

The purpose of the report is to provide informa on about the local authority in the lead up to the local government elec ons on 8 October 2016.

It is designed to draw your a en on to the key issues over the coming years, and to the current Council’s performance against the adopted Financial Strategy as well as the forecast financial posi on for the incoming Council. In effect it is an update of the medium term forecasts contained within the 2015-25 Long Term Plan, as well as a summary of performance over the last 3 years.

This is not a “stand-alone” document. If you are interested in reading the basis for the forecasts contained in this report you should look at the 2015-25 Long Term Plan, and the 2016/17 Annual Plan. Addi onal informa on on past performance is contained in the annual reports. All these documents are available to view on our website at www.odc.govt.nz

The 2015-25 Long Term Plan (LTP) starts to move away from the strategic theme of consolida on that was consistent over the last few Plans. This is because the early part of the LTP requires a considerable amount of capital expenditure in the Ōpō ki wastewater network, and the Harbour Development Project. Up un l now these projects have comfortably sat

outside year three, meaning that they would have another Long Term Plan to firm up budgets and melines. Now with both of these projects commencing in the first three years of the LTP the theme of this LTP needs to move from a passive financial consolida on state, into a proac ve project management state. This is to ensure that Council is able to respond

to the needs of the community for growth with the assets it has, while s ll managing finances, rates increases and debt prudently. This will ensure the at the end of the day all that we are planning to do and achieve is affordable.

Council’s Strategic Direc on

Ōpō ki Harbour Development Project This key project has been a major focus of the last three Long Term Plans. Progress is happening at a faster rate now than ever before, beginning with Central Government’s commitment (made in October last year) to contribute $3 million towards a valida on process over 2016 and 2017. This contribu on has allowed Council to bring forward parts of the project that would have had a ra ng and loan impact to the community, and instead have these funded completely by Central Government.

This funding also covers a number of different work programmes. These will help to ensure that when we do have the go ahead to build the harbour, we also have the work and employment opportuni es well established within the district. Along with the revenue opportuni es, this will help to ensure our district as a whole can benefit to full poten al. We will con nue to develop these work programmes over the remainder of this year, heading toward a March 2017 deadline with Central Government.

Our other main co-funder, Bay of Plenty Regional Council, remains commi ed to the project and their pledge of $20 million.

Pathways to work showcased at Council’s Pop up shop

Returns on Investments As a requirement of this report we need to outline actual returns on investments against budgeted targets and the graph to the right illustrates this. Our results have been lower than budgeted for a number of reasons. Firstly Council has chosen to repay borrowings with cash where available. This is evident in the charts on borrowing over the page. Secondly interest rates have actually remained low over recent years, in contrast to advice from economists who predicted increases to interest rates. And finally, revisions of the investment policy through the 2015-25 LTP process set a maximum limit on the length of term deposits to 90 days or less, to manage cash flow.

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2014 2015 2016

Returns on Investments

Actual Budget

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2014 2015 2016 2017 2018 2019 2020

Actual Rates Increases Forecast Rates Increases

2012-22 Total Rates increase 2015-25 General Rates 2015-25 Targeted Rates

2012-22 LTP Cap 2015-25 General Rates Cap 2015-25 Targeted Rates Cap

Debt Servicing For some me now Council has been focussed on keeping debt levels low in order to control rate increases and allow capacity for the Harbour Development Project and the Ōpō ki wastewater re cula on replacement. The levels of debt here are some of the lowest in the country at under $600 per ratepayer.

The 2015-25 Long Term Plan outlines the funding requirements over the 10 years between 2015 and 2025 where, as a community, we complete two of the largest capital development projects ever seen in the district in such a condensed meframe. It was sensible that the measures and caps we set around our borrowing levels reflected our ability to service the debt, rather than the debt itself. In the 2012-22 Long Term Plan we set a debt cap of $20 million which did not take into account our ability to service this debt, nor our ability to grow. The new measures allow for growth in demand for services as long as we can comfortably service the debt. These measures are set at acceptable industry levels, and Council meets these measures comfortably throughout the term of the 2015-25 Long Term Plan.

Council is currently undertaking inves ga ons into iden fying the scope and design of the Ōpō ki wastewater re cula on replacement. We need to ensure that the most cost effec ve solu on is put in place that addresses the issues within the current system. Part of this process is to assess the condi on of the network, which is vital to understanding what to replace and when. This is best prac ce interna onally, and the project leadership team and commi ee working on this here in Ōpō ki is using some of the best methodology in the country. The next phase of modelling the results of the “Find and Fix” pilot scheme, combined with the modelling of the condi on assessments, will give Council a much greater understanding of what scope and direc on the project will take.

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Net Interest Expense/Total Revenue

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Net � perating Cash/Interest

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Financial Strategy The development of the 2015-25 Long Term Plan saw a revision and change in the financial strategy of Council as outlined on the previous page. This change was driven by the organisa on wan ng to set limits that were responsive to requests for services, increases in demand, and growth within the district. To do this effec vely, Council needed to set new limits to fund or rate for these addi onal requests in a different way than it had previously, but importantly rates affordability had to remain paramount.

Council achieved this balance by se ng two different rates caps. One on the general rate to manage rate affordability, and a higher cap on targeted rates to enable Council to respond to increases in levels of service, or requests for addi onal services on a user pays basis.

Funding Impact Statement The Local Government (Ra ng) Act 2002 and the Local Government Act 2002, requires each Council to prepare a Funding Impact Statement disclosing the revenue and financing mechanisms it intends and has intended to use. This statement is prepared in a different format to most of the other financial statements and essen ally sets out in a single statement, the sources of both the opera ng and capital funding for everything that Council does.

The format of this statement has been prescribed in the legisla on and does

not have to meet the accoun ng requirements. This format is intended to provide a more understandable picture of what Council is spending money on and how those expenditures are funded, namely:

• The sources of funding to be used

• The amounts of funds expected to be produced from each source

• How the funds are to be applied

This informa on can give a quick overview of trends in rates that are used to fund different ac vi es.

Although it appears that the Council is making a considerable surplus in each year, this report does not show deprecia on expenditure, which is the level of renewal expenditure that is funded from Rates. The bo om line indicates that the surplus shown below is actually spent on the funding of capital expenditure, and a combina on of repayment of debt and movement in Reserves.

Funding Impact Statement Actual Actual LTP Annual Plan LTP LTP LTP

2014 2015 2016 2017 2018 2019 2020

000's 000's 000's 000's 000's 000's 000's

Sources of � perating Funding

General rates , uni form annua l general charges , ra tes pena lties 6,947 7,186 7,847 8,272 8,724 9,212 9,741

Targeted rates (other than targeted rates for water supply) 973 1,710 1,868 1,919 2,192 2,359 2,519

Subs i dies and grants for operati ng purposes 963 905 927 1,000 979 1,019 1,094

Fees and charges (and targeted rates for water supply) 2,705 1,624 1,407 1,378 1,483 1,524 2,210

Interest and dividends from investments 71 105 119 203 60 52 51

Loca l authori ties fuel tax, fines , infringement fees , and other 128 417 - 63 - - -

Total � perating Funding (A) 11,787 11,947 12,169 12,835 13,438 14,167 15,616

Applications of � perating Funding

Payments to sta ff and suppl iers 9,066 9,131 9,850 10,604 10,448 10,610 11,213

Finance Costs 200 266 281 286 652 942 1,261

Total applications of operating funding (B) 9,266 9,397 10,130 10,890 11,100 11,552 12,474

Surplus (deficit) of operating funding (A-B) 2,521 2,550 2,038 1,945 2,338 2,615 3,142

Sources of capital funding

Subs i dies and grants for capita l expenditure 968 1,130 3,812 5,429 20,761 18,567 9,088

Development and financia l contributions 14 41 - - - - -

increase (decrease) in debt (771) 139 (262) 797 4,964 4,622 5,235

Lump sum contributions 165 43 - - - - -

Total sources of capital funding (C) 418 1,353 3,551 6,226 25,724 23,189 14,323

Applications of capital funding

- to meet additional demand 899 1,124 1,916 4,059 22,658 19,892 11,167

- to improve the level of service 727 789 2,855 2,844 630 772 1,439

- to repl ace exis ting assets 1,133 1,545 2,320 4,993 4,969 5,174 4,672

Increase (decrease) in reserves 165 445 498 275 705 967 1,187

Increase (decrease) of investments 15 - (2,000) (4,000) (900) (1,000) (1,000)

Total applications of capital funding (D) 2,939 3,903 5,589 8,171 28,062 25,805 17,466

Surplus (deficit) of capital funding (C-D) (2,521) (2,550) (2,038) (1,945) (2,338) (2,615) (3,142)

Funding Balance ((A-B)+(C-D)) - - - - - - -

Summary Balance Sheet

Council remains in a conserva ve and strong financial posi on, with a very stable balance sheet. We expect over the term of the next three years to undertake a significant amount of capital works, with probably two of the largest projects ever to be undertaken by this Council being carried out. The Ōpō ki Wastewater Re cula on Replacement, and the Harbour

Development Project. The combina on of these projects will see debt rise to $24 million in 2020, by far the largest component of this is the wastewater replacement project. We are undertaking significant inves ga on works to find more cost effec ve approaches to solve the issues within the network. The harbour development will contribute towards $5.4

million of Council’s peak debt. This is planned to be repaid fairly quickly on comple on of the harbour through user fees and charges. Taking this into account we are now ac vely managing internal and external debt and investments separately through a treasury func on that enables us to be er u lise funding sources and available cash.

Statement of Financial Position Actual Actual LTP Annual Plan LTP LTP LTP

2014 2015 2016 2017 2018 2019 2020

000's 000's 000's 000's 000's 000's 000's

ASSETS

Current Assets

Cash & Cash Equiva lents 2,192 2,759 64 774 47 70 89

Debtors & Other Receivables 2,969 3,193 3,167 3,193 3,262 3,330 3,393

Other Financia l As sets 354 365 1,348 1,125 1,091 1,058 1,245

Ava i lable for Sa le Assets 2 2 - - - - -

Prepayments 20 46 - - - - -

Total Current Assets 5,537 6,366 4,579 5,092 4,401 4,458 4,727

Non-Current Assets

Inves tment Property 2,031 2,103 2,366 2,366 2,485 2,553 2,630

Inves tments in CCO's and Other Simi lar Enti ties 23 79 21 79 21 21 21

Property Plant & Equipment 178,440 179,598 183,549 198,607 222,857 245,648 275,972

Intangible Ass ets 19 81 8 81 8 8 8

Total Non-Current Assets 180,513 181,862 185,945 201,133 225,371 248,231 278,632

T� TAL ASSETS 186,050 188,227 190,524 206,225 229,772 252,688 283,359

LIABILITIES

Current Liabilities

Trade & Other Payables 2,688 3,081 3,221 3,081 3,303 3,295 3,279

Borrowings 2,195 1,360 - - - - -

Employee Benefi t Liabi l i ties 367 326 295 326 310 318 327

Provis ions 7 432 - - - - -

Total Current Liabilities 5,257 5,199 3,516 3,407 3,613 3,613 3,606

Non-Current Liabilities

Borrowings 2,470 3,500 5,174 5,797 13,762 18,484 23,819

Derivative Financia l Instruments 17 9 - - - - -

Provis ions 123 170 349 180 349 349 349

Total Non-Current Liabilities 2,610 3,679 5,523 5,977 14,111 18,833 24,168

T� TAL LIABILITIES 7,867 8,877 9,039 9,384 17,724 22,447 27,775

NET ASSETS (assets minus liabilities) 178,183 179,350 181,485 196,841 212,048 230,242 255,584

EQUITY

Reta ined Earnings 126,355 128,079 129,755 141,454 158,634 179,697 191,278

Asset Revaluation Reserves 50,081 50,043 50,067 56,707 56,785 56,785 73,119

Counci l Created Reserves 1,747 1,229 1,663 (1,320) (3,371) (6,241) (8,814)

T� TAL EQUITY 178,183 179,350 181,485 196,841 212,048 230,241 255,584

Council’s Strategic Direc on xxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Major Projects The following includes major projects planned with some expenditure occurring in the next 3 years immediately following the 2016 elec on. For full details refer to the 2015-25 Long Term Plan.

Te Tāhuhu ō te Rangi (Library Development) This project is forecast to begin in the 2016/17 year a er being forced to be deferred due to an unsuccessful funding bid in 2015. Fundraising locally has been going extremely well so far though, with over $600,000 commi ed towards the project.

Council will con nue to seek external funding for this exci ng project, and there are a number of opportuni es available this coming year.

Te Kaha water supply projects Two water supply projects are planned to be completed in Te Kaha this coming year. The first is an extension to the southern network to complete a loop. This will help address loss of pressure in a number of areas. The second project is an extension to the northern end of the network from Copenhagen Road north along State Highway 35 to Maungaroa, and it may include an addi onal pump sta on.

Road seal extension This coming year Council have proposed that they will con nue to extend the sealed network where there is a contribu on from the ratepayer or those wan ng the seal extension of 60%. This comes following New Zealand Transport Agency’s (NZTA) decision not to fund any seal extensions na onally, and taking away the subsidy that Council previously received.

During the 2015-25 Long Term Plan Council consulted with the community about ceasing the prac ce of extending the sealed network in light of the funding issues. The results of the submissions were split evenly, indica ng that there is s ll some desire for Council to seal roads.

Given the risk of losing ongoing maintenance funding from NZTA, and to be fair to all ratepayers, Council proposed that it would con nue to fund seal extensions at the same percentage it had previously. This means that 60% of the cost would need to be funded externally, and Council would seal a maximum of 2km per year.

If the budget for seal extensions wasn’t taken up in the year proposed then this would be carried forward in a reserve for future seal extensions, removing the rate requirement for the following year.

Council will review this stance constantly and wherever there are other funding opportuni es, or changes in NZTA’s funding assistance rates.

Council’s Strategic Direc on xxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Internet and CCTV Cameras Following Central Government’s invita on last year to submit a proposal on how they could be er spend their money allocated to Rural Broadband, Ultra Fast Broadband, and addressing mobile blackspots within our district, we have been progressing a rela onship with local wireless internet provider Evolu on Networks Limited. This rela onship began with a number of residents in Ōhiwa contac ng Council to see what could be done about the lack of internet in the area. Some of these residents had businesses that were heavily reliant on having reliable internet. Evolu on Networks Limited was set up soon a er, and they quickly put all the infrastructure in place to provide a high speed reliable service to those residents in Ōhiwa. They are now providing the same service in Ōpō ki a er building a tower on a peak near the Waioeka Gorge entrance.

Council also engaged Evolu on Networks to provide a much needed CCTV solu on in the CBD. These are connected to the Police sta on through the same wireless internet. The supply, installa on, and connec on of the cameras is a first for Ōpō ki, with a collabora ve approach between Council, Evolu on Networks, Atlas Gentech, Eastek, and local electrical specialists Control Tech. The next step in this project is a tourism camera on the cycle bridge and poten ally free wifi internet in the main street.

Basis of prepara on This Pre-Elec on Report brings together informa on published in Council’s Long Term Plan, Annual Plans, Annual Reports, and associated summaries. It reflects the policies and strategies contained in the 2015-25 Long Term Plan and service level decisions of the current council at that me.

The financial informa on contained in this Pre-Elec on Report has been compiled from the following sources:

• The financial informa on for the years 2014 and 2015 has been extracted from the 2013-2014 and 2014-2015 Annual Reports, which have been audited by the Auditor General

• The financial informa on for the 2016 year and from 2018 onwards has been extracted from the 2015-25 Long Term Plan which has been audited by the Auditor General

• The financial informa on for the year 2017 is extracted from the 2016-2017 Annual Plan, which has been reviewed by the Auditor General for compliance with the Local Government Act and applicable New Zealand Accoun ng Standards.

There is no requirement for the Pre-Elec on Report to be separately audited. However, the majority of the informa on in this report has already been audited as disclosed above. Any major changes to the direc on of the Council that may be approved in the next Long Term Plan (scheduled for June 2018) may alter the forecasts in this report.

Economic Development Council con nues to focus on driving and enabling economic development within the district. For the past few years this has consisted of partnering with Mōtū Trails Charitable Trust to provide interna onal quality bike rides to draw tourists to the region, and con nuing to progress the

harbour development project with Central Government.

More recently however, Council has offered $600,000 of rate relief to enable a 150 hectare kiwifruit conversion in Ōmaio. This covers an area involving roughly 60 blocks of Māori land in various states of use, some of it returning around $600 per hectare in maize. This relief will span

a period of ten years and remove a significant barrier to development.

The coastal areas of our district and further to the east are the best kiwifruit growing areas in the country, with likely returns a er five years of over $20,000 per hectare to the owners.

About the Ōpō ki district With miles and miles of open sea, 160 kilometres of coastline, 13 clean, fast flowing rivers and 11,200 hectares of na ve bush and scrubland, the Ōpō ki District is the perfect place for a community that appreciates and enjoys outdoor ac vi es and a natural environment. The district comprises 25% of the Bay of Plenty region and contains 50% of the Bay of Plenty coastline. A li le under 8,500 people live in the Ōpō ki District. Each year more than 30,000 visitors experience the environment that we are lucky enough to call home. Just under half of the resident popula on lives in the Ōpō ki township with the remainder of the popula on living in smaller outlying communi es. There are twenty marae in the district, which are a focal point for local communi es, along with a number of strong farming, lifestyle and coastal se lements. The economy is driven primarily by agriculture with over 400 farms and orchards amoun ng to a total area of 75,660ha.

Key dates for the 2016 Local Elec ons Friday 15 July - Nomina ons open

Friday 12 August - Nomina ons close Friday 16 to Wednesday 21 September - Vo ng papers delivered

Friday 16 to Saturday 8 October - Special vo ng period Saturday 8 October - Vo ng closes (noon)

Saturday 15 to Wednesday 19 October - Official declara on

Ōpō ki District Council 108 St John Street, Ōpō ki 3122 PO Box 44, Ōpō ki, 3198 Phone: 07 3153030 Fax: 07 3157050 Email: info@odc.govt.nz www.odc.govt.nz