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STRATEGY AND RESOURCES COMMITTEE
13 MAY 1996
A meeting of the Strategy and Resources Committee
was held on Monday 13 May 1996 at 4.00 p.m.
PRESENT: Councillor David Close (Chairman),
The Mayor,
Councillors Oscar Alpers, Carole Evans,
Pat Harrow, Ian Howell, Alister James,
Garry Moore, Margaret Murray,
Denis O'Rourke and Ron Wright. IN ATTENDANCE: Councillors Graham Berry, David Buist
and Charles Manning. APOLOGIES: An apology for lateness was received
from Councillor Ron Wright. The Mayor retired at 6.10 p.m. and was present
for the submissions on clause 1, clauses 2,
6 and 10. Councillors Evans, Moore and Wright retired
at 7.15 p.m. and were present for clauses 1,
2, 6, 9.1 and 10. Councillor Murray retired at 7.30 p.m. and was
present for clauses 1, 2, 3, 6, 9.1 and 10. The Committee reports that: PART A - MATTERS REQUIRING A COUNCIL DECISION
1. SOUTHPOWER - STATEMENT OF CORPORATE INTENT RR 2800
Officer responsible Author Chairman of the Board,
Christchurch Bob Lineham City Holdings Limited Corporate Plan Output: Monitoring of Trading Enterprises Volume I Table II
Over recent weeks the Board of Christchurch City Holdings has discussed a number of issues with Southpower which have led to a proposed Statement of Corporate Intent for the year ending 31 March 1997. The proposed Statement of Corporate Intent was circulated to all Councillors with the Strategy and Resources Committee May agenda. Further copies of the Statement are tabled. The Statement of Corporate Intent is a comprehensive document which outlines the nature and scope of activities undertaken by Southpower together with the company's objectives for the forthcoming period.
1 Cont'd A significant change encompassed in this Statement of Corporate Intent compared with previous years is the changed relationship between the Council and Southpower relating to the undergrounding of reticulation assets. In previous years the discretionary undergrounding has been work undertaken by Southpower on behalf of shareholders who have foregone an element of dividend to enable funding to remain within Southpower so it could do this work which would not otherwise be commercially required. In previous years Southpower has declared a dividend of 38% of net tax paid profit has undertaken discretionary undergrounding of approximately $2.7m. The proposed Statement of Corporate Intent changes the basis of funding discretionary underground reticulation by increasing the dividend to the Council to 50% of net tax paid profit and allowing the shareholders to "purchase" their desired level of discretionary underground reticulation from the dividends received. This enables the various shareholders to determine respective desired levels of undergrounding in accordance with their own corporate priorities for expenditure. It should be noted that Southpower will nevertheless continue to be involved in a significant amount of underground reticulation required for reinforcing the existing network and system improvement purposes. The Directors of Christchurch City Holdings have thoroughly examined and discussed the detail of the Statement of Corporate Intent with the Board of Southpower Limited and are satisfied that the proposals of the company for the forthcoming year are soundly based. Southpower is projecting an after tax return on equity of 8.7% which is consistent with energy company returns and the utility sector. The determination of Southpower's tariff structure has not resulted from the negotiation of this Statement of Corporate Intent. The Board of Southpower has a commercial responsibility to determine tariffs that are appropriate for the long term commercial viability of the company in accordance with the principles set out in the Statement of Corporate Intent on page 6. The principal driver of recent tariff increases has been the increase in charges from ECNZ and Transpower. It is appropriate to note that the recent tariff increases were determined before discussion on this Statement of Corporate commenced. This is highlighted in this commentary to correct the mis-information in recent news media releases by lobby groups which have incorrectly assumed that the Council has forced tariff increases in order to increase its income from Southpower Limited. This is strongly refuted. A public notice was placed in "The Press" newspaper advising that the statement would be considered at the Committee's May meeting. Copies of the statement were also mailed to all the groups which made submissions on the Southpower Establishment Plan in 1992 together with several other groups known to have an interest in this issue. Representatives of the following organisations made submissions to the Committee on the Statement of Corporate Intent: 1 Cont'd Merivale Precinct Society
Beneficiary Advisory Service
Ratewatch
Greypower The principal issues raised in the submissions were the impact of electricity price increases on low income earners and beneficiaries and the future ownership of the company. Ownership options advocated by the deputations ranged from the status quo, to a community trust, to a share give-away to consumers. Other concerns included Southpower's investment in Enerco, and the method of financing this investment, as well as its substantial involvement in the retail appliance market. Alternative mechanisms for distributing Southpower profits were also proposed. Many of the issues raised were outside the scope of the Statement of Corporate Intent, being either matters of Council policy or commercial investment decisions and therefore a director, not a shareholder, responsibility. Mr Jim Lamb, on behalf of the Beneficiaries Association, sought the reduction or abolition of the Power Manager rental charge to low income people. Mr Lamb also advocated a review of the present policy relating to debt recovery. At present between 50% and 75% of a $5 Power Manager charge is allocated to debt recovery. This means that in the winter months when power use is higher the amount of debt recovery increases at a time when people on low incomes can least afford it. The Committee felt that the concerns raised regarding the Power Manager scheme were valid ones and warranted serious consideration by Southpower. The Ratewatch spokesman, Mr Paul McManus, expressed concern regarding the complexity of Southpower's Annual Report and suggested that a simpler version be produced for public consumption. This submission was also supported by the Committee. A recurring theme in all submissions was the Council's future intentions regarding its ownership of Southpower. In 1992 the previous Council passed a resolution confirming its intention to retain its entire shareholding in Southpower. Given that there appears to be a widely-held perception within the Christchurch community that the present Council proposes to dispose of part or all of its shareholding the Committee believes that it would be appropriate for the new Council to reaffirm the current policy relating to the Southpower ownership issue. Recommendation: 1. That the proposed Statement of Corporate Intent of Southpower for the year ending 31 March 1997 be adopted, subject to clarification of the agreed pricing policy referred to on pages 6 and 20. 2. That Southpower be requested to prepare a simplified version of its Annual Report for consumers, in consultation with the Director of Finance. 1 Cont'd 3. That Southpower be requested to give serious consideration to the submission from the Beneficiaries Association on Power Manager charges. 4. That the Christchurch City Council resolve: (i) That its shareholding in Southpower is not for sale. (ii) That continuing ownership of Southpower by existing local authorities on behalf of the community be supported. 2. LOCAL GOVERNMENT ASSOCIATION SUBSCRIPTIONS RR 2805
Officer responsible Author Director of Policy Councillor David Close Corporate Plan Output: Corporate Overheads
A circular from NZLGA on proposed changes to subscriptions arrived as the report to the Committee was in its final stages. Comment is sought by 14 June. A copy of the circular is tabled. The Funds Manager's report on the new charging system follows my report. The current subscriptions have two components: a uniform charge which covers 40% of the NZLGA budget, and a variable charge based on population and voting rights. The new proposal is to recover 60% of NZLGA costs from a uniform charge of $15,085, and to obtain the balance from a levy based on operating expenditure, with no local authority being levied on more than $100m of operating expenditure. The tables setting out the projected new subscription rates and the operating expenditure of member authorities suggest, on a cursory examination, that different authorities may calculate operating expenditure on different formulas and that this may give rise to anomalies. Both the present and proposed systems are regressive, in that smaller authorities pay a much higher rate per head or a much higher proportion of operating expenditure. 2 Cont'd 1996/97 SUBSCRIPTIONS - SAMPLE AUTHORITIES
Current Cost per Proposed % of Increase/
System Head System Operating Decrease
Expenditure
Christchurch $44,815 15.2c $57,732 .043% +28%
City
Banks Peninsula 16,006 $2.10 $17,902 .230% +12%
Selwyn 21,207 $1.00 $18,184 .213% -14%
Waimakariri 21,207 68c $20,552 .136% -3%
Hurunui 16,006 $1.67 $18,326 .205% +14%
Dunedin 36,811 31c $57,732 .049% +57%
Wellington 36,811 24c $57,732 .038% +57%
Grey 20,007 $1.43 $17,802 .238% -11%
Canterbury RC 51,133 ? $28,137 .078% -81%
West Coast RC 12,583 ? $16,385 .457% +30%
The proposed system has the following effects: 1. Reductions (usually large) for all regional councils except West Coast and Auckland. 2. Small reductions for medium-small districts and cities. 3. Increases for the smallest districts. 4. Significant increases for large cities and districts. The existing formula based on population results in regional councils paying a disproportionately large share of the costs of NZLGA, but the new formula seems unduly harsh on small authorities, and charges Auckland and Dunedin the same fee. Both the current and proposed systems appear to be full of anomalies, but their purpose may be to justify the current allocation of votes, under which most authorities have one vote, medium sized authorities two votes, and the largest authorities three votes. Banks Peninsula, Selwyn, Waimakariri and Hurunui, with a total population of about 70,000, can outvote Christchurch with a population of about 300,000. However, their combined subscriptions comfortably exceed that charged to Christchurch. It may be that it is appropriate to review voting rights concurrently with subscriptions. The Funds Manager reports: The purpose of this report is to advise the Council on the acceptability of the NZLGA proposed subscription charge. 2 Cont'd PROPOSED FORMULA The proposed system uses as a base the actual cash expenditure of the Council for the previous year obtained from the cashflow statements in the published accounts of each local authority. The expenditure is `capped' for all those above $100m expenditure and so the top six local authorities have the same charge. This base is used to collect 40% of the charges. Sixty percent is collected on a flat fee per council. This method raises the following issues: * Cash not accrued expenditure is used. * The base may not reflect the size and scope of the Council as services may or may not be included. * Services may be delivered by wholly owned subsidiary companies and therefore the cost of delivery will be excluded. * Interest expense is included in the expenditure and therefore the funding choice of capital influences the charge. The size of service delivery reflected by gross cost should be considered. From the table of charges for all authorities I selected a sample and found the extraction of cash expenditure correct. The interest expense as a percentage of cash expenditure ranges from .4% (a small local authority) to 6.68%. Generally the move towards flat fee and user charges should ensure equity between councils as this reflects equal value with high use giving higher charge. The mere existence of a council at a certain size should not dominate their charge. Notwithstanding the above concerns the proposed fee appears reasonable. Size and complexity are reflected in comparable operating expenditures. It corrects the apparent inequity that the Canterbury Regional Council was paying significantly more than Christchurch City yet had a third of its rate revenue. In noting that under the proposed new charging regime the Council's subscription will increase from $44,815 to $57,732, several members of the Committee questioned whether the Council received good value for its subscription. Another point of concern to the Committee was the fact that the subscription increases had been advised after the Council had set its draft budget for the 1996/97 year. The majority of the members agreed that the Council should counter-propose to the Local Government Association that the current system remain in place. Recommendation: That the New Zealand Local Government Association be requested to retain the status quo in respect of its subscription charges. 3. NEW ZEALAND LOCAL GOVERNMENT ASSOCIATION RR 2805
Officer responsible Author Director of Policy Dennis Morgan/Max Robertson Corporate Plan Output: Page 3.1.3 Elected Member Representation
(a) NOMINATIONS FOR OFFICES OF PRESIDENT AND VICE PRESIDENTS Nominations have been invited for the offices of President and Vice Presidents of the New Zealand Local Government Association. The term of office for the President is three years and for the two Vice Presidents one year. The election will be held at the Annual Conference on 15 July 1996. Nominations by this Council must be seconded by another Council and close on 31 May 1996. (b) ANNUAL PLAN 1996/97 AND STRATEGIC PLAN TO 2001
The National Council of the Association has finalised the work plan for 1996/97 and the Strategic Plan to 2001. Both plans were circulated to Councillors with the agenda for the May meeting of the Strategy and Resources Committee. The six key areas in which the Association is to concentrate its work on behalf of members for the year ahead are: - Elected and general member issues ($58,000)
- Liaison and general ($289,000)
- Resource management ($107,000)
- Role, functions, funding ($355,000)
- Safety, health and community ($157,000)
- Transport ($221,000) (c) REMITS TO THE 1996 CONFERENCE To meet the deadline of 15 May 1996 any remits forwarded following the Strategy and Resources Committee meeting will be subject to confirmation by the Council at its meeting on 22 May 1996. The Central City Committee meeting on 2 May 1996, when considering the proposed prohibition of alcohol in public places, was advised by the Legal Services Manager that territorial authorities do not have the power to prohibit the consumption or possession of alcohol in public places. The Committee resolved to recommend to the Council:
3 Cont'd 1. That the Council make a submission to the Minister of Local Government and the Minister of Police recommending that section 709A of the Local Government Act 1974 be amended so as to provide a general power to territorial authorities to prohibit the consumption or possession of alcohol in public places. 2. That the support of the Local Government Association be sought. In view of the request by the Association that remits be forwarded by 15 May, the recommendation of the Central City Committee that the support of the Local Government Association be sought could be forwarded as a remit. The Committee endorsed Councillor Murray's views that the remit process was not the best one for securing the Association's support for this legislative change. It was agreed that the proposal should be pursued by way of submission and deputation to the relevant Ministers and a direct approach to the Local Government Association Executive. (d) 1996 LOCAL GOVERNMENT CONFERENCE
The Council is requested to appoint its delegates to this year's Local Government Conference, to be held in Taupo from Monday 15 to Wednesday 17 July 1996. The following members and staff have represented this Council at the last two conferences: 1994 Conference (Palmerston North) The Mayor
Councillor Anderson
Councillor Close
Councillor Freeman
Councillor Murray
City Manager 1995 Conference (Nelson) Councillor Arbuckle
Councillor Close
Councillor Freeman
Councillor Murray
City Manager The principal topics to be discussed at this year's conference are still to be advised by the Association. As noted at the Council meeting on 30 April, the conference dates clash with the Strategy and Resources Committee hearings on the Draft Annual Plan, to be held daily during the week Monday 15 to Friday 19 July 1996.
3 Cont'd Recommendation: 1. That, subject to his consent, Mr Kerry Marshall, Mayor of Tasman, be nominated for the position of President of the Association. 2. That Councillors Freeman, Dodge, Manning and two other Councillors represent the Council at the 1996 New Zealand Local Government Association Conference. 3. That submissions be made to the Government seeking a change to the Local Government Act to provide a general power to territorial local authorities to prohibit the consumption or possession of alcohol in public places. 4. That the Council enlist the support of the Executive of the New Zealand Local Government Association and local MPs to the amendment. 5. That a deputation wait on the relevant Ministers of the Government at an appropriate time to seek their support for the legislative changes.
4. SUBSCRIPTION FOR UNCALLED SHARE CAPITAL RR 2817 CHRISTCHURCH CITY HOLDINGS LIMITED
Officer responsible Author
Director of Finance Bob Lineham
Corporate Plan Output: Volume 1 Table I - Loan Raising
The purpose of this report is to seek authority from the Council to subscribe for Uncalled Capital in Christchurch City Holdings Limited in support of the bond loan programme of CCHL. Loan Programme of CCHL In September 1995, the Council gave approval for CCHL to borrow in lieu of the Council budgeted borrowing programme together with the borrowing intended for part of the major projects of Council. The funds are to be passed to the Council by way of repayment by CCHL of the subordinated loan of $41.6m. In December 1995, $20m was raised, $17m was passed to the Council. The balance was retained by CCHL to provide funding for the retirement of the Port Finance debt. It is intended that further bond issues will be raised progressively starting in May/June 1996 as required for Council expenditure. 4 Cont'd Uncalled Capital CCHL has the capacity to borrow a total of $50m through bond issues in terms of its current debenture facilities. In addition to the subordinated debt of $41.6m, borrowing is needed to facilitate the repayment of Port Finance debt and to repay the advance of $5m made by Christchurch City Council to Christchurch City Holdings Limited when CCHL was established. All borrowings of CCHL are supported by uncalled share capital held by the Council. It is not intended that calls will be made on these shares but it provides additional security for the debt holders of CCHL and assures the same credit rating for CCHL and CCC. Additional uncalled capital must therefore be subscribed for by Council as additional funds are progressively borrowed. $20m was subscribed for in December 1995 in terms of the Council approval of September 1995 and the authority is needed to extend this to the full $50m uncalled capital in due course. Recommendation: 1. That the Council approve the subscription of up to $50m of uncalled share capital in CCHL to support the bond issue of the company. 2. That the Director of Finance be authorised to progressively arrange for subscription of this capital to match the borrowing requirements of CCHL.
5. CANTERBURY DEVELOPMENT CORPORATION RR 2821 The Chairman, Canterbury Development Corporation Trust, reported: Last year the Council approved changes to its relationship with the Canterbury Development Corporation. Under the new system, the shares in the Corporation are held by the Canterbury Development Corporation Trust, which has the right to appoint directors to the board of the Corporation. At its December meeting, the Council resolved that Councillor Howell and the writer be its appointees to the Trust. The other two Trustees are required to be "suitably qualified and eminent members of the Canterbury community". On 1 May, the Trustees met and resolved to appoint Mr Martin Hadlee and Mr Derek Anderson as Trustees. Mr Hadlee replaces the late Mr S W Bullen, and Mr Anderson fills the place vacated by Councillor Howell, who was formerly a non-Council appointee. The Trustees met again on 6 May, at which time they considered appointments to the Board. Under the Trust Deed, the Council has the right to nominate five directors. The current Councillor directors are the Mayor, Councillors Alpers, Moore and Close, and ex-Councillor Anderson. Recommendation: That the Council nominate five Councillors for appointment by the Canterbury Development Corporation Trust to the Board of the Canterbury Development Corporation. PART B - ITEMS DEALT WITH BY THE COMMITTEE AND
REPORTED FOR INFORMATION ONLY
6. CAPITAL SUBSTITUTION FOR COMPOST PROJECT RR 2806 The Plant and Building Services Manager reported, seeking approval for a capital substitution between two plant sub-groups that would result in a net $230,000 reduction for the plant replacement expenditure in the 1995/96 year. The Committee resolved that for the current 1995/96 financial year, the specialist plant replacement sub-budget be reduced by $380,000, that the truck and trailer plant replacement sub-budget be increased by $150,000 and because of this net overall reduction of $230,000 in budget requirements for the plant replacement account, that the funding transfer to the plant renewal fund be reduced by $230,000.
7. ROADING PROFESSIONAL SERVICES RR 2796 The City Streets Manager submitted a report updating the Committee on Transit New Zealand legislation issues affecting in- house professional services and seeking the establishment of a subcommittee to pursue a process of "giving due consideration" to a range of legislative criteria on this matter. The Committee resolved: 1. That a subcommittee comprising Councillors Close, O'Rourke, Freeman and Dodge be formed to work through the process required by the legislation in respect of professional services. 2. That a target date for Council resolutions on professional services be September 1996.
8. CATHEDRAL SQUARE UNDERGROUND RR 2804
BUS TERMINAL/CAR PARK INVESTIGATION The Principal Policy Analyst, Dave Hinman, submitted a report updating the Committee on the investigation of the proposal for an underground bus terminal and car park in Cathedral Square. At a seminar meeting of the Central City Committee on 7 May, a presentation was made by both the project team and PDIC. The PDIC presentation included a preliminary indication of a revised plan significantly different from that previously shown to the Council. The revised plan required further development and PDIC requested that more time be given to enable both the physical design and the financial aspects to be further progressed. It was the view of Councillors present at the seminar meeting that additional time should be granted and that the matter should now be formally reported to the Council through the June Central City and Strategy and Resources Committees. A detailed report from the project team, incorporating an assessment of the revised plan will be presented at that time. 8 Cont'd At the request of the Committee the City Manager agreed to arrange a further informal presentation of the revised plan for those Councillors who were unable to attend the 7 May presentation. The Committee resolved that the project team for the Cathedral Square underground bus terminal/car park investigation now report to the Council through the June meetings of the Central City and Strategy and Resources Committees, with Regional Councillors being invited to attend the Central City Committee meeting.
9. ITEMS RECEIVED The Committee received the following reports: 9.1 Report from Christchurch City Holdings Ltd RR 2800 The report of Christchurch City Holdings Ltd covered the following matters: * The six monthly consolidated accounts including Port Finance Ltd which has now been fully amalgamated into the parent company, Christchurch City Holdings Ltd. * Monitoring of subsidiary companies. * Selwyn Plantation Board - Director vacancy. * Revaluation of companies. * Lyttelton Port Company Share Float. 9.2 Plant Replacement Programme
The Building Services Manager reported on expenditure on the plant replacement programme for the period to 30 April 1996.
10. ITEMS DEFERRED/WITHDRAWN 10.1 Riccarton Bush Trust RR 1981 Appointment of New Council Representative
The Committee deferred consideration of this report until an appropriate appointee had been identified to fill the vacancy created by the resignation of Mrs Denise McGregor 10.2 Roading LATE RR 2820 This item was withdrawn. 11. RESOLUTION TO EXCLUDE THE PUBLIC The Committee resolved that the draft resolution to exclude the public set out on page 20 of the agenda be adopted.
CONSIDERED THIS 22ND DAY OF MAY 1996
MAYOR