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6. SOUTHPOWER ELECTRICITY PRICE INCREASE RR 7037
| Officer responsible | Author |
| Director of Finance | Richard Simmonds |
| Corporate Plan Output: Trading Activities | |
The purpose of this report is to consider issues arising from the petition presented to the Council in December by Councillor Graham Berry, expressing opposition to the recent 4.9% increase in Southpower electricity prices.
THE PETITION
The wording of the petition is as follows:
"We the undersigned are opposed to the 4.9% increase in Southpower prices and demand that the Christchurch City Council instruct Southpower to reverse the latest unfair and unwarranted price increase."
The petition contained some 28,700 signatures. It was not considered practical or cost-effective to check the validity of these signatures in detail (e.g. by reference to the electoral roll).
CONCLUSION
This report concludes that, for the reasons stated, the Council should not instruct Southpower to reverse the latest price increase. The most appropriate way for the Council to exercise control over Southpower's general pricing policy is through negotiation of the annual Statement of Corporate Intent which is the established practice.
ISSUES ARISING
There are a number of issues that have to be considered in the context of the petition. A key question is whether the Council should, or indeed is legally able, to interfere directly with commercial pricing decisions taken by one of its trading entities. This is essentially a question of corporate governance, and is addressed below under the following headings:
Other relevant matters to consider include:
CORPORATE GOVERNANCE CONSIDERATIONS
1. The Council's Legal Position in the Context of the Companies Act
The Companies Act 1993, for the first time, gives shareholders specific powers. These cannot be altered by the company's constitution, although additional powers can be inserted (and have been in the case of Southpower with specific provisions relating to the statement of corporate intent and the power to appoint and remove the board). The non-removable powers under the 1993 Act are summarised as follows, together with the relevant section number:
There are also specific provisions in the Act regarding the rights of minority shareholders in certain circumstances, and some general powers able to be exercised with the unanimous assent of all shareholders, none of which are directly relevant to the subject of this report.
It is therefore clear that the Council, as a shareholder of Southpower, is not specifically empowered to participate directly in the management of the company's affairs. This role is imposed on the directors, as described in the next section.
The above conclusion is reinforced by the publication "Practical Guidelines for New Zealand Directors", endorsed by the Institute of Directors in New Zealand, which states:
"Normally the rights of ordinary shareholders would include the following:
Generally, the shareholders have no power to direct or manage the company".
Similarly, the Report of the Controller and Auditor-General on "Governance of Local Authority Trading Activities" (1994) states:
"The formation of trading activities as companies has implications for the role of the local authority as shareholder. Ultimate control remains with the shareholder, by virtue of its power to dismiss the board or wind up the company. The local authority has no power, however, to make decisions about the management of the company. Responsibility for determining business objectives and achieving those objectives rests with the board".
A legal opinion obtained last year from Buddle Findlay (24 September 1997), and circulated to the Councillors at the time, on this topic also supports the above conclusion (copy tabled).
It would therefore seem that the only conclusion that can be drawn is that the Council would be acting outside its legal powers if it were to impose a specific requirement on Southpower to reverse its recent 4.9% price increase.
2. "Deemed director" Provisions of the Companies Act
Section 126(1)(a) of the Companies Act defines a director as a "person occupying the position of director of the company by whatever name called" and, for the purposes of the sections relating to a director's general responsibilities, "a person in accordance with whose directions or instructions a person referred to in paragraph (a) of this subsection may be required or is accustomed to act".
There is therefore a significant possibility that the Council would become a deemed director if it interfered directly with the commercial decisions of Southpower. This in turn would expose it to all the legal responsibilities placed upon directors, and would clearly be an undesirable outcome since the Council does not have a detailed working knowledge of the impact of commercial decisions on the viability and value of the company.
3. Responsibilities of the Southpower Directors
The Companies Act 1993 imposes general duties on directors. Section 128(1) states that:
"The business affairs of a company must be managed by, or under the direction or supervision of, the board of the company".
Section 131(1) states:
"Subject to this section, a director of a company, when exercising powers or performing duties, must act in good faith and in what the director believes to the best interests of the company."
It is clear from this, and the preceding discussion, that the prime responsibility for pricing decisions rests with the Southpower directors, who also have the duty to make such decisions in the best interests of the company.
If the Council were to impose pricing decisions upon the board, the Southpower directors could find themselves in an impossible position in attempting to discharge their duties. In an extreme case, as pointed out by Buddle Findlay, if price increases were needed in order for Southpower to remain solvent, the directors could be held personally liable for losses incurred, even though their hands were tied in respect of raising prices. Such a restriction on their powers to run the company along commercial lines greatly diminishes the chances of attracting directors of sufficient calibre to the Southpower board.
Buddle Findlay also point out in the same letter that, while it is not appropriate for shareholders to interfere directly in commercial pricing decisions, it is open for the Council as the main shareholder to request a general meeting for the purposes of seeking an explanation from the Southpower board as to the underlying justification for the recent price increases and advice to the shareholders on the board's general pricing policies.
4. Effectiveness of Existing Methods of Control
Currently, the main way in which the Council exercises influence over Southpower is through the annual process of negotiating and approving the Statement of Corporate Intent ("SCI"). Clause 12.1 of Southpower's constitution requires a draft SCI to be delivered to the shareholders within one month of balance date, and specifies the information to be included. The information requirements do not specifically include a forecast of the return on equity, a key measure of performance, but historically this measure has been provided and negotiated.
The significance of the Council's role in the process of finalising the SCI is emphasised by Clause 12.1(d), which states:
"Unless the Board determines that it would not be in the best interests of the Company to do so the Board shall amend the draft SCI in accordance with any reasonable recommendations made by Ordinary Resolution of shareholders and which relate to the future policies and direction of the company."
In addition to the SCI, the Council monitors Southpower on an ongoing basis through Christchurch City Holdings Limited ("CCHL"). This is an active process which, particularly in recent months, has involved a substantial commitment of time and resources on the part of CCHL. There has been, and continues to be, ongoing dialogue between the respective boards.
The question of a price increase was discussed at length with CCHL before being announced by Southpower. Ultimately the 4.9% increase was accepted by the Council on the grounds that it was not inconsistent with the SCI. This episode served to emphasise the importance of the SCI negotiation process, and the difficulty of becoming involved with the normal commercial operations of Southpower once this process is concluded.
In conclusion, one can state that the process for controlling Southpower's general strategy and direction is effective. However, the implications of the financial performance indicators contained in the SCI for the domestic consumer must be carefully scrutinised by the Council before approving the SCI, as it will be extremely difficult at a later stage to bring about pricing policies which are inconsistent with the SCI.
5. Provisions of the Current SCI
The Southpower SCI for the year ending 31 March 1998 does not specifically state the quantum of any particular price rise planned in the short to medium term. However, it does contain statements indicating the potential for such rises.
The following relevant statements have been extracted from the SCI on a selective basis to demonstrate this:
Under "Objectives of the Group" it states:
"Southpower operates as a successful business and will move to a level of earnings sufficient to support the growth of the company and provide shareholders with appropriate returns on their investment" .
Under "Pricing":
"It is existing agreed policy that because of the narrow margins in energy trading, retail prices will continue to be adjusted for increases in both the wholesale price of energy from generators and the price of transmission from Transpower".
"As the wholesale electricity market is still new, it is difficult to predict longer term pricing trends. However, Southpower believes that electricity prices, particularly winter prices, will continue to increase in the short to medium term."
"Southpower will move towards an appropriate rate of return on its network over the next three financial years. This will be first achieved for the financial year ended 31 March 2001, through a combination of operational efficiencies and moderate retail price increases."
Under "Financial Performance Targets":
"Southpower's financial performance targets for the parent company for the year ended 31 March 1998 are as follows:
Under "Key assumptions Used in the Financial Forecasts":
"retention of the South Island ECNZ wholesale price differential".
On the basis of the foregoing, it would be difficult to argue that the 4.9% increase was inconsistent with the SCI approved by the Council, particularly given that 2% of the rise was attributable to the removal of the South Island price differential.
6. Other Legal Considerations
Section 36(1) of the Energy Companies Act requires Southpower, as its principal objective, to operate as a successful business. This would appear to preclude a policy of pricing solely designed to meet the Council's social objectives, although one can envisage circumstances where a combination of commercial and social objectives would not cause this section to be breached.
COMMERCIAL CONSIDERATIONS
1. Southpower's Prices in Relation to Other Regions
Examination of the statistics reveals that, by any measure, Southpower's prices compare favourably with the national average. Distortions can arise from the fact that Southpower has the lowest fixed charges in the country, which means that the variable element can appear higher than some companies prices, if quoted out of context. The low line charges incidentally, also have the effect of encouraging efficient use of power.
To overcome this, a fair comparison is to measure the total cost of an annual average residential power bill of 9000 kWh. To avoid any suggestion that rates are used to subsidise power bills, the two can be combined to show the total cost to an average ratepayer. Southpower have performed such an exercise, extracting their figures from independent sources, as follows:
| City | 9000 kWh residential power price1 | Company | 1997/98 average residential rates2 | Total (inc. GST) |
Waitakere Auckland Manukau North Shore Wellington Dunedin Christchurch |
$ 1,208 1,197 1,197 1,208 1,167 1,051 1,161 |
Power NZ Mercury Mercury Power NZ TransAlta United Elec Southpower |
$ 1,454 1,374 1,329 1,285 1,126 1,063 893 |
$ 2,662 2,571 2,526 2,493 2,293 2,114 2,054 |
Table extracted from Southpower documentation
Sources:
1. Power prices - Deloittes
2. Rates - Valuation NZ
An independent analysis of the electricity industry by SBC Warburg towards the end of 1997 compared all of the country's energy companies in terms of their position in relation to the "regulatory attention curve". Again Southpower rated well, particularly compared with the larger companies, being well off the point where the relationship between the company's accounting rate of return, relative domestic tariff and the regulator's estimate of a reasonable return might give cause for suspicion of unfair pricing practices.
Some relevant comments concerning the pricing issue are also made in the tabled legal opinion from Buddle Findlay.
It is noted that Southpower have publicly stated that there will be no further increases for the domestic consumer until 1999.
2. Impact of Pricing Policies on Southpower's Valuation
As a general rule, a company's value on a going concern basis is based on its future earnings potential. An ongoing low pricing policy resulting in sub-optimal returns will inevitably have the effect of reducing the value of the city's investment in Southpower, and may also prevent the company from making the necessary investments in its infrastructure.
It is not possible to quantify the extent of any such loss in value without performing a detailed valuation exercise, which is beyond the scope of this report. While it could be argued that, as there is no intention to sell Southpower, this is not a significant issue, a decision to reduce the value of a strategic asset for future generations is a significant one and needs to be debated fully. The Council would need to act very cautiously given their responsibility for the assets of the city.
An additional factor to consider is that the electricity industry is in a state of transition, with a compulsory split of the line and energy trading businesses very likely to take place. The imposition of a price cut would be an unwelcome distraction at a time when such far reaching changes in the industry are taking place.
The Chairman commented:
The Council is conscious of the sincerity of the thousands of people who signed the petition. We recognise that any increase in basic living costs puts pressure on people on low incomes. We would like to assure the petitioners that the City Council, as the majority shareholder in Southpower, has always influenced Southpower's pricing policies, with the result that Southpower's charges to the average residential consumer have continued to be amongst the lowest in New Zealand. We are pleased that Southpower's fixed charge of 30c per day is the lowest in New Zealand as this discourages waste and is of benefit to the small consumer.
Southpower's prices for commercial customers are below the national average, and, in the case of small commercial consumers, almost 20% below the national average.
It would be improper for the City Council to set actual prices for electricity, but the Council will continue to work with Southpower to ensure that all consumers are treated fairly and that Southpower's charges remain amongst the lowest in the country.
| Recommendation: |
|
7. BANKS PENINSULA: PROPOSED AMALGAMATION RR 7029
| Officer responsible | Author |
| City Manager | Alan Dunlop |
| Corporate Plan Output: Various | |
The purpose of this report is to update the Committee on progress with the amalgamation proposal.
BACKGROUND
The City Manager presented a report to the October 1997 meeting of the Council outlining how the Local Government Commission intended to carry out the review in terms of the Section 37ZZTb of the Local Government Act. There were two inputs requested of the Council at that stage. These were:
The Commission also indicated that it "would welcome discussion on what (we) consider the appropriate Terms of Reference for this (financial) analysis".
The Council adopted the following recommendations:
It should be remembered that the findings from the review would not having any bearing on the next local authority elections.
UPDATE
We wrote to the Commission on 28 October 1997 advising them of the Council's recommendations.
We wrote again to the Commission on 8 December requesting a response to our letter of the 28 October. We also forwarded draft terms of reference requesting that the Commission finalises the document with Banks Peninsula.
On 4 December1997 (received on 8 December) the Commission responded to the Council's letter of 28 October advising.
We responded again to the Commission on 9 December on the review generally. We reiterated our earlier advice that, until further information was obtained, it is not likely the Council's position will change.
We advised that until the terms of reference are agreed upon the amount of work we can undertake is limited, particularly as it relates to service standards or service levels of key activities in a combined authority.
The Commission has advised (letter 27 January 1998) that they are seeking agreement from Banks Peninsula to the terms of reference and they will discuss the timetable further when they have responded.
In the meantime we have been gathering comparative information on the core activities of both Councils. This should will be completed by the end of February.
Discussions have been held with the Chief Executive of Banks Peninsula with regard to the timetable for the financial analysis. To meet the requirements of the various stages of the terms of reference, we will be asking the Commission to reschedule the completion date for the financial analysis until 31 July 1998.
This date is considered more appropriate taking into account the workload of both staff and elected members leading up to the approval of the Council's Annual Plan and Budget and associated documents in June.
The final report will be considered during the July round of meetings.
| Recommendation: |
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| 8. | BORROWING MANAGEMENT AND INVESTMENT MANAGEMENT POLICIES | RR 7018 |
| Officer responsible | Author |
| Financial Policy and Systems Manager | Bob Lineham and Geoff Barnes |
| Corporate Plan Output: Cash and Investment Management Volume I Page 5.2.text.3 | |
The purpose of this report is to seek Council approval of two policies for the management of the Council's investments and debt.
The policies cover the Christchurch City Council and the Sinking Fund Commissioners. They do not cover Christchurch City Holdings Ltd which has its own policy.
THE REQUIREMENT FOR THIS POLICY STATEMENT
The Local Government Amendment Act (No. 3) 1996, Section 122P and Section 122R introduced the requirement to have from 1 July 1998 policies to govern the management of the Council debt and investments. The Council is required to adopt policies and publish with the Annual Plan, an outline.
In the main these requirements will not change the existing Council's practice. Since 1991, as a matter of prudential management, the Council has had an investment policy. Much of that policy is incorporated into the proposed policy.
Debt management for the Council has been prescribed by the Local Authorities Loans Board under previous legislation and the Financial Management Policy adopted by the Council in 1994 and published in past Annual Plans. All of the relevant features of the Financial Management Policy have been incorporated into these policy statements along with provisions of the new Act.
ADVICE FROM BOTH BANKERS AND SOLICITORS
Advice has been sought from Buddle Findlay (Mark Russell) and Credit Agricole Indosuez (Mark Trigg) to help in the formulation of these policies. Their comments were focused on two issues, firstly, the policies and secondly, the implementation. In respect to implementation, the main issues are:
Management controls and reporting
Security for debt
The management of debt and investments will be in the daily control of the Funds Manager. This role is currently being performed by Paul Melton, Funds and Planning Manager. The administration of the process is largely by the Funds Accountant. Reporting is weekly to the Director of Finance and in future quarterly reporting to the Strategy and Resources Committee is proposed. Property will be managed by the Property Manager. The Funds Manager will be assisted by a review team, membership to be appointed with the Director of Finance. This team will seek and act on independent financial investment advice.
The advice is consistent on the form of security the Council should offer for all debt issued in the future. Debt secured by a first charge on rates is recommended. This offers the best security to investors and therefore should reduce our interest rates as compared to those local authorities which offer mixed securities or only `deemed' rates security. A consistent stand in the market with rate security should avoid confusion in the minds of finance industry investors.
There will be other administrative issues to be dealt with under later reports to the Council.
THE POLICY STATEMENTS
Attached (Appendices 1 and 2) are the policy statements.
The policies are based on the policies of the past adjusted for the requirements of the new Act and recommended revised practice.
Under the new legislation the Council may now enter into hedging contracts to manage the interest rate exposure. Hedging would be undertaken as part of a strategy based on professional advice. This procedure is part of the new policy. By way of note this practice has been in place for Christchurch City Holdings Ltd since 1993 and has been used on several occasions. The policy has been written to specifically exclude the use of synthetic instruments for speculative purposes.
The Financial Management Policy of the Council published in the Annual Plan 1997/98 has been incorporated into these policies. The credit rating is based in part on this and such policies will be maintained.
The policies come into force on 1 July 1998.
PUBLICATION
The Act requires that an outline of these policies be published in the Annual Plan. Once the Council approves the policy, outlines will be prepared for approval with the Annual Plan.
OPPORTUNITIES FOR THE FUTURE
The new policies allow greater flexibility for debt and investment management in the future. Doing nothing with debt management is itself position taking and brings its own risks. No dramatic changes are envisioned. However the tools will be available. In the near future the Director of Finance and the Funds and Planning Manager will appoint a review team and adviser. That team will develop a strategy for management and will report to the Strategy and Resources Committee on a regular basis.
The opportunities bring risks. Because we are now permitted to enter into hedging arrangements, uncontrolled dealing could injure the Council in a fundamental way. The Council should ensure the risks are managed, the controls are monitored and the reporting is meaningful.
LINKS WITH OTHER POLICIES
These two policies are part of the new set of policies introduced by the Act in 1996. The other policies are the Funding Policy and the Long Term Financial Strategy. All will be published in the Annual Plan 1998/99 and all will be inter-related in respect of assets, liabilities, services and funding.
| Recommendation: | 1. That the Borrowing Management and
Investment Management Policies be adopted. 2. That the outlines of the policies be prepared for publication in the 1998/99 Annual Plan. |
| 9. | SIX MONTHLY REVIEW OF ANNUAL PLAN IMPLEMENTATION | RR 7026 |
| Officer responsible | Author |
| Accounting Services Manager | Ian Hay |
| Corporate Plan Output: Overview | |
The purpose of this report is to review the financial operations of the Council for the six months to 31 December 1997 and to update members on business unit surpluses and over expenditures to enable re-allocation of resources if required.
1. COMMENT ON MAJOR CATEGORIES OF INCOME/EXPENDITURE AND VARIATIONS FROM BUDGET
(a) Corporate Expenses
Currently running close to budget overall. Grant expenditure is slightly behind at this stage but is expected to be close to budget at year end. The $453,000 relates to ACC payments and will be re-allocated to business units in proportion to liability.
(b) Corporate Revenues
Overall corporate revenue is close to budget with the year end projection expected to be achieved.
(c) Operational Expenditure
Overall expenditure on rate funded accounts at $65.7M is $4.4M ahead of budget for the six months to 31 December. The main items of over expenditure relate to:
(i) Corporate Administration - Currently running ahead of budget by $126,000. The over expenditure relates to the advance payment of the LGA subscription and telecom directory costs. There are also photocopying charges to be recovered from business units. It is expected the final result will be close to budget at year end.
(ii) Environmental Services - Expenditure is running ahead of budget by $380,000. There are a number of reasons including the accrual of staff holiday costs which will decline as leave is taken during December/January, revenue streams are down on last year due to a slow down in development, additional expenditure on the City Plan and employing Commissioners for Resource Consent hearings. Continual monitoring will ensure the bulk of expenditure is within budget at year end apart from the City Plan and Resources Consent hearings. A request for an additional $200,000 funding is included later in the report.
(iii) Economic Development - Expenditure is ahead of budget by $320,000. The year end budget is expected to be achieved as the Community Trust grant of $500,000 is received in the second half of the year and will compensate for costs incurred to December 1997.
(iv) MIS - Expenditure is ahead of budget by $134,000. The over expenditure relates to the timing of payments such as microsoft user licences with cost recovery expected in the second half of the year. The year end result is expected to be close to budget.
(v) Plant and Building Services - At 31 December P and B Services revenue was $300,000 under budget. The under recovery relates to the timing of invoice processing and steps have been taken to improve this. The year end result is expected to be achieved.
(vi) Entertainment and Convention Facilities - The over expenditure of $178,000 in the main relates to the incorrect charging of rates for the Convention Centre. The amount should have been charged to CCFL with the adjustment actioned during January.
(vii) Waste Management - At 31 December Waste Management was overspent against budget by $316,000. A shortfall in revenue from refuse stations and compost sales is the main reason for the over expenditure. Revenue projections for the second half of the year are expected to be achieved which combined with an emphasis on cost reduction will ensure the result does not worsen at year end. Some additional costs which are outside the control of the Unit have also been identified and will be discussed later in the report.
(viii) City Streets - The result for the six months shows over expenditure against budget of $432,000. The main reasons for the variance at 31 December relate to the fact that Transit revenue is down against budget at this stage as the capital programme is behind and $300,000 of operational expenditure which will be transferred to capital at year end. Overall the operational result is close to budget with the year end budget expected to be achieved.
(ix) Works Operations - The $2.75M over expenditure relates to WIP to be recharged to business units. Approximately one third relates to infrastructural assets with the balance operational. The year end projected result is expected to be achieved.
Summary - Operational Expenditure
In addition the library has had a drop in revenue with the closure of the Shirley Library and disruption caused by the Central Library upgrade. Steps are being taken to maximise revenue for the second half of the year to minimise the current shortfall.
Overall the year end budget is expected to be achieved but with some revenue shortfalls and increased costs close management monitoring of the situation for the remainder of the year is required.
(d) Fixed Assets Expenditure
At 31 December 1997 fixed assets expenditure is running behind budget by $13.6M. Delays in the starting of significant projects account for $10.5M of the under expenditure. The balance is made up of smaller sums relating to the timing of actual expenditure against budget. Some saving have been identified later in the report.
(e) Infrastructural Assets
Actual expenditure to 31 December is $16.8M against a budget of $20.4M. As noted earlier some of the $2.7M WIP from Works Operations and City Streets expenditure amounting to $0.3M are still to be transferred.
(f) Restricted Assets
Parks $1.2M and Property $.5M account for the bulk of the under expenditure at 31 December. The under expenditure relates to delays in implementation with the year end projections expected to be achieved.
2. SAVINGS AND OVER-EXPENDITURE IDENTIFIED
(a) Operational Savings and Additional Revenue
| City Design Surplus | 350,000 | ||
| Commercial Property | - Revenue (additional) | 50,000 | |
| - Expenditure Savings | 200,000 | ||
| - Grant South Hornby Preschool | 55,000 | ||
| 305,000 | |||
| $655,000 |
(b) Operational Shortfalls
| Parks | Rural Fire recoveries excess plus contractor | 31,000 | |
| Urgent tree safety maintenance -Hagley Park | 20,000 | ||
| Urgent maintenance - 9 Evelyn Avenue | 12,000 | ||
| 63,000 | |||
| Waste Management - | Additional paper recycling subsidy | 80,000 | |
| Refuse and Compost revenue | 350,000 | ||
| 430,000 | |||
| Library | Revenue shortfall Shirley and Central | 100,000 | |
| Inventory | Copy centre start-up | 29,000 | |
| Canterbury Regional Council | Civil Defence Training (Through the Director of Operations the CRC has requested additional funding to complete the training of Community Volunteers in disaster recovery) |
69,000 | |
| Environmental Services | City Plan | 150,000 | |
| Resource Consent Hearings | 50,000 | ||
| 200,000 | |||
| ---------- | |||
| $889,000 | |||
| Estimated Operational Shortfall | $234,000 | ||
| ====== |
(c) Capital and Infrastructural Savings
| Water Services | Mains Renewal | 100,000 |
| Environmental Policy and Planning | Urban Renewal | 200,000 |
| Total Savings | $300,000 |
(d) Capital and Infrastructural Requests for Additional Expenditure
| Parks | Avondale Park Drainage (reallocation request in lieu of Latimer Square) | 65,000 | |
| Redcliffs Park Hockey transfer | 30,000 | ||
| Property | Civic Offices Structural Strengthening | 80,000 | |
| Old AMP Showgrounds parking | 250,000 | ||
| 210 Tuam Street development | 70,000 | ||
| 400,000 | |||
| Mayor’s Office | Computer Purchases(replacement of old Macs with PCs) | 17,000 | |
| Total Requests for Additional Expenditure | $512,000 | ||
| Overall Capital and Infrastructural Shortfall | $212,000 |
(e) Capital and Infrastructural Projects Delayed to be rebudgeted in the 1998/99 year
| Water Services | Burwood/Woolston Expressway | 250,000 |
|
| Property | Parklands CC Improvement | 186,700 |
|
| Canterbury Provincial Building | 746,000 |
||
| Pier Building | 2,200,000 |
||
| Suburban Libraries | 930,000 |
||
4,062,700 |
|||
| Parking | Meter Replacements | 453,000 |
|
| Hospital Car park Equipment | 148,000 |
||
601,000 |
|||
| Waste Management | Liquid Waste | 660,000 |
|
| Solid Waste | 30,000 |
||
690,000 |
|||
| Total to be Rebudgeted 1998/99 year | $5,603,700 |
3. COMMENTS
(a) Operational
With the revenue shortfalls already identified in Waste Management and Libraries, the overall year end result will be under pressure. The Council will need to decide whether to continue with the recycled paper subsidy given the continued price fall overseas. It is recommended that no additional operational expenditure be authorised apart from the essential small items identified in the Parks area, the additional Annual Plan and Resource Consent costs, and the Copy Centre set-up already approved. Continued monitoring by managers should ensure an overall result within budget at year end.
(b) Capital
I have split the capital into two components as they need to be treated differently. The projects which we know are delayed ($5.6M) should be deleted from the year's budget and rebudgeted for the next financial year. This action will give more certainty to the current year's borrowing programme and help minimise interest costs. As the programme assumes borrowing late in the financial year, the amount will not be substantial but the adjustment will give certainty to the base figure for next year's estimates. As these projects have already been approved and are only delayed, units need certainty that they will be retained in the next year's budget for planning purposes.
Very few capital savings have been identified at 31 December 1997 and it is recommended that no additional capital expenditure be approved apart from the Civic Offices structural strengthening due to the safety issue involved.
4. ROAD REFORM - PUBLICITY AND PROMOTION
The Land Transport Sub-Committee reported to the February meeting of the Committee seeking an immediate allocation of funding of $230,000 for a comprehensive publicity programme to promote the Council's submission and to support a South Island campaign being initiated by Zones 5 and 6 of Local Government New Zealand. This Council's share of the cost of the South Island campaign is $50,000. The balance of the funding will be used for a letterbox drop to all city residents and television advertising.
The Chairman comments:
"Under the Government's road reform proposals, the ownership of local roads worth about one billion dollars would be transferred to roading companies. In view of the magnitude of the assets involved, $230,000 is a reasonable sum to spend in order to inform ratepayers of the Government's intentions."
| Recommendation: |
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| 10. | REMISSION OF RATES - NGAIO MARSH HOUSE, 37 VALLEY ROAD | RR 6987 |
| Officer responsible | Author |
| Funds and Planning Manager | Wayne Hann |
| Corporate Plan Output: Volume I page 5.2.text.6 | |
The purpose of this report is to obtain Council authority to remit rates on the Ngaio Marsh House at 37 Valley Road under the provisions of Section 179 of the Rating Powers Act 1988.
The property is recorded in the Council's rates records under the name of Pyne Gould Guinness Trust Limited. However, the Trust is recorded as owner as Custodian Trustee for the Ngaio Marsh House and Heritage Trust. The house and garden are open to the public as a literary heritage property in accordance with the terms of a resource consent granted by the Council. The Trust provides guided tours of the house for an admission price of $6.00 per person. This fee provides an income of $120.00 per week to the Trust and the Trust also receives a rental of $80.00 paid by a tenant operating a separate unit at the back of the main house.
The house was occupied by the late Dame Ngaio Marsh for many years until her death. After her death the Trust was formed to create a memorial to the life and work of Ngaio Marsh and it is intended that the house be preserved as a memorial and museum to her. The house will be treated as a museum open to the public at specified hours and specified days. Renovation work has been carried out to reconstruct the dwelling house to preserve its architectural integrity and heritage value.
The question of remission was referred to the Legal Services Manager regarding whether and under which section of the Act the Council could consider remission.
Mr Mitchell now advises that the Council has the power under the provisions of paragraph (e) of Part I of the Second Schedule to the Rating Powers Act to remit rates on land owned or occupied by or in trust for any society or association of persons, whether incorporated or not, for conservation or preservation purposes and not used for private pecuniary profit, where the general public are allowed access to that land.
Mr Mitchell also adds that under the above section of the Act, the Council has the discretion to remit all or part of the rates should it so wish. The Council has, however, no obligation to remit the rates.
The land is not being used for private pecuniary profit in that, in accordance with Section 179(3) of the Act, any charges from the use of the land are retained by the Ngaio Marsh House Heritage Trust to defray the expense of maintaining the house. No profit is derived by the members of that Trust.
It may be considered that PGG Trust Limited as the owner of the land does derive a `private pecuniary profit' because it is paid a fee by the Ngaio Marsh House and Heritage Trust to collect the rent from the house at the back and to manage the affairs of the Trust itself. This is an unusual situation in respect to the powers relating to rates remission but in the opinion of Mr Mitchell this type of arrangement does not disqualify the application by the Ngaio Marsh House and Heritage Trust for consideration by the Council of rates remission.
Mr Mitchell takes the view that the fees paid to PGG Trust Limited are analogous to the other types of fees paid by the Trust such as for insurance and maintenance purposes. This is a situation where PGG Trust Limited are involved as a trustee for administrative purposes only and are not a land owner in their own right. Mr Mitchell does not believe that their involvement disqualifies the Trust from consideration for rates remission.
Considering then the question of whether remission should or should not be granted, I would add that at present there is no precedent for remission of rates on comparable parcels of land within this Council's rating area. The Council's normal policy, however, is to limit remission of rates on properties under Part I of the Second Schedule to one-third.
| Recommendation: | That the Council grant a one-third remission of rates on the Ngaio Marsh House at 37 Valley Road under the provisions of Section 179 of the Rating Powers Act 1988 with effect from 1 July 1997. |
11. PRINTING OF COUNCIL AGENDAS RR 6975
| Officer responsible | Author |
| City Manager | Mike Richardson and Ian Chapman |
| Corporate Plan Output: Council/Committee Servicing Page 6.1.2 | |
The purpose of this report is to recommend that Council agendas be produced on recycled paper rather than coloured paper.
The Council agendas are currently produced on coloured paper at a cost of $49,283 per annum. There are three arguments for a change to using recycled paper; these are:
1. Recycling
At present colour paper has no value for recycling, while recycled paper can be used as a low grade recycled product added to the fact that it is already a recycled product.
2. Cost
The Council agendas would cost $34,205 per annum to produce on recycled paper, a saving of over $15,000 per annum against using coloured paper. If white paper were to be used, a further $4,327 per annum would be saved.
3. Production
The use of one type of paper would reduce the amount of time taken to produce the Council agenda and this could lead to the reduction in the number of supplementary reports.
The Committee unanimously supported the above proposal and to enable Councillors to assess the new format, this month's Council agenda has been produced in the new style.
Recommendation: That the Council agendas and Committee reports be produced on recycled paper with electronic tabs.
| 12. | ORDERS FOR SUPPLIES EXCEEDING 50% OF DELEGATED AUTHORITY | RR 6969 |
A schedule listing the orders for supplies and works approved under delegated authority and exceeding 50% of that authority is tabled.
Recommendation: That the information be received.
PART B - REPORTS FOR INFORMATION
13. DEPUTATIONS BY APPOINTMENT
CANTERBURY MUSEUM LEVY
Mr Anthony Wright, Director, Canterbury Museum, presented the Canterbury Museum's draft Annual Plan and Budget for 1998/99 and gave a brief presentation on visitor profiles and the major projects to be funded in the 1998/99 year.
| 14. | REPORTING BACK ON EFFECTIVENESS, EFFICIENCY AND ECONOMY REVIEW | RR 7050 |
The Director of Operations reported, updating the Committee on progress on the efficiency reviews currently in progress and recently completed. The Committee noted that annual savings of about $1M will be achieved after the necessary capital expenditure has been "paid off".
In receiving the information the Committee thanked the staff teams, Standing Committees and Community Boards for their efforts.
15. COUNCIL SUBMISSION - ROAD REFORM
Chris Kerr briefed the Committee on the proposed roading management and ownership model to be promoted in the Council's submission on the Roading Advisory Group's report "The Way Forward".
It was decided that the Council's submission be prepared by the Land Transport Sub-Committee along the lines discussed for presentation to the special Council meeting on 19 February 1998.
| 16. | MAYOR'S WELFARE FUND CHARITABLE TRUST - SIX MONTHLY REPORT FOR THE PERIOD 1 JULY 1997 TO 31 DECEMBER 1997 | RR 7021 |
The Committee received the six monthly report of the above Trust for the period 1 July to 31 December 1997.
The meeting concluded at 9.15 pm
CONSIDERED THIS 25TH DAY OF FEBRUARY 1998
MAYOR
[1] Jordi Borja and Manuel Castells: Local and Global - Management of Cities in the Information Age. Earthscan. 1997.