Extraordinary Meeting of Council

Open Agenda

 

Meeting Date:

Thursday 30 April 2020

Time:

1.00pm

Venue:

Zoom livesteamed via Facebook

 

 

Council Members

Mayor Wise, Deputy Mayor Brosnan, Councillors Boag, Browne, Chrystal, Crown, Mawson, McGrath, Price, Simpson, Tapine, Taylor

Officer Responsible

Acting Chief Executive

Administrator

Governance Team

 

Next Ordinary Council Meeting

Thursday 4 June 2020

 

 


Extraordinary Meeting of Council - 30 April 2020 - Open Agenda

ORDER OF BUSINESS

Apologies

Councillor Wright

Conflicts of interest

Public forum

Nil

Announcements by the Mayor

Announcements by the management

Agenda items

1      Annual Plan Proposed Rate Increase Options................................................................ 3

2      Rates and Debtors Relief Packages.............................................................................. 15

3      Fees and Charges for 2020/21...................................................................................... 26   

Public excluded ............................................................................................................. 90

 


Extraordinary Meeting of Council - 30 April 2020 - Open Agenda                                                                                                            Item 1

Agenda Items

 

1.    Annual Plan Proposed Rate Increase Options

Type of Report:

Operational

Legal Reference:

Local Government Act 2002

Document ID:

920951

Reporting Officer/s & Unit:

Adele Henderson, Director Corporate Services

 

1.1   Purpose of Report

The purpose of this report is to provide Council with details of the financial impacts of Covid19 on the 20/21 budget, provide Council with planning assumptions to guide budgeting for 20/21, and present a shortlist of options to fund the operating deficit. The report also seeks Council approval for the proposed rates increase and to prepare the 2020/21 draft Annual Plan and consultation document on the basis of the decisions made at this meeting.

 

Officer’s Recommendation

That Council:

a.     Receive the information and note the analysis of options; assumptions; and the risks as outlined in this report. 

b.     Note that Covid19 has had a material impact on households and businesses and Council has developed a range of actions to support those facing hardship in the community, and the Recovery Project will continue to develop how it might respond.  A separate report has been prepared for Council on Council on Rates and Rental Relief.

c.     Note that a number of briefing sessions/workshops have been held with elected members and seek Councillor input and direction setting in relation to preparing the final material required for the revised Annual Plan and consultation document for the community.

d.     Note the revised timeline that was provided to Council on 23 April, will see the adoption of the Annual Plan later than the statutory deadline due to the additional changes required for the revised plan and impact on the timeline for consulting and hearings.  The revised adoption date is currently set for 27 August.

e.     Note that Covid19 has had a material impact on Council’s budget for the current year (2019/20), and is likely to put Council into a net operating rates deficit when the final position is known in August (currently estimated at $3m).

f.     Agree that the 2020/21 Annual Plan and consultation document be prepared for consideration by the Council, based on Option C, which recommends

i.      A 4.80% average rates,

ii.     Funding of a planned operating gap of $6.74 million to be allocated from Council reserves, ($4 million from the Parking Reserve, and $2.74 million from the Suburban and Urban Growth Fund.).  Council will consult on the use of these funds as part of the Annual Plan 20/21

iii.    Note that under section 80 of the Local Government Act 2002 Council could consider internal borrowing for any rates or debtors relief applications received prior to community consultation and adoption of the 20/21 Annual Plan. If community consultation confirms that it is appropriate to use the parking and urban/suburban growth funds to fund the operating gap of $6.74m the internal loan would be repaid from these reserves.

iv.    Note Council officers have identified operational savings of $3.7 million in the development of the revised Covid19 Annual Plan 20/21

 

Mayor’s Recommendation

That the Council resolve that the officer’s recommendation be adopted.

1.2   Background Summary

The annual plan 20/21 covers the period from 1 July 2020 to 30 June 2021, and is the third year of the Long Term Plan 2018-28. The initial draft annual plan was prepared for consultation and was considered by Council at its meeting March 2020. 

As outlined to Council, in the report to the Extraordinary Council meeting on 23 April, with the Covid19 pandemic situation rapidly having a significant impact on New Zealand and in turn on Council operations, the draft plan is not recommended to proceed and a new Annual Plan must be developed that reflects the challenges ahead.

The approach and assumptions to guide the development of the revised Annual plan are outlined in this report for Council’s agreement.

This report also sits alongside the Rates and Relief package (a separate report to Council) that can be immediately enacted and will cross this financial year 2019/20 and next financial year 2020/21.

1.3   Issues

The fast-changing events since the pandemic impacted on New Zealand, its borders, and being in lockdown has meant it has been difficult to prepare our Annual Plan for 2020/21 with any certainty. It is in effect, an emergency budget rather than a normal Annual Plan.

Council is committed to a programme and budget that supports the city to recover, but many of those details are based on several factors, including how long the Covid-19 pandemic lockdown lasts, what role Central government play in recovery, and the impact on the economy and on residents and businesses.

While it will be important to build a budget that recognises the current financial challenges that household and business face, it is also important to note that substantial support packages are available via government, banks and local government.

It is important to note that any costs that are deferred, or funded through different funding mechanisms, shift this year’s rates burden to future years and rates will be steeper in those years as a consequence.

The broad basis for setting the 2020/21 budget is finding the right balance between supporting those in need now and stimulating the local economy, while not over burdening ratepayers in the future.

1.4   Significance and Engagement

Council will be consulting on the Annual Plan 2020/21, and will work within the requirements of the government settings for Alert Levels 2, 3 and 4.

Council will seek feedback on the use of Reserve Funding for the identified one-year only operating cost shortfall due to Covid19 with the community as part of the Annual Plan consultation 20/21.

1.5   Implications

Financial

       The original Annual Plan 20/21 proposed an increase of 6.5%, due to increases relating    waste, recycling and water related projects.

Council officers assessed the financial impact from Covid19 had, including the significant reduction in income from tourism, sportsgrounds, halls, and regulatory services, the loss of income and the inability to match the offset with operating cost reductions has shown that Council will have an operating shortfall for 20/21 of $5.5m or 9.5% of rates (See Table A).

This translates to a 16% rates requirement for 2020/21 before financial measures and mitigations are utilised to bring this down to an affordable and practical level for the community during this unprecedented time. 

Currently only 51% of Napier City Council income is obtained from rates income.  A shortfall in other income areas, requires Council to consider how it might fund the requirement in the short term, as well as start to put its mind to what the impacts will be in the longer term (through the Long Term Plan).

Table A: Financial Impacts by Quarter as a result of Covid19 on 20/21

The table below summarises the impacts to revenue and expenditure for 2020/21 by Quarter as a result of Covid19.  This information aligns with the assumptions provided in Table E in this report.

 

The purpose of this report is to provide details of the financial impacts on 20/21 together with a shortlist of options to fund the operating deficit.  The shortlisted options are:

Option A – revised Covid19 Annual Plan – 4.80% rates increase – gap funded by debt

 

This option recognises the hardship faced by the community at this time, and includes operational savings of $3.7m.   It proposes to debt fund the operational shortfall of $6.74m through loans over 10 years (prudent timeframe), which will impact 21/22 rates increase by 1.35%.  This option recommends any operating surplus that might be achieved in future years is utilised to offset any remaining loan be prioritised for this purpose.  There continues to be major projects and ongoing pressures on rates for 2021/22, so if debt funding is used to fund the gap, this may put further increases on rates in coming years where there continues to be ongoing cost pressures to manage. 

Officers do not recommend this option.

 

Option B – revised Covid19 Annual Plan – 0% rates increase – gap funded by reserves and debt

 

At the request of Councillors and interest within the wider community, officers have reviewed the option of a zero rates increase without reducing service levels.  To achieve a 0% rates increase, in addition to all the other savings, and use of reserves, Council would need to fund an additional $2.88m from either loans or reserves. The options to fund the additional gap created by a 0% rates increase:

 

a.  Fund the Covid19 funding gap with reserves to get to 4.8% ($6.7m) and

 

b.  Fund difference of $2.88m from loans, which would increase 21/22 rates (and the following 10 years) by 0.58%, (noting this would be a significant burden to the following years rates)  or

 

c.             b.  Fund $2.88m from reserves as per Option C, however, this would leave the reserves with insufficient funding to meet anticipated future needs (eg parking buildings, and Council’s commitment to development).  This would result in those projects requiring loan-funding as a consequence of spending the reserve.

d.            

The most significant impact of moving to this option, is that the following years rates (2021/22) would need to rise by $2.88m to meet the baseline budget, which would result in a 4.8% increase, plus the loan cost of 0.58%.  The full impact is a 5.36% increase for 2021/22, not including any capital project loan costs, or any other cost increase associated with that year.  This does not include any other costs delayed and impacts from other decisions to reach the recommended increase of 4.8%.

 

This decision would not be considered financially prudent, and therefore not be consistent with Council’s Revenue and Financing Policy or Section 101 (Financial Management), and Section 100 (Balance Budget) of the Local Government Act.  At a practical level it also passes a significant rates impost onto future ratepayers, which is not considered prudent or sustainable.

 

If service reductions were to be considered by Council to achieve further cost savings this could translate directly to a reduction in rates.  Approximately $600k savings would deliver a 1% reduction in rates.  If there was a desire to reduce the rates increase to 0% this would require a service level reduction of $2.88m to achieve this.  The Department of Internal Affairs and the Office of the Auditor General advice is that any significant service level reduction would require a Long Term Plan Amendment.

 

Officers do not recommend this option.

 

Option C – PREFERRED – revised Covid19 – 4.80% rates increase - gap funded by reserves

 

This option recognises the hardship faced by the community at this time, financial prudence by utilising Council reserves (Parking reserve $4m, and Suburban and Urban Growth Fund $2.74m), including operational savings of $3.7m.  

 

This option provides a pragmatic balance between managing the pressures on current ratepayers and ensuring the Council remains financially sustainable into the future, whereby the actions of today do not impact unfairly on ratepayers in the future. The reserve funding proposed is for a specific purpose, in funding the one-off shortfall in operating revenue anticipated in 2020/21. While this does not meet the S100 (i) balanced budget provision of the Local Government Act, it can be resolved that it is financially prudent due to the one-off nature.

 

Council operate two types of reserves, Council Created Reserves and Council Restricted Reserves.  The purpose of Council Created Reserves is set out and adopted by Council, however, with a Council resolution, a change can be made to how these funds are utilised.  Council Restricted Reserves tend to have a legal restriction on how the funds can be received and spent.

 

For the purposes of funding a one year only gap anticipated as a result of Covid19, there are two reserves that could have a change to the use, and made available to fund the anticipated shortfall for 2020/21.  This is the Parking Account Reserve ($5m) and the Subdivision & Urban Growth Fund ($2.6m).  The recommendation would mean that both funds will have a $5m balance, allowing their short to medium requirements to be met without financial consequences to the community

 

It is recommended that the proposal to utilise the parking reserve and urban/suburban growth funds to partially offset the rates increase is included as part of the Annual Plan 20/21 consultation.

 

 

 

Summary of the Options:

 

Potential 202/21 Annual Plan

Option A

Option B

Option C

Rates increase 20/21

4.8% - debt

0% rates increase – debt/reserves

4.8% - reserves

No reduction in service levels

Debt fund shortfall in revenue reducing the impact on ratepayers  20/21

X

Unlikely to require an LTP amendment

X

X

X

Require amendment to Revenue and Finance Policy

X

X

X

Likely to meet the financial prudence test

X

Meets balanced budget requirement

X-√*

X-

X-

Recommended by officers

X

X

 

·    X-√ - balanced budget i.e. income would be met by expenditure, however, debt funding is not considered sustainable and should only be considered a short term option

 

 

Other financial options considered and discounted by Council through workshops

Council considered two other options, but these options were not considered appropriate to be taken further.  These included: 

·     Consideration continuing original Annual Plan increase of 6.5%, and funding the Covid19 impacts through the use of reserves.  This was discounted as an option due to the hardship being faced by the community at this time and Council recognising that they should aim to bring the cost down as far as reasonably practicable through reducing rates in addition to the rates and recovery package. 

·     Recognising the full impact of Covid19 to Council that was anticipated across the full year, based on the assumptions noted in this paper in Table E.  This option required a 16% average rates increase, and was quickly discounted as a viable option, given the issues being faced by the community, hardship and the pressure to keep rates as low as possible at this time.

 

Depreciation

Council officers considered whether not funding depreciation for a year was an option.  Reducing depreciation funding at a time when the city has an expectation of increased funding of infrastructure, is not necessarily recommended.  Removing depreciation in the short term would result in further costs being required to be put onto future year’s ratepayers.  Napier has a strong history of funding depreciation prudently including revaluations.  It notes that the revaluation process undertaken in 2019, resulted in an increase of 4% to cover the additional depreciation requirements associated with the revaluation.  Council prudently cut costs to ensure that this did not further increase this year’s rates requirement.  If not offset, Council would have been seeking an original budget increase of 10.5% (6.5% baseline increase + 4% revaluation depreciation costs).  Not funding depreciation is also inconsistent with Council’s Revenue and Financing Policy and the balanced budget requirement in Section 100 of the Local Government Act.  The policy could be amended through undertaking consultation and would likely require audit sign-off but not require a Long Term Plan amendment. 

If Council chose not to fund this increase it would need to substantiate why it thought it was prudent not to do so. Not funding the increased depreciation by 10% would increase rates in future years by 0.65% for every year for the next 10 years.

For this reason, Council officers do not recommend this as an option.

       Revenue

It is noted that revenue is being forecast down by $5.3m for the remainder of the 2019/20 year and $7.5m for 2020/21. Fees and charges increases that were originally proposed and adopted by Council were related to increases that were intended to achieve better compliance with the Revenue and Financing Policy, offsetting the impact the forecasted cost increases would have on rates. Council officers recommend continuing with the proposed fees and charges increases for all areas other than Council’s Tourism related activities including Aquarium, Conference Centre, Kennedy Park, Par 2, and The Municipal Theatre, Bay Skate and I-Site. This ensures that no further burden is put onto rates to offset the shortfall in revenue and its non-compliance to Policy.

The dividend the Council originally expected to receive from its shareholding in Hawke’s Bay Airport is at risk. The dividend was originally expected to offset the Council rates requirement in 2020/21 and would have resulted in a 0.86% rates offset, however we have factored in this income risk in the revised Annual Plan.

Operating expenditure

There are some minor cost reductions that have occurred directly as a result of the Covid19 shutdown. These include reduction in energy costs and some operating expenses in our facilities, however Council continues to incur the majority of its operating costs that maintain services in the city.

Council is responsible for coordinating, supporting and hosting events in the community.  To date only a council support event, the Big Easy has been cancelled as a result of Covid19, with delays being signalled to other events. Council are set to review the planned expenditure on events for 2020/21, and will continue to focus on this as a basis for bringing people to Napier, who will in turn spend in our local economy and to generate economic outcomes. Grants that Council provides to support community arts, cultural organisations will still be required to sustain these organisations. Where some grants will be available, they may be repurposed to the welfare, and wellbeing response for the Community. This will help pay for a range of initiatives being developed as part of the Recovery Plan.

Capital expenditure

Prior to Covid19, the Council was forecasting approximately $53m of capital expenditure (excluding vested assets) that was originally planned for 2019/20. This forecast will need to be reviewed as a result of the lockdown and the ability of services to continue operating and the ability to deliver project requirements during that time. There is already a significant capital programme planned for 20/21 of $70m. Officers will be recommending Council carry forward any unspent budget from the current year, and once supply chain, and demand for infrastructure services are better known, then reforecasting of the capital plan can be updated via the Revised Annual Plan 20/21.  Any change in timing associated with loan-funded projects will impact the following year’s rates.

The government recognises its role in the response to the national crisis and have sought interest in government funding for shovel ready projects. Napier have submitted applications to the Government infrastructure funds for shovel-ready projects, and regionally its three waters capital programme. If successful, both would have a positive impact on future year’s rates requirements. 

Cost cutting and levels of service

Council could attempt to make further cuts to operating expenditure budgets; but given the budget already includes significant savings ($3.7m) and unbudgeted risks, this would inevitably need to result in significant service level reductions. Level of service cuts are only recommended to be undertaken when a full and clear understanding on the medium to long term impacts of Covid19 have been fully understood. As we head into the Recovery phase, and more information is available, then Council will be better informed on any required next steps.

This information is key, as determining what services to cut is likely to be extremely challenging in the current environment – amidst an expectation that Council should be upping support to its community and investing in infrastructure to aide recovery, rather than reducing it. Adding to this is the likelihood that dependant on what the service is, cuts to services levels often take quite some time to initiate, and to achieve this would be the likely extend to include potential contract settlements and even potential redundancy costs – meaning the savings may not be evident immediately. Again, noting that we do not have enough information to determine the longer term implications from Covid19, a considered approach is recommended before significant change are potentially made.  In the event that Council may wish to consider this now by changing significantly the levels of service, they are advised that this process would trigger an LTP amendment which would delay further the timeline. This delay may then adversely impact the ability to get on with urgent works planned for the year 2020/21 such as the outfall and the water clarity projects of community importance and regulatory driven.

If service reductions were to be considered by Council to achieve further cost savings this could translate directly to a reduction in rates. Approximately $600k savings would deliver a 1% reduction in rates. If there was a desire to reduce the rates increase to 0%, this would require a service level reduction of $2.88m to achieve this. The Department of Internal Affairs and the Office of the Auditor General advice is that any service level reduction would require a Long Term Plan Amendment.

Financial Consideration and impacts on future years

The table below summarises the impact based on a range of average rates increase of 4.8% for a year, month and per week. Our average residential rates for 2019/20 is approximately $2,239, so this will mean a rates increase of approximately $107 per year or $2.06 per week.

Table B: Average increase per year/month/week for 4.8% increase

Increase

Average Rates 2019/20

Rates

2020/21

 

Increase per year

Increase per month

Increase per week

4.8%

                1,500

                1,572

 

                72

                   6

              1.38

4.8%

                2,000

                2,096

 

                96

                   8

              1.85

4.8%

                2,500

                2,620

 

             120

                 10

              2.31

4.8%

                3,000

                3,144

 

             144

                 12

              2.77

4.8%

                3,500

                3,668

 

             168

                 14

              3.23

4.8%

                4,000

                4,192

 

             192

                 16

              3.69

The table below summarises the components considered in the development of the rates increase for 2020/21:

Table D: Reconciliation of Rates increase requirements

Rates increase

Comment

Original Annual Plan rates increase

6.50%

Key cost drivers for original Annual Plan rates increase:

Refuse 1.3%, Recycling 0.5%, Insurance 0.7% and Loan servicing 1.0%

Review of Covid19 impacts to business activities 

9.50%

Forecast loss of tourism revenue streams and lack of ability to respond without ceasing or reducing levels of service which requires consultation (savings included before increase)

Subtotal

16.00%

Total based on two lines above. 

RELIEF PACKAGE – Rates relief and penalties and postponement

1.60%

Rates relief $350k, Rates penalties $88k, Postponement $525k 

Reserve funding of Tourism/Penalties/Rates postponement/Airport income/Rates relief

 (10.91%)

$6.74m ($2.74m Suburban and Urban Growth Fund + $4m Parking Reserve)**

Additional Cost savings through operational savings 

(2.75%)

One year only cost savings to offset rates

Loss of Dividend Income

0.86%

Proposed average rates increase 20/21

4.80%

 

Social & Policy

Council are required to meet its obligations under the Local Government Act 2002, its Significance and Engagement Policy, and Revenue and Finance Policy, Liability Management, Investment Policy, Rates Postponement, Rates Remissions in relation to the preparation of the Annual Plan.

 

Risk

There is a high level of risk associated with uncertainty in relation to the development of the Annual Plan 20/21. There has been widespread job losses in New Zealand with some forecasts signalling unemployment levels between 13- 26% being noted in some Government modelling.  We do not know how and what industries will be come through the pandemic without some potential change or risk to the way current business operates.

Supply chains dependent on overseas products will have been impacted to some degree, and we are yet to understand what this means to our capital programme. 

There is strong interest from the Government to provide funding to reinvigorate the economy by spending, however, this may also result negatively with higher demand for services in certain industries and the consequential increase in prices.

At the time of writing this report, we are uncertain on how long our various Alert levels will remain in place, and the consequential impact that this will have on the activities of Council.  Essential services of Council will continue to operate through the lockdown.

The financial risk for the funding gap of $6.74m is considered high with the level of uncertainty that we have for our activities (assumptions outlined in table below).  In the event that the funding gap at the end of the financial year was worse than anticipated, Council would need to review options for any additional requirements at that time, including the need to seek loan funding.  In contrast, if the funding gap was better than anticipated, less reserve funding would be required, resulting in funding being available for alternative projects. To mitigate this risk, there will be a strong focus on the financial performance of the organisation during the year and more regular reporting to Council will be undertaken to ensure that tight financial controls are in place to manage this.

Below is a table of the assumptions used for the revised Covid19 Annual Plan.  There is risk associated with each of the assumptions and these will impact on our ability to deliver the Annual Plan as a result.

Table E: Revised Covid19 Annual Plan Budget assumptions

CC

Percentage Normal Business

Qtr 01

Qtr 02

Qtr 03

Qtr 04

Description - Reasoning

180

Sportsgrounds

0%

60%

100%

100%

The winter season of 2020 will generate low if any revenue. This will follow on by a slow uptake in spring Q2 from which the seasons will follow as normal.

185

McLean Park

0%

20%

40%

60%

The impact on Mc Lean Park is substantial with the community avoiding crowded spaces, followed by travel restrictions imposed for both local and international events. Expect no action in Q1 2020/21 followed by a slow recovery of 20% per quarter. The corporate box sales will also lag behind following a similar trend. The anticipation is that McLean Park will reach 30% of its predicted revenue in FY 2020/21.

240

Bay Skate

75%

85%

100%

100%

We anticipate that Bay Skate will pick up rather rapidly with sales reaching 100% of the predicted quarterly revenue by Q3. The delayed uptake in Q1 and Q2 will be largely driven by self-imposed social distancing.

380

Libraries

0%

20%

50%

80%

The library will pick up slowly in Q1 and Q2 and slowly recover to the norm to the end of the year. As books are physically handled by the reader there will be a rationale that they will be avoided for a longer time.

400

Napier Aquatic Centre

65%

75%

100%

100%

The Aquatic centre will pick up roughly where budgeted with a delay in Q1 and Q2 due to level 3 requirements around social distancing.

450

Building Consents

85%

90%

95%

90%

Building consents will have a slow start due to the financial restrictions imposed by the lack of income during self-isolation period. The anticipation however is that this will pick up by Q3 as local builders, draughtsmen & building inspectors are reporting that there are a large number of projects in progress to be completed after lockdown.  Building work may begin to taper off from Q4 as pre-Covid19 projects are completed & a lull emerges in the building market.

465

National Aquarium of NZ

65%

75%

80%

85%

The Aquarium will follow a similar trend of recovery with the exception that we anticipate that we will lose 10% of our revenue generated by overseas visitors.

466

Par 2 MiniGolf

20%

65%

80%

90%

We anticipate there will be a slow recovery as people will gain confidence in relaxing social distancing and gathering in public spaces.

468

Napier Conference Centre

10%

40%

70%

85%

The Napier Conference Centre will be hit hard until local travel is reinstated. This is anticipated to take up to 6-12 months after which activities will start returning to normal.

470

Napier Municipal Theatre

10%

40%

50%

60%

With the lack of international traveling acts, the restrictions on local and international travel we do not anticipate that the theatre will fully recover until late in Q3 of 2020/21.

472

Napier i-SITE Visitor Centre

50%

20%

30%

40%

In the past 20-30% of the i-SITE’s business came from the domestic tourist and/or locals sectors, we are anticipating that there will be solid business from these sectors

478

Kennedy Park

2%

10%

40%

60%

Around 87% of Kennedy Park’s customers are domestic so it is hopeful once the domestic market opens up again the business will gain traction back to normal operations in 18 months.

529

MTG Hawke's Bay

10%

20%

25%

25%

With MTG's main revenue driven out of tourism we expect that the revenue will not exceed 20% of the expected forecasts.

560

Property Holdings

95%

95%

100%

100%

Property holdings will probably be impacted in Q1 and Q2 due to entities not being able to pay their rent. The limit of this impact is due to the Government grants and subsidies.

582

Housing - Rental

80%

100%

100%

100%

Housing rentals will possibly incur some bad debt as the tenants attempt to recover after the lock down. With social welfare lending a hand we anticipate that this will not last past Q1. 

 

1.6   Options

The options available to Council are as follows:

a.   Option A – revised Covid19 Annual Plan – 4.80% rates increase – gap funded by debt

b.   Option B – revised Covid19 Annual Plan – 0% rates increase – gap funded reserves and debt

c.   Option C – PREFERRED – revised Covid19 – 4.80% rates increase - gap funded by reserves

d.   Council can amend any recommendation

1.7   Development of Preferred Option

Option C – PREFERRED – revised Covid 19 – 4.80% - $6.74m proposed funding gap from Council reserves

This option recognises the hardship faced by the community at this time, financial prudence by utilising Council reserves (Parking reserve $4m, and Suburban and Urban Growth Fund $2.74m), and operational savings of $3.7m. 

This option provides a pragmatic balance between managing the pressures on current ratepayers and ensuring the Council remains financially sustainable into the future, whereby the actions of today do not impact unfairly on ratepayers in the future. The borrowing proposed is for a specific purpose, in funding the one-off shortfall in operating revenue anticipated in 2020/21. While this does not meet the section 100 (i) balanced budget provision of the Local Government Act, it can be resolved that it is financially prudent due to the one off nature.

 

1.8   Attachments

Nil


Extraordinary Meeting of Council - 30 April 2020 - Open Agenda                                                                                                            Item 2

2.    Rates and Debtors Relief Packages

Type of Report:

Operational

Legal Reference:

Local Government Act 2002

Document ID:

921092

Reporting Officer/s & Unit:

Adele Henderson, Director Corporate Services

 

2.1   Purpose of Report

To outline financial relief options for Council to consider in response to financial stress in the community caused by the Covid-19 pandemic.

 

Officer’s Recommendation

That Council:

a.   Note that a separate paper be bought back to Council with proposed changes to the Rates Postponement Policy for consideration and community consultation alongside the Annual Plan 20/21.

b.   Note that Rates Postponement for 20/21 be considered under “Special Circumstances” in the existing policy until such time the revised Rates Postponement Policy is adopted by Council.

c.   Approve funding of up to $525k to be funded from Reserves to support Rates Postponement Policy requirements for 2020/21 (being up to 50% of rates being deferred up to 6 months).

d.   Note delegation to the Director Corporate Services, Chief Financial Officer, and Investment and Funding Manager to approve Rates postponement in relation to the Covid19 event for 2019/20 and 2020/21 is set out in the Rates Postponement Policy.

e.   Note that a public excluded paper will be bought to Council every 6 weeks documenting the approved delegated requests for rates postponement under “Special Circumstances” or “Extraordinary or Emergency Event”.

f.    Note that any request for rates postponement for properties with a capital value greater than $1.5m are to be considered by Council on a case by case basis in a public excluded agenda.

g.   Note the recommendation to reduce rates penalty for the first 6 months of 2020/21 (to December 2020)  from 10% to 3.5% and will be adopted formally when the rates are set for 20/21.

h.   Reduce the Annual Plan 20/21 budget by $88k for rates penalty to reflect the reduction in anticipated penalty fees for 2020/21.

i.    Approve rental relief up to $193k for those demonstrating hardship (across both 2019/20 and 2020/21), for leases, rents, licences to occupy, non-profit organisations.

j.    Provide delegation to the Director Corporate Services, Chief Financial Officer and Manager Property to approve rental relief in relation to the Covid19 event for 2019/20 and 2020/21.

k.   Note that a public excluded paper will be bought to Council every 6 weeks documenting the approved delegated requests for rental relief.

l.    Approve in principle the formation of the Napier City Rates Relief Fund for one year only (20/21) up to $350k to be funded from Council Reserves

$100k – commercial ratepayers

$250k – residential ratepayers

If approved, direct Council Officers to prepare a formal Napier City Council Rates Relief Policy 20/21 for adoption by Council to be effective 1 July 2020.

m.  Approve in principle the use of reserves be utilised for the purposes of the Rates Postponement, Rates Rebate and the net operating shortfall for the Annual Plan 2020/21.  Reserve funding has been identified in the Parking Fund ($5m) and the Suburban and Urban Growth ($2.6m) Fund.  This change in purpose from the original proposed use as identified in the Long Term Plan will be considered by the community as part of the Annual Plan consultation 2020/21.  There will be approximately $5m balance in each of the two reserves after the proposed allocation from the reserve for future projects.  The use of the funds, and the residual balance of the fund is considered prudent to offset hardship faced by the community during this time.

n.   Approve the ‘Community Information – Rates and Rental Relief’ document for distribution for residents and businesses in relation to rates, and rental support for the community.

o.   Recommend a summary of the above support by Council be communicated on Facebook, Council website, and other websites in the region supporting recovery and businesses.

 

 

Mayor’s Recommendation

That the Council resolve that the officer’s recommendation be adopted.

 

2.2   Background Summary

The Covid-19 lockdown is causing financial stress in the community due to lost jobs, risk of business closures and reduced incomes where non-essential industries are unable to work. Significant Government initiatives have been introduced to support businesses and employees to pay their essential bills.

Council officers have undertaken a review to identify what additional financial relief could be provided to our community.  These include:

·     Officers undertook the following reviews:

Rates Postponement Policy (to better identify how postponements could be made in relation to a specific event) - updated Policy to be consulted with simultaneously with the Annual Plan 2020/21.

Revenue and Finance Policy – ensuring LGA compliance.

Investment Policy review – to identify and confirm debt funding for any operating shortfall was available to Council if required.

Review of Reserves and consideration of use to fund Rates Relief, Rates Postponement, and net operating shortfall 2020/21.

·     Officers have assessed the financial implications of the proposed financial relief packages.

·     Officers have assessed the types of rental income received by the community with separate recommendations for each income stream.

·     Officer undertook a series of seminars with Elected Members for the development of the financial relief packages.  At the Council workshop on 21 April Council agreed to the following:

Reporting back to Council rates postponement requests.

Agreed to the additional rates relief package for Napier for 1 year for up to 4% of residential ratepayers with for $200, and 8% of commercial ratepayers of $500 for 2020/21.

Council must continue to deliver essential services and deliver a planned programme of work required to support the community, and to do this, revenue needs to be maintained at a level to fund this work.  There is a need to balance relief, compared to extending payment periods where income can still be derived.  Consideration is also required for non-profit community groups where income will not be received through Level 4 and Level 3 lockdown requirements.

            Council receives revenue from the rates and rental/leases from the following sources:

1.     Commercial rates

2.     Rural rates

3.     Residential Rates

4.     Rates penalties

5.     Licence to Occupy Berths in the Inner Harbour

6.     Nelson Quay Boat Ramp passes

7.     Commercial Leases

8.     Not for profit Groups on Council land

9.     Leasehold Land including in Councils Investment Property Portfolio

10.   Leasehold Land – Residential

11.   Sundry Licences to Occupy

12.   Residential houses - Market rental

13.   Residential houses – Social Housing

 

Council have requested options and recommendations for how we may provide support for residents and businesses in relation to rates, and rental payments during these unprecedented times.

 

Table A – Recommended support for Ratepayers, and Rentals

Ratepayer/rental lessee

Type of Support

Commercial and Residential Ratepayer support

 

 

Removing rates penalties for last quarter this financial year 2019/20

Reducing rates penalties for first two quarters 2020/21 (from 10% to 3.5%) until December 2020

Rates Postponement Policy – current use and applications will be considered under “Special Circumstances”, revised policy out for consultation for postponement under Special Events.

Payment Plans for rates postponement will be for up to a period of 6 months to December 2020, and can be reviewed again at that point.

Rates Remission Policy – submissions received based on policy requirements can be submitted

NEW Proposed Rates Relief – 1 year only Residential and Commercial ratepayers demonstrating hardship.  Total package $350k.  Will be effective from 1 July 2020 for the financial year.

Licence to Occupy Berths in the Inner Harbour

No relief is recommended as commercial fishing is an essential service and carries on. Recreational vessels are not considered appropriate for relief.

Nelson Quay Boat Ramp passes

No Relief recommended as the access cards cover the period 1.7.19 to 30 .6.20 with most summer activity now over.

Commercial Leases

On application rent write off /rent holiday to be considered on a case by case basis. Consideration to be given monthly. In general Lessees to demonstrate a minimum 30% decline in revenue over a month compared to same month last year. Maximum 3 months write off/rent holiday or in special cases to the extent that facilities are closed due to Covid19 or to the extent that specific provisions in the individual leases allows specific relief or non-payment.

Not for profit Groups on Council land

 

On application, in general a maximum of 3 months write- off allowed or in special circumstances consideration for longer period. For consideration of a period longer than 3 months the uncertainty of the future of sports and community groups funding sources will be a consideration. (particularly from Gaming Trusts).

Organisations would have to prove that they have experienced financial hardship due to Covid19 and prove a lack of financial reserves.

Leasehold Land including in Councils Investment Property Portfolio

It is recommended that relief is only provided in the form of a payment plan. No ground rent write offs/rent holidays.

Leasehold Land Residential Ground Rents

 

In general relief would not be recommended as in qualifying hardship circumstances, the Central Government Accommodation Supplement Scheme is available.

In special circumstances however a payment plan could be negotiated.

Sundry Licences to Occupy

A review of these has indicated that the nature and amounts involved should not result in financial hardship to the occupiers. In general it is recommended that relief is not provided.

Residential houses - Market rental

 

In general relief would not be recommended as in qualifying hardship circumstances, the Central Government Accommodation Supplement Scheme is available.

Residential houses – Social Housing

 

The Government has announced a rent freeze so housing rent increases that were proposed in the draft Annual Plan from 1 July 2020 are on hold as specified by Government. The Government has also provided additional support grants for heating and accommodation supplements. Assistance for this group would also be provided on a case by case basis. The Council Housing for Elderly support officer is in constant contact with our tenants to ensure they are well supported.

 

2.3   Issues

Rates Postponement in Special Circumstances (Policy to be updated)

Can be utilised under the Special Circumstances section of the Policy, however, an amended version of the Policy will be presented to Council to provide for Emergencies and Events, allowing better direction to be set for how these are managed.

The event and related conditions may be set by Council resolution. Such a provision may be used for natural, health, or economic events that have a material detrimental impact on the community. Given the size of potential events, such a provision should be used in conjunction with any Government assistance packages that are introduced.

Recommend Policy update and consultation with the community - The proposed amendments to the Rates Postponement Policy are the subject of a separate report

 

Rates Rebates (Government)

Rates rebates will have limited impact now as most people who qualify have already had their rebate for the current year. Information is included with the 4th rates instalment to try and pick up anyone who may qualify but who has not yet applied. Rates rebates for the current rating year are based on income for the 2018/19 tax year, so the impact of Covid-19 measures on incomes will not apply this year.

Rates assistance for businesses applies to the property owner who is not always the business owner. There is no way of ensuring that any concession to the ratepayer is passed on to the business tenant.

 

Rates Relief (Napier City Council – 1 year only initiative)

There are a number of potential issues with the 1 year relief scheme:

·        How officers will fairly and equitably assess hardship and how officers prioritise the relief to those most in need

·        The fund/individual amounts may not be high enough to have the desired financial support (ie businesses may still seek liquidation after the receipt of the additional relief)

·        Those that might feel they are entitled to the relief were not successful in an application due to the level of need (only 4% of residential ratepayers, and 8% of commercial ratepayers will be eligible)

·        The timing of the adoption of the Annual Plan 20/21, and the rates setting, will mean there is a tight timeframe for payment due dates for the first quarter of 20/21.  The assessment application date will be set at 31 October 2020, with applications being informed whether they are successful by 30 November 2020 (in time for the second quarter payment)

            

Rates penalties 2019/20

With a delay in producing the 2020/21 Annual Plan, the first rates instalment date for 20/21 can be set later than usual (e.g. 24th of September) covering the first quarter for rates in 20/21 of 1 July 2020 to 30 September 2020, and the second quarter to 31 December 2020. NZ is likely to be at Covid-19 Alert Level 2 (or lower) at that point, allowing a larger number of people to return to work. Further rates instalment dates would need to be condensed to ensure payment is received within the 2020/21 financial year.

We note as of 26 April 2020, we have not had any significant shift in ratepayers contacting officers for support, or any substantial increase in dishonoured payments.  There is significant government support to business and ratepayers, so an additional rates rebate may not be required.  It is recommended that a timeframe is set for any application, thereby allowing a full review of those seeking the additional relief can be reviewed at one time.  There is no expectation that this relief fund is allocated in full if there is a low uptake.

2.4   Significance and Engagement

It is recommended that Council consult on an amended Rates Postponement Policy to allow for postponement for Emergencies and events.  In the interim, Council may still provide Rates Postponement under the special circumstances of the Policy. Any changes to this policy requires a Special Consultative Procedure and will be undertaken at the same time as the Annual Plan 20/21.   

It is recommended that Council consult on utilising the reserves from the Parking Fund and the Suburban and Urban Growth fund as part of the Annual Plan consultation 20/21.

2.5   Implications

Financial

The following table summarises the potential cost of financial support relating to Covid19 for 2019/20 and 2020/21

Rates Penalties removal 19/20 (estimated)

$68,000

Rates Penalty reduction (1 & 2 quarter instalments) 20/21 (normally $135k for 6 months)

$88,000

Rates postponement – 6 months to December 2020 (assuming 50% uptake of rates income for that period)

$525,000

New Rates Relief Scheme – funded by Reserves

$350,000

Commercial leases/rental relief (assessed monthly) for 19/20 and 20/21

 $193,000

Total

$1,224,000

 

        Proposed new Rates Relief Scheme – financial cost

Ratepayer group

Funding split

Relief for 20/21 per applicant

% of total ratepayers able to access

Residential

$250,000

$200

4.8%

Commercial

$100,000

$500

8.3%

TOTAL

$350,000

 

 

Note – there is no requirement to fully allocate this scheme.  Demonstrated hardship is required to access the relief

       

        Proposed rental support – financial cost

Commercial Leases

Maximum probable exposure for 3 months is approx. $40,000.

On application rent write off /rent holiday to be considered on a case by case basis. Consideration to be given monthly. In general Lessees to demonstrate a minimum 30% decline in revenue over a month compared to same month last year. Maximum 3 months write off/rent holiday or in special cases to the extent that facilities are closed due to Covid19 or to the extent that specific provisions in the individual leases allows specific relief or non-payment.         

Not for Profit Community Groups on Council land

There are approx. 80 individual leases for community groups.

Maximum exposure$144k

On application, in general a maximum of 3 months write off allowed or in special circumstances consideration for greater than 3 months’ rent written off. The longer than 3 month period may be applicable to some due to the uncertainty of the future of sports and community groups funding sources (particularly from Gaming Trusts).

Organisations would have to prove that they have experienced financial hardship due to Covid19 and prove a lack of financial reserves.

Leasehold Land included in Council’s Investment Property Portfolio

This consists of Council’s Investment Property Portfolio where Council owns the freehold to the land and the Lessees own the buildings and improvements. Most are 21 year perpetually renewable ground leases.

Annual ground rents total approx. $2m

Ground rent in general is paid in 6 monthly instalments as per the conditions of the lease documents.  Recommended that relief is only provided in the form of a payment plan. No ground rent write- offs/rent holidays.

 

Leasehold Land Residential Ground Rents

There are a total of 16 lessees with total monthly rental income to Council of approx. $7,500.

In general relief would not be recommended as in qualifying hardship circumstances, the Central Government Accommodation Supplement Scheme is available.

In special circumstances however a payment plan could be negotiated.

Sundry Licences to Occupy

There are approx. 54 licences relating to various occupations and encroachments on Council land. Monthly revenue is approx. $15,000 with major ones relating to cropping and grazing licences along with telecommunication equipment installations. A review of these has indicated that the nature and amounts involved should not result in financial hardship to the occupiers. In general it is recommended that relief is not provided.

Residential Houses at market rent (Non Social Housing)

The Government has announced a rent freeze so housing rent increases that were proposed in the draft Annual Plan from 1 July 2020 are on hold for 6 months

This group consists of 18 houses rented out at market rents with income to Council of $30,000 per month. In general relief would not be recommended as in qualifying hardship circumstances, the Central Government Accommodation Supplement Scheme is available.

Social Housing

The Government has announced a rent freeze so housing rent increases that were proposed in the draft Annual Plan from 1 July 2020 are on hold for 6 months. The Government has also provided additional support grants for heating and accommodation supplements. Assistance for this group would also be provided on a case by case basis. The Council Housing for Elderly support officer is in constant contact with our tenants to ensure they are supported.

 

Social & Policy

This matter is not a matter of significance in terms of the Council’s Significance and Engagement Policy.

 

Risk

There is risk is that Covid-19 is not eliminated and the lockdown provisions are extended. The longer the restrictions are in place, the greater the impact on the community, national and world economy. Recovery is also likely to be longer with extended lockdown.

If the lockdown is extended, provisions will need to be made for ratepayers who would normally pay by cash or card at a Council service centre. At the moment, customers are being offered direct debit. Plans are being made to improve the safety for transactions at the public counters.

The extent of financial stress in the community is not known yet, therefore the volume of requests for assistance or arrangements for the payment of rates cannot be accurately estimated.

Risk to ratepayers not paying is low as it is covered in the Rating Act 2002.

2.6   Options

The options available to Council are as follows:

a.   Approve the recommended Council resolutions

b.   Makes amendments and approve the Council resolutions

c.   Hold resolutions subject to further information

d.   Partially hold resolutions subject to further information

2.7   Development of Preferred Option

Approve the Council resolutions a-o subject to community consultation on the use of Council reserves as part of the Annual Plan 20/21.

 

2.8   Attachments

a     Community Informnation - Rates and Rental Relief   


Extraordinary Meeting of Council - 30 April 2020 - Attachments

 

Item 2

Attachments a

 

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Extraordinary Meeting of Council - 30 April 2020 - Open Agenda                                                                                                            Item 3

3.    Fees and Charges for 2020/21

Type of Report:

Legal

Legal Reference:

Local Government Act 2002

Document ID:

922805

Reporting Officer/s & Unit:

Caroline Thomson, Chief Financial Officer

 

3.1   Purpose of Report

To consider the fees and charges for the year commencing 1 July 2020.

 

Officer’s Recommendation

That Council:

a.     Adopt the schedule of fees and charges for 2020/21 effective 1 July 2020, as specified in the document titled Schedule of Fees and Charges 2020/21.

 

 

Mayor’s Recommendation

That the Council resolve that the officer’s recommendation be adopted.

3.2   Background Summary

Council are required to review its fees and charges each year and to formally approve any changes. The schedule of fees and charges for 2020/21 attached are to take effect 1 July 2020.

3.3   Issues

A number of minor changes are proposed to some of the council’s fees (cemeteries, trade waste) to maintain cost recovery.  The cost of providing these services has risen and fees need to rise to ensure the services are funded by the users and not subsidised by ratepayers.  Other fees and charges have been reviewed and most have gone up by the appropriate cost inflator to maintain cost recovery.

3.4   Significance and Engagement

The changes to fees and charges has been assessed as low significance because they have a small impact on a large population.

Feedback on fees and charges can be considered as part of the Annual plan consultation. 

3.5   Implications

Financial

Income as a result of changes to the Fees and Charges Schedule has been included in the financial information for 2020/21.

Social & Policy

N/A

Risk

N/A

3.6   Options

The options available to Council are as follows:

a.     Approve the fees and charges for 2020/21

b.     Not approve the fees and charges for 2020/21

c.     Council can make changes to the fees and charges for 2020/21

3.7   Development of Preferred Option

Option A – approve the fees and charges for 2020/21.

 

3.8   Attachments

a     Schedule of Fees and Charges 2020/21   


Extraordinary Meeting of Council - 30 April 2020 - Attachments

 

Item 3

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Extraordinary Meeting of Council - 30 April 2020 - Open Agenda

PUBLIC EXCLUDED ITEMS

 

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

 

Agenda Items

1.         Interim Chief Executive

 

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

General subject of each matter to be considered.

Reason for passing this resolution in relation to each matter.

That the public conduct of the whole or the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information where the withholding of the information is necessary to:

Ground(s) under section 48(1) to the passing of this resolution.

48(1)(a) That the public conduct of the whole or the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist:

Agenda Items

1.  Interim Chief Executive

7(2)(a) Protect the privacy of natural persons, including that of a deceased person

48(1)A That the public conduct of the whole or the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist:
(i) Where the local authority is named or specified in Schedule 1 of this Act, under Section 6 or 7  (except 7(2)(f)(i)) of the Local Government Official Information and Meetings Act 1987.

48(1)B That the public conduct of the whole or the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information the public disclosure of which would -
(i) be contrary to the provisions of a specified enactment.