Appendix 2: Non-standard audit reports

Consulting the community about local authorities' 10-year plans.

In this Appendix, we set out excerpts from the non-standard audit reports on the consultation documents that we audited.

Local authorityAudit report excerpt
Unmodified audit opinion with an "emphasis of matter" paragraph
Auckland Council Transport programme

Without modifying my opinion, I draw your attention to the transport issue and the two options the Council is seeking your views on.

The "basic transport programme" is incorporated in the financial information underpinning the consultation document. The Council acknowledges (on page 14) that, as a result of the financial commitment to the City Rail Link project in the basic transport programme, some transport projects will not proceed in this 10-year budget period. This programme will also mean lower maintenance standards, minimal improvements to roads, walking and cycling facilities and could result in a reduction in service levels (also on page 14).

The Council has presented an alternative transport programme (on page 31), the "Auckland Plan transport programme", which includes improvements to public transport services, higher levels of renewal work, and other road improvement projects.

To fund this programme the Council has suggested either an increase in rates and fuel taxes or the introduction of a motorway charge. Both of these options for raising new funding would require legislative change.

Furthermore, the Council notes (on page 45) that if it decides to proceed with the Auckland Plan transport programme, rather than the basic transport programme, it may introduce a new targeted rate in 2015/16 to fund the programme until new funding arrangements can be implemented.

In drawing your attention to these matters relating to the transport plan options, I am not commenting on the merits of the policy content that they reflect. I consider the disclosures to be adequate.
Chatham Islands Council Uncertainty over the level of forecast funding for roading infrastructure

Without modifying our opinion, we draw your attention to the following matter.

As set out on pages 2 and 6 of the consultation document, the Council significantly relies on a range of funding agreements with government agencies to continue to operate and provide services to the community. These arrangements are negotiated periodically. A planned reduction in funding of roading infrastructure has not been quantified but the potential impact could be significant. The Council is in discussions with the New Zealand Transport Agency (NZTA) to address the shortfall. The consultation document is prepared on the basis that sufficient funding will be sourced from the NZTA or another party to maintain funding at the current level.

We draw your attention to these issues because of the significant impact that funding changes could have on rates, debt, investments or levels of service over the ten year period.

We consider the Council's disclosures about this matter to be adequate.
Christchurch City Council Every three years a local authority is required to prepare a long-term plan. Due to the significant damage caused by the series of earthquakes from 2010 and the resulting uncertainties over the extent of damage and the estimated cost of the rebuild, the Council faces unique circumstances in which to prepare its consultation document for its proposed 2015-25 long-term plan. These difficulties are explained in the consultation document.

The Council has signalled that its 2015/25 long-term plan may be subject to major changes

Without modifying our opinion, we draw attention to the fact that the Council's consultation document has been prepared using the best information that it currently has available. In the consultation document the Council recognises that there remains a high level of uncertainty about both the estimated costs to repair and rebuild Council's assets, and also the optimal funding package to pay for the work.

We draw your attention particularly to:
  • Pages 14 to 16 of the consultation document that set out the circumstances and the resulting uncertainties that the Council faced while developing the assumptions underlying the 2015/25 long-term plan; and
  • Page 8 of the consultation document where the Council is seeking your views on its proposals for addressing its $1.2 billion funding shortfall.
We draw your attention to these matters because the cumulative uncertainties faced by the Council may result in the Council needing to adapt to changing circumstances, impacting the timescale and how Christchurch City is built.

This is reflected on page 6 of the consultation document where the Council acknowledges that its 2015/25 long-term plan may be subject to major changes as future circumstances unfold. The Council sees that its 2015/25 long-term plan represents a starting point for the Council and the community to jointly define the priorities and vision for future Christchurch.
In drawing your attention to these issues, we are not commenting on the merits of the policy content that they reflect. We consider the disclosures in the consultation document to be adequate.
Dunedin City Council Uncertainty about achieving the total savings in the consultation document

Without modifying our opinion, we draw your attention to the fact that the Council needs to find significant savings and efficiencies in the period of the long term plan to meet its aim of keeping rate increases below 3%.

On pages 4 and 5 of the consultation document, the Council sets out the financial challenges it faces in maintaining the range and quality of services it provides to the community. This includes that the Council's forecast rates exceed its desired 3% limit on rates increases in seven out of the 10 years of the plan.

On pages 16 and 17 of the consultation document the Council outlines the level of renewals needed over the next 30 years, including dealing with an assessed $60 million backlog in water and waste assets that have exceeded their useful lives and are not capable of delivering the designed service levels. The Council's proposed renewal programme over the next 30 years totals $700 million (in current dollars). The infrastructure strategy assumes that efficiency savings of at least 13% or $88 million, including $27 million over the next 10 years, can be made to accommodate the $60 million backlog. The renewal delivery programme is being refined over the next three years as these efficiencies are being sought.

The cumulative impact on rates affordability is that, having assumed that savings of $27 million over the next 10 years can be identified in the key area of asset renewals, a further $68 million of savings need to be made from 2016/17 to enable forecast rates to be reduced to come within Council's desired 3% limit. This is set out in the table on page 4 of the consultation document.

The total level of savings assumed in this plan is therefore approximately $95 million over the 10 year period of the plan.

Although the Council outlines on pages 5 and 17 of the consultation document the tactics that it anticipates will enable these savings to be made, the Council's ability to realise these savings on the sustained basis is uncertain.

We draw your attention to these matters because if the Council is not able to realise such savings, it may well adversely impact on rates, levels of service and debt projections.

In drawing your attention to these uncertainties, we are not commenting on the merits of the policy content that they reflect. We consider the disclosures in the consultation document to be adequate.
Kaipara District Council Judicial Review Proceedings

Without modifying our opinion, we draw your attention to the significant forecasting assumption as described in the section on Managing our Finances, see page 17. The Council in the consultation document assumes that the Mangawhai Ratepayers and Residents Association's appeal against the High Court decision will not succeed. However, a successful appeal could result in a significant financial impact on the Council's ability to use rates revenue, both past and future, to service the debt raised to fund the Mangawhai Community Wastewater Scheme. This could cause the Council to default on its debt servicing and repayment obligations, which in turn could enable the Trustee, as security holder for the creditors, to collect revenue from rates the Council set for other purposes and/or appoint a receiver who would have powers to set rates to recover the secured amount.
Wanganui District Council Uncertainties over the proposed wastewater treatment plant

Without modifying our opinion, we draw attention to the proposed wastewater treatment plant and the options that the Council is seeking your views on.

The Council is committed to building and operating a new wastewater treatment plant in response to the challenges it currently faces in respect of wastewater.

The Council is concerned that the proposed new plant as currently costed is unaffordable. The consultation document asks if you support delaying construction until 2017/18 while the current design is reworked to develop a treatment solution more affordable to the community and trade waste users. The other option involves commencing construction on the current design in 2016/17. Under either option, a short-term resource consent to discharge effluent will be required until either solution is built.

The Council's preferred option is to delay construction, so the estimated capital and operating costs of the new wastewater treatment plant are included in the financial information underpinning the consultation document using the 2017/18 start date. Those costs are the current best estimate of the proposed plant. However, Council considers them unaffordable. Consequently it acknowledges (on page 9) that both the timing and the amount of the future capital and operating expenditure for the proposed new wastewater treatment plant are uncertain.

We draw your attention to this matter because of the uncertainties relating to the specifications, costs, timing and affordability of the new wastewater treatment plant, particularly if the Council is unable to find a more affordable option that is acceptable to both the community and trade waste users.

In drawing your attention to these issues, we are not commenting on the merits of the policy content that they reflect. We consider the disclosures in the consultation document to be adequate.
Unmodified audit opinion with a scope clarification
Napier City Council Statements relating to the Local Government Commission's Report on Debt and Infrastructure

I express no opinion on the statements made on page 23 of the consultation document (and the references in the Council's financial strategy), relating to the Council's disagreement with the Local Government Commission's assessment of the Council's financial position for both debt and infrastructure, including views about the planned replacement of roading and water assets to meet the levels of service required by the community.
Upper Hutt City Council Statements relating to potential amalgamation issues

I express no opinion on the two statements made on page 6 of the consultation document, relating to:
  • The share of debt which may be attributable to the Council's population within a merged council if the Local Government Commission's amalgamation proposal for the Wellington region proceeds; and
  • The Council's disagreement with the Local Government Commission's views on the condition levels of wastewater pipes and water supply pipes that would require additional costs of maintenance and replacement to be shared by other councils in the event of the proposed amalgamation.