Reports contain recommendations only. Refer to the meeting minutes for the final decision.

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1 AUDIT AND RISK COMMITTEE AGENDA STRATEGIC RISK REPORT Author: Authoriser: Stephanie Moore, Senior Corporate and Strategic Planner Kaihanga Mahere Rangatōpū me te Rautaki James Jefferson, General Manager Policy Planning and Regulatory Services Pouwhakahaere PURPOSE The purpose of this report is to provide an assessment and seek the Committee s feedback on the Council s strategic risk exposure as at 1 December RECOMMENDATIONS That the Audit and Risk Committee: 1. Receive the report; 2. Note the Council s strategic risk exposure; 3. Provide feedback on Council s identified strategic risks; and 4. Note that a review has recently been completed on risk management in the organisation and a report with recommendations for future management of risk will be presented at the next Audit and Risk Committee in March 2019 Reports contain recommendations only. Refer to the meeting minutes for the final decision. BACKGROUND 1. Under the 2013 Risk Management Framework, judgements of the strategic risks of Council, and the adequacy of controls and actions to manage risks rated as high or extreme, rest with the Audit and Risk Committee (the Committee) and Council. 2. Section 1.3 of the framework outlines the key responsibilities of the Committee and Council. These responsibilities include: ensuring that strategic risks are identified, assessed, monitored and reported; and approving major (strategic) decisions affecting the Council s risk profile or exposure. 3. The Committee agreed that it will receive reports on strategic risks on an annual basis. This report is the fourth strategic risk report, the last report was provided to the Committee in December The strategic risk report has two components; a commentary and insight on the six identified risks (this report), and a strategic risk register showing the risk, controls and actions to mitigate and manage the risk at a level acceptable to management (attachment 1). 5. The six strategic risk focus areas relate to: Market and Economy external factors that impact on the funding or levels of service. Financial Sustainability effective and efficient funding of services, now and into the future. Workforce staff engagement, capability and capacity to maintain and deliver services. Infrastructure meeting the current and future needs of the community for good quality Item 6.2 Page 17

2 AUDIT AND RISK COMMITTEE AGENDA infrastructure in a manner that is most cost effective. Performance Alignment ensuring that all Council activities are focussed on delivering the outcomes as detailed in the Long-term Plan (LTP). Reputational resident and ratepayer support and confidence in Council to deliver services as planned. 6. Although the six strategic risks are individually reported, there is and always will be interdependencies between the risks identified. This means that the considerations and performance within one risk and how well it is managed will have knock-on effects (positive or negative) on another risk. DISCUSSION 7. This section provides a commentary on the Council s six strategic risk areas taken from the strategic risk register. Market and Economy 8. Current low interest rates will remain for the next 12 to 18 months however this is not sustainable when compared to the US Treasury market. It is inevitable that interest rates will rise at some point, putting further pressure on rate increases in Porirua City in the medium to long-term. 9. There is an increase in pressure from growth and how the Council funds the rapid future expansion expected from employment, development and growth in the number of visitors to the city. This growth will not be linear and will mean that we may need to front load capital and operating programmes. 10. Changes to legislation and policy signalled by the government have become clearer over the last six months, and presents us with challenges around resourcing as growth takes a hold. For example, the National Policy Statement on Urban Development Capacity (NPS-UDC) directs local authorities to provide sufficient development capacity in their resource management plans, supported by infrastructure, to meet demand for housing and business space. In addition, the draft Growth Strategy and District Plan are signalling opportunity for urban development and quality growth to the development community. This has fuelled expectation in the market. The result is both opportunity and pressure on the city to respond. 11. While legislation enables an Urban Development Authority (UDA) to be established with a purpose to enable a one stop shop for land development, we understand the process could take up to two years, and at this stage we do not believe that a UDA will be established for Eastern Porirua revitalisation. Financial Sustainability 12. As part of the Long-term Plan the Council agreed to a flat rate increase of 4.98% over five years to 2022/23 to manage the impacts of assets and spending that vary annually. Having also extended balancing the budget out a year to 2022/23 the challenge will be to remain within this 4.98% envelope from 2020, with currently unknown costs such as revocation, Adventure Park, and Eastern Porirua revitalisation becoming clearer. 13. The work being done as part of the Growth Strategy is likely to acquire a review of infrastructure investments. This may have to be addressed as part of an amended Longterm Plan and Development Contributions Policy prior to 2021, to ensure that growth pays for growth, not ratepayers. The speed of growth will put significant pressure on debt levels if we bring forward investment in the three water networks such as the Wastewater Treatment Plant. 14. The government-led Three Waters Review which is underway in response to the Havelock North Inquiry seeks to answer broader questions around the regulatory regime, and the capability and sustainability of water service providers both from a financial and Item 6.2 Page 18

3 AUDIT AND RISK COMMITTEE AGENDA environmental perspective. The foreshadowed amalgamation of three water services has already occurred in the Wellington region through the establishment of Wellington Water. We have no expectations of any significant impact on our service delivery. 15. The Council continues to take a reactive approach to unplanned events like slips, subsidence and flooding, and to weathertightness provision claims. Although this approach is commonplace among territorial authorities, the frequency, complexity and cost has increased over the last few years and is requiring the Council to rethink how we pay for this into the future. Workforce 16. The hot economy with near full employment is making it increasingly difficult to attract and retain staff. The number of applicants and the average standard of candidates applying for roles has fallen across all roles. 17. Council s workforce has been gradually aging for some time. Currently 44% of Council s staff are aged 50 years or over. To some extent this trend reflects wider societal change but a greater focus has been placed on workforce planning over the last 12 months to manage this trend. 18. Impact of growth on workforce capacity and capability is being investigated but largely remains unknown at this stage, particularly with the latest Porirua Eastern revitalisation announcement. 19. Following the Kaikoura earthquake a restructure by the Ministry of Civil Defence Emergency Management was conducted resulting in new reporting requirements for councils across the country. This has had flow on effects including increase in staff time and resource to ensure obligations are met and is both a capacity and capability issue. 20. Government s policy decision to increase the minimum wage substantially over several years, the growing influence of the living wage movement and recent pay equity decisions have culminated in increased expectations that will continue to generate wage pressures after The accommodation of staff in alternative working spaces during the rejig refit is likely to have some impact on systems and staff morale. It will need to be carefully and sensitively managed to maintain engagement and productivity during the decant period. Infrastructure 22. Condition and capacity of existing infrastructure will continue to present challenges as we deal with a step change as part of revocation, the recent Eastern Porirua announcement, and developer expectations emerging from the recent consultation on the draft Growth Strategy. We need to maintain and nurture strong relationships with NZTA, Housing Land Community (HLC), Wellington Water, and the development community to ensure the right decisions are made on behalf of the city. 23. There is an increased importance on striking the right balance between replacing assets while also allowing for growth. This relates in particular to roading and stormwater but is also a consideration for all the city s assets. Work on the Growth Strategy and District Plan will identify focus areas and more reliable projections that will mean we can be more purposeful with the associated capital programme. Any financial considerations and implications will be addressed as part of the next Long-term Plan. 24. The Government Policy Statement on Land Transport took effect on 1 July 2018 and prioritises safe and accessible transport, the environment and value for money. An outcome of this was an increase in the city s NZTA subsidy to 56%, with a further announcement due in the New Year from the Minister expected to largely address the issues facing rail. In the meantime, work is well advanced on Porirua City s Walking and Cycling Plan, supported by the Growth Strategy that incorporates an active and connected city as a key principle. Item 6.2 Page 19

4 AUDIT AND RISK COMMITTEE AGENDA 25. Consultation on the Natural Resources Plan that is being developed by GWRC is ongoing, but will result in tougher rules and conditions for landfill, waste and stormwater discharges, amongst other things. Until this plan is complete it is hard to know exactly what the impact on how we fund and deliver these services will be. 26. We continue to deal with the impacts and implications of the effects of climate change and natural hazards around the city for example through coastal inundation, storm events and earthquakes. The government has recently consulted on a Zero Carbon Bill that is expected to be law by July This Bill provides a vision for how we transition to a sustainable and climate resilient future and councils across the country will be expected to be part of this journey. A Climate Change Strategy is being developed which supports this approach. Performance Alignment 27. The Long-term Plan does not fully capture the impacts of growth, and how this will affect performance of all services the Council provides in the short to medium term. Eastern Porirua revitalisation will exacerbate this, requiring the Council to resource appropriately so that there is no reduction in the agreed levels of service. 28. The impact on staffing as a result of the accelerated growth the city is experiencing is particularly evident in regulatory services. There has been a sharp increase in the number and complexity of building and resource consent applications, in addition to the high profile resource consent process for Adventure Park. These issues are putting pressure on service levels as we try to maintain meeting statutory performance targets. A review of internal capacity and capability is being undertaken, with preliminary results expected before the end of this calendar year. 29. Improving the wellbeing of New Zealanders is a key theme of the current government. The Local Government (Community Wellbeing) Amendment Bill has been slightly delayed and is expected to become law by March Treasury are developing the Living Standards Framework (LSF) that will assist with analysing policy, along with the LSF Dashboard that is a macro level stocktake. This will be used by the government to analyse where interventions will have the greatest impact for multiple indicators in preparation for the 2019 Budget. The Society of Local Government Management (SOLGM) are leading the sector response to this, and it is likely in the coming years that an increased emphasis on intergenerational wellbeing will be incorporated into the city s performance reporting framework and reflected in the levels of service provided across activities. Reputational 30. The customer experience journey is an ongoing project. This was agreed by the associated steering committee to ensure that resources were used effectively and efficiently. To this end there is a focus on ensuring the right strategies are in place for delivering the right messages at the right time to continue to build on the positive momentum gained. It is likely that the rejig and the temporary relocation of staff and in particular the front counter staff will have some impact on customer satisfaction and perceptions. A communications plan to mitigate this has been developed and implemented. 31. Our level of rate increases continue to put pressure on the city. As a result, satisfaction and perception ratings in our community surveys and in particular scores around reputation and value for money have been declining. This is expected to continue in the short term as we further develop our value for money story. 32. There will be some pressure to manage expectations about Eastern Porirua revitalisation and ensure the right outcomes are realised for the community first and foremost. We will need to be clear about what the Council s role is in this process and continue to advocate for the broader societal changes that this revitalisation can bring to Porirua East, and the city. Item 6.2 Page 20

5 CONCLUSION AUDIT AND RISK COMMITTEE AGENDA 33. Growth has well and truly taken a hold across the city and is impacting on each of the six areas of strategic risk resulting in a shift in the city s strategic risk profile. It is a busy and complex time and although the Growth Strategy and District Plan will create opportunities across the city, some uncertainty remains that will require an agile and focused response from the Council and wider sector. 34. The ongoing changes to government policy such as employment, climate change, transport, and the waters networks are likely to result in new obligations and costs to the city. These changes will need to be carefully monitored and managed to ensure that the city is seen as leaders in this change. ATTACHMENT Strategic Risk Register Item 6.2 Page 21