REVIEWING SIGNIFICANT ASSUMPTIONS

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REVIEWING SIGNIFICANT ASSUMPTIONS

• SOLGM Financial Management Seminar
• October 2006

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This Session

• Review of our statutory obligations
• Consider our significance policy and our current
  assumptions
• Potential change factors
• Review process and response
• BERL Presentation
• Table discussion

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Statutory Obligations

• An LTCCP must (Section 10) clearly identify
• All the significant forecasting assumptions and
  risks underlying the financial estimates
• The assumptions of the Council concerning the
  useful life of significant assets, and the
  sources of funds for future replacement of
  significant assets and
• Where significant forecasting assumptions involve
  a high level of uncertainty, the fact of that
  uncertainty

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Significant

• The Act defines significant as the degree of
  importance on and consequences for
• The district or regions wellbeing
• Persons particularly interested in, or affected
  by, the matter and
• The capacity of the Council to perform its role,
  and the financial and other costs of doing so.
• The (potential) changes materiality on expenses
  and revenues, assets and liabilities, levels of
  service

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Annual Plan Requirements

• Section 95 requirements
• The Annual Plan will support the LTCCP
• Identify any variation from the LTCCP, including
  the nature and reasons for that proposed
  variation
• The impact of the proposed variation on the
  community
• Extend opportunities for public participation in
  decision making (related to the variation)

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Significance Policy

• Review threshold levels in our policy
• Asset base movement
• Turnover projections
• Transfer ownership or control of strategic assets
• Private sector partnerships
• Extent that levels of service may change
• Affected number or groups of people

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What are our current Assumptions?

• Growth expectations
• Influencing Factors/climate/coastal occupation
• Employment/Economic Development
• Impact on capital, operations and revenue
• Inflation/Price changes
• BERL Indicators
• Six Categories
• Transit Funding Levels
• Interest Rates

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What are our Significant Assumptions

• Project cost and priority
• Required Return on investments
• Funding Arrangements
• Development contributions
• Risks to Assumptions
• Fuel and energy cost variation
• Climate change/Planning impacts
• Political Expectations
• Legislative Impact

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Potential Change Factors

• Inflation Impact on Cost Structure
• Operational, Capital and Revenue
• Changes in levels of service
• Delivery issues or cost issues
• Growth rate variations
• Economic factors or geographic impact
• Revenue stream impact
• Development contributions
• Projects that have arisen outside the LTCCP

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Potential Change Factors

• Changes to Council Policy
• Project timing
• Impact on capital works programme/funding
• Impact of Natural Disaster
• Funding requirements/operational impact
• Significant variations on contract renewal
• Review of our assessed risk factors

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Impact of reducing Rates?

• What level of Political pressure may we be
  subjected to?
• Detail the impact on current/planned levels of
  service
• Impact on Projected Balance Sheet
• Assess the longer term effect of not doing
  something as planned
• Could we be exposed to a potential amendment?

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Review Process

• Process requires us to consider what may trigger
  a change in the use or cost of our resources
• Refresh the numbers
• Start with LTCCP Year 2
• Year 1 (end of year) projections
• Financial impact of project delays
• Community Impact
• Entire district or smaller community impact

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Review Process

• Inflation was incorporated to prevent wild swings
  in financial projections
• Current CPI ahead of BERL figures, but how
  significant
• Avoid reactionary changes
• Significance policy section 97
• Impact on threshold levels
• Changes in levels of service
• Have we triggered a review/amendment?

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Reasonableness Test

• Are changes common sense and understandable
• Inflation rate
• Fuel price based costs
• Interest rates
• Reprioritising of capital projects
• Growth factors
• Are we looking at permanent affect?
• Change may be required
• If not, note potential impact and timing factors

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Marketing the Plan

• Consultation requirements and expectations
• Highlight the changes (and the reasons) rather
  than the standard operational activities
• Solicit local input to localised issues
• Levels of service impacts
• Project priority
• Benefit to the community
• Note any longer term impact of any variations

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Conclusion

• What was the basis for establishing our policy
  and assumptions 12 months ago
• What has really changed?
• How significant is the change?
• Will the changes potentially lead to an LTCCP
  amendment?
• Changes must be based on common sense, logic, and
  be marketable!