Environmental / Resource Management

New Reg's Test Council Performance

NEW REG'S TEST COUNCIL PERFORMANCE

Local Government (Financial Reporting and Prudence) Regulations 2014

The financial performance of the local government sector is under closer scrutiny with the advent of the Local Government (Financial Reporting and Prudence) Regulations 2014 (Regulations). They arose from amendments made to the Local Government Act 2002 as part of Government's Better Local Government Policy.

The Regulations, which come into force on 1 May 2014, were developed to:

  • Assist in identifying the local authorities where further enquiry is warranted in relation to their financial management; and
  • Promote prudent financial management by local authorities.

As a result, the Local Government (Financial Reporting) Regulations 2011 are revoked.

What's covered?

The Regulations are in two main parts (financial reporting and financial prudence), and contain six schedules.

The impact of the Regulations on the 2013/2014 annual reports, 2014/2017 Long-term plans, and 2014/2015 annual plans is set out in Schedule 1. With some limited exceptions in relation to rates income, Part 1 of the Regulations will apply to these documents.

Part 1 contains the financial reporting regulations, setting out:

  • The information to be disclosed in financial statements, and the information about core assets that are to be disclosed in financial statements in annual reports; and
  • The form of funding impact statements and the directions for preparing them.

Part 2 is about financial prudence. It contains:

  • A requirement for local authorities to disclose their performance in relation to specified benchmarks;
  • The seven benchmarks for measuring the financial performance of local authorities;
  • The disclosure requirements in annual plans, annual reports and long-term plans, for compliance with formats for disclosure of and reporting on benchmarks; and
  • The "reporting basis" i.e. local authorities must disclose their performance in relation to benchmarks as a single entity and not include subsidiaries. However, Auckland Council must disclose, in its disclosure statements, the performance of Auckland Council and its subsidiaries as a single consolidated entity.

The transitional provisions in clause 3 of Schedule 1 provide that Part 2 of the Regulations will apply to an annual report for the 2013/2014 year, but not to a 2014/2017 long-term plan or a 2014/2015 annual plan.

Benchmarks

A core feature of the Regulations is the seven benchmarks that local authorities must use to measure their financial performance:

  1. Rates affordability;
  2. Debt affordability;
  3. Balanced budget;
  4. Essential services;
  5. Debt servicing;
  6. Debt control; and
  7. Operations control.

There are a number of indicators that a local authority has met a benchmark for a year, and these are set out in full in regulations 17 to 23. It will be interesting to see how councils measure up against them. A summary table is provided below:

Benchmark

Regulation

Indicator

Rates affordability

17

Actual/planned rates income for the year = or < than each quantified limit on rates

Actual/planned rates increases for the year = or < than each quantified limit on rates increases

Debt affordability

18

Actual/planned borrowing for the year is within each quantified limit on borrowing

Balanced budget

19

Revenue for the year exceeds operating expenses. Specific revenue and expense types are excluded.

Essential services

20

Capital expenditure on network services for the year = or > than depreciation on network services for the year

Debt servicing

21

Borrowing costs for the year = or < 10% of its revenue for the year.  Specific revenue types are excluded.

Debt control

22

Actual net debt at the end of the year is < or = to the net debt planned for the year in a long-term plan

Operations control

23

Actual net cash flow from operations for the year is = or  >  than its planned net cash flow from operations for the year

 

Note: The "quantified limit" is set in the financial strategy in accordance with section 101A of the Local Government Act 2002.

There are also disclosure requirements for each benchmark.

Other Matters

Local authorities affected or created by a local government reorganisation are required to comply with Part 2 of the Regulations as it applies to annual reports only "to the extent that is reasonably practicable given the circumstances of the organisation".

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The contents of this publication are general in nature and are not intended to serve as a substitute for legal advice on a specific matter. In the absence of such advice no responsibility is accepted by Brookfields for reliance on any of the information provided in this publication.

 

 

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