Underspend helps fuel $10m operating surplus
A likely multimillion-dollar underspend on engineering projects is partly why Tasman District Council is tipped to end the financial year with a $10.4 million operating surplus.
The council’s March 2017 quarterly financial update shows a year-end forecast operating surplus of almost $8.9 million.
However, in his report on the council’s financial position, senior management accountant Matthew McGlinchey says the April results indicate a further $1.5m surplus on top of the $8.9m.
The drivers of the ‘‘favourable variance’’ include the harvesting of the Borlase Forest a year ahead of schedule along with lower interest rates and less capital expenditure.
An analysis of the capital expenditure shows a forecast underspend of $22.3m at the end of the financial year even though some projects are tipped to go over budget. The biggest underspend is in the engineering department, which is expected to be $21.4m under its $47.15m budget.
Engineering services committee chairman Stuart Bryant agreed it was likely to be a large underspend.
While some of the underspend related to work that would be carried across to the next financial year, the engineering department had been ‘‘limited in staff’’ including project managers to enable the planned projects to be completed, he said.
Engineering services manager Richard Kirby, who started in the role this year, said he had appointed two new project managers, who were due to start in June. He was also reviewing the proposed engineering projects with an eye on capacity and capability.
‘‘Looking at how we actually deliver the projects, what resources we need internally and what additional resources we need externally,’’ Kirby said.
TDC had faced an underspend in capital projects for ‘‘quite a few years’’. Kirby said he believed the council had been ‘‘aspirational in what it’s been trying to achieve’’.
‘‘There’s an element of planning as well. There are some projects that do require a lot more consenting and consultation, and that takes time,’’ he said. ‘‘Sometimes, we don’t allow enough time for that and that pushes things out.’’
Of the engineering areas tipped to go under budget in McGlinchey’s report, the big three are stormwater, wastewater and water supply, which are forecast to be underspent at the end of June by $5.7m, $4.9m and $6.4m respectively.
McGlinchey says the forecast underspend in stormwater is due to some major projects that are still in the investigation/design phase, specifically Pohara improvements, stormwater remodelling, Richmond central improvements and the Lower Queen St upgrade. Work has also been delayed on the Borck Creek and Lower Queen St improvements because of private development and land access issues. Funds will generally need to be carried forward to allow the major projects to be completed next year.
The forecast underspend on wastewater is due to contract works on the Motueka wastewater treatment plant upgrade coming in $1.7m under budget. The construction of the Kaiteriteri wastewater pipeline replacement project will now occur mainly in 2017-18.
For water supply, the forecast underspend is a result of work delayed for the Richmond central improvements project; a total of $1.4m being moved to 2017-18 for the renewal of water meters; the delay until 2018-19 of a water main renewal under Church St in Richmond; a total of $1.06m related to the Kaiteriteri-Riwaka water treatment plant, delayed by land purchase.
Overall, the TDC net debt at the end of March was at $119m, down $9.2m on the 2015-16 position. It is tipped to be $134.5m at the end of June, $31.9m less than the expected net debt position in the 2016-17 Annual Plan.
‘‘April results suggest the debt figure is likely to be lower than the $134.5m,’’ McGlinchey says. A contributor to the ‘‘strong overall financial position’’ is better debt collection.