Part 4: Infrastructure strategies

Matters arising from the 2015-25 local authority long-term plans.

4.1
In this Part, we provide:

4.2
Amendments to the Act in 2014 introduced the requirement for local authorities to prepare an infrastructure strategy as part of their LTP.

4.3
The purpose of the infrastructure strategy is to identify:

  • significant infrastructure issues for the local authority over the period covered by the strategy; and
  • the principal options for managing those issues and the implications of those options.

4.4
We supported the introduction of infrastructure strategies. Local authorities hold significant infrastructure assets. Infrastructure operations and works make up most of local authorities' spending. An infrastructure strategy providing, at a minimum, a 30-year view, offers the opportunity for local authorities to present a strategic picture of their infrastructure portfolio.

4.5
In our August 2015 report on consultation documents, Consulting the community about local authorities' 10-year plans, we discussed consultation documents prepared for the first time as a part of the LTP process. In that report, we also made some preliminary observations on infrastructure strategies, based on a review of selected strategies.

Preliminary observations on infrastructure strategies

4.6
After reviewing some early draft infrastructure strategies and the intent of the legislation, we had some preliminary views and expectations about what infrastructure strategies should include. We communicated these views and expectations to local authorities and auditors before the audit of LTPs.

4.7
We said that infrastructure strategies should be:

  • visionary – telling the story about where local authorities were, where they expected to be, and how they intended to get there;
  • realistic – including relevant assumptions and disclosures on funding, data, risks, and delivery; and
  • relational – creating the right debate and being credible by connecting with financial strategies, demographic change, and other relevant influences.

4.8
In our August 2015 report Consulting the community about local authorities' 10-year plans, we provided our preliminary observations about how local authorities responded to the requirement to prepare infrastructure strategies. We concluded that local authorities responded positively. The infrastructure strategies brought focus to their significant issues, including the common challenge of renewing or replacing ageing infrastructure.

4.9
We also saw weaknesses in infrastructure strategies. For example, some strategies:

  • had no clear link to the significant issues raised in consultation documents;
  • read like summaries of asset management plans rather than of strategic direction;
  • had little discussion of the optimal balance between maintenance and renewal of assets or about the life-cycle management of assets;
  • had little discussion and/or disclosure of the condition and performance of assets – some appeared to have no assessment about the reliability of asset data;
  • had little discussion and/or disclosure of uncertainties about data on asset condition and performance, and the potential risks and costs of assets failing;
  • did not respond enough to issues of affordability, which was an important objective in consultation documents; and/or
  • could not be read as standalone documents – for example, many discussed changes to levels of service but did not say what the current level of service was.24

4.10
We know that the 2014 amendments to the Act, which created the requirements for infrastructure strategies, came into effect soon after being enacted. This put pressure on local authorities to prepare for the new requirements. We also know that many local authorities have plans to improve their infrastructure strategies. We encourage all local authorities to build on the position reached for the latest LTPs.

A closer look at infrastructure strategies

4.11
In preparing this report, we have read the infrastructure strategies of all local authorities.

4.12
Looking at the main features in all infrastructure strategies has given us a more complete picture of their relative strengths and weaknesses. We saw considerable variety in how local authorities presented their strategies.

4.13
We had expected that infrastructure strategies would have been given similar prominence to financial strategies and be an integral part of the LTP. In some instances, this did not happen.

4.14
The strategies included the basic considerations and features that legislation requires. For example, most local authorities provided a good description of the assets they owned and managed. They also provided details on the main projects that are required in the next 30 years.

4.15
A few strategies strongly demonstrated all three of the principles that we list in paragraph 4.7.

4.16
In some LTPs, it appeared as though the preparation and presentation of the infrastructure strategies were treated as a separate exercise and not integrated with the LTPs. For example, some infrastructure strategies were attached as an appendix to the LTP, with no clear link to explain how the LTP built on the strategy. Few local authorities succeeded in presenting their infrastructure strategies as an integrated part of the LTP.

4.17
Some common weaknesses made infrastructure strategies less effective:

  • the effects of demographic change, and, in particular, the actions to address those effects, were often unclear;
  • analysis to show the financial sustainability and affordability of the projects in the infrastructure strategies was lacking;
  • although uncertainties about asset condition information were disclosed, the likely long-term effects on the financial and timing profile of projects and work were unclear; and
  • the long-term view of economic activities lacked discussion or analysis.

Addressing the effects of demographic change

4.18
Many consultation documents and LTPs emphasised demographic change. We expected to see how demographic change, in particular, trends in ageing and urbanising populations, would feature in the longer term (2025-45) that infrastructure strategies cover. Although strategies mentioned these changes, their longer-term implications, such as changes to levels of service, likelihood of assets being abandoned, or changes to financial strategies, were often unclear. Lack of clarity about these demographic changes, particularly from years 11 to 30, raises questions about long-term affordability.

4.19
In Part 3, we comment on population and demographic forecasts. In paragraphs 4.69 to 4.72, we highlight examples of population change being integral to a local authority's planning.

Financial sustainability and affordability

4.20
Individual infrastructure strategies are expected to contain indicative financial forecasts for the 30 years that the strategy covers.

4.21
In Part 2, our analysis of LTPs' financial information included local authorities' proposed spending on capital in the 10-year period of the LTPs. Figure 19 outlines the aggregated proposed spending on capital in each subsequent period (in five-year groups) that the strategy covers – from 2025 to 2045.

Figure 19
Proposed spending on capital by all local authorities, years 11 to 30 of the infrastructure strategy

Figure 19 Proposed spending on capital by all local authorities, years 11 to 30 of the infrastructure strategy.

Source: Data collated by our office from information available in long-term plans.

4.22
Collectively, local authorities included $20.8 billion of forecast capital expenditure in their infrastructure strategies for the five years between 1 July 2025 and 30 June 2030 – that is, $4.2 billion each year. This increases to $30.8 billion for the five years between 1 July 2040 and 30 June 2045 – that is, $6.1 billion each year.

4.23
This does not reflect the entire forecast spending on capital by local authorities. It captures only the total forecast capital expenditure disclosed in local authorities' infrastructure strategies, which relates to specific categories of assets.

4.24
Further, local authorities were not always explicit about whether the forecast expenditure had been adjusted for inflation. As a result, the forecast capital expenditure could be significantly higher than set out in Figure 19.

4.25
In paragraph 2.7, we noted that the average annual spending on capital is forecast to be $4.2 billion during the 10 years of the plan. The investment in local authorities' infrastructure remains significant and makes up most local authorities' spending.

4.26
Affordability is a significant issue for local authorities. Many consultation documents and LTPs were explicit about the challenges local authorities face to balance affordability with the need to maintain infrastructure in their infrastructure strategies. However, many local authorities did not provide a clear, integrated story about the implications of funding the forecast spending on capital or a clear description of how their financial and infrastructure strategies related to each other.

4.27
The profile of spending on capital in the 30-year period of the infrastructure strategy shows a significant challenge for local authorities seeking to provide affordable services to declining and/or ageing communities.

4.28
As noted in our report Consulting the community about local authorities' 10-year plans, financial strategy information – including local authorities' approaches to funding, rates, and debt – was expected to be in line with the infrastructure strategy so as to usefully explain priorities, spending intentions, and risks in a more integrated way.

Lack of asset condition information

4.29
The Thirty Year New Zealand Infrastructure Plan 2015 notes that:

Data is foundational to understanding pressures on networks, the likely timing and cost of future investment, and expected future service needs.25

4.30
In more than half of the infrastructure strategies, local authorities discussed the need to collect better information about their assets. Ten local authorities disclosed and described the programmes they were putting in place to collect better asset information in their infrastructure strategies. For most local authorities, the age and condition of above-ground network assets and plant was reasonably well understood. Underground networks posed the greatest challenge in terms of asset condition information.

4.31
In our report Water and Roads: Funding and management challenges, we said that good information about network asset performance helps good decision-making about spending on capital and how to fund it.

4.32
Our audits confirmed that the information on which LTPs were based was reasonable for the purpose of us issuing an unmodified opinion. However, we consider it important that local authorities continue to collect better information to allow better long-term decisions about how infrastructure is managed. Local authorities understand the concepts of asset management planning well. However, high levels of confidence in asset condition information, and sound demand management, are needed for success:

… applying asset management disciplines requires detailed and well-understood information on the state of the physical asset and the level of likely demand in future.26

4.33
We are encouraged to see that some local authorities are looking at ways to collect better information about their assets to better inform their decisions.

4.34
During the audits of the LTPs, we also collected information from local authorities about asset data confidence, accuracy, and reliability. About a quarter of local authorities with low confidence in their asset data were not as transparent about the limitations of their data as they could have been in their infrastructure strategies.

4.35
Although better information on physical assets is required, the effective delivery of public services also relies on understanding how services connect with people. In a recent report about service delivery, we noted that several overlapping factors affect how services are delivered, including whether public entities know what they need to do differently to ensure that services can be provided successfully in the long term.27 Infrastructure strategies provide the opportunity for discussions about the long-term connection between levels of service and peoples' changing demands and needs over time.

4.36
In our 2016/17 work programme, we will consider the quality of local authorities' asset management systems.

Economic development

4.37
In general, infrastructure strategies took a positive long-term outlook on local and regional economic activity or events. Few strategies included detailed discussion or analysis of their long-term assumptions.

4.38
Local Government New Zealand has been emphasising the importance of transport infrastructure and economic development, noting that "infrastructure investment needs to be properly targeted to generate regional social and economic development."28 Many local authorities said they were looking to regional economic development opportunities to support growth and vitality. In most instances, we struggled to see the links between what was in LTPs about economic development proposals and the infrastructure strategies, and the proposals or the strategies that would result in the economic benefits anticipated.

4.39
Some consultation documents and LTPs included proposals for water supply security or irrigation schemes, or to improve the internet access in their districts. Such proposals are examples of economic development intended to lift the social and business vitality and economic fortunes of districts and towns. However, the proposals and their associated effects were rarely mentioned in infrastructure strategies.

4.40
Long-term infrastructure strategy assumptions (for 2025-45) about economic activities and influences often assume a benign future environment. For example, strategic discussions and assumptions about future conditions, such as primary sector productivity, freight supply chains, continuing visitor numbers, work force capacity, or government regulation, often assume or imply that no significant changes are expected.

4.41
It would be unrealistic to expect infrastructure strategies to foresee the detailed state of local economies in 20 or 30 years. However, assuming that economic conditions will be largely unchanged in 2045 might be unrealistic − markets and technologies today are dramatically different from those in 1985.

4.42
Infrastructure strategies provide a platform for local authorities to encourage debate on such issues within their community. We encourage local authorities to address this more fully in their next LTPs.

Positive features of some infrastructure strategies

4.43
Although infrastructure strategies fulfilled statutory requirements, many local authorities missed opportunities to clearly set out where they expected to be in 30 years' time and how they intended to get there. When we assessed all the strategies, the strong ones had:

  • scope – taking a longer outlook than the minimum 30-year requirement and including more than the required asset activities;
  • integration – connecting to important financial information and the wider context; and
  • support – being clear about the effect of change on infrastructure needs.

4.44
In paragraphs 4.45-4.79, we present some examples of strategies that show these positive features. When we use a specific example to demonstrate a positive feature, it does not mean that all of the local authority's strategy was done well or that other local authorities' strategies did not share those positive features. Infrastructure strategies with several positive characteristics include those of Dunedin City Council, Kaipara District Council, Tararua District Council, and Waimakariri District Council.

More long-term focus

4.45
Section 101B(1) of the Act requires that:

A local authority must, as part of its long-term plan, prepare and adopt an infrastructure strategy for at least 30 consecutive financial years.

4.46
Nine local authorities presented aspects of their strategies beyond the 30-year minimum requirement.

4.47
In our view, infrastructure strategies should cover the period needed to adequately show the situation of the local authority. For example, if major infrastructure renewals are reliably forecast for 2050, then it would be helpful for the local authority to disclose this information, any funding implications, and the approach that will be needed.

4.48
For example, Dunedin City Council's infrastructure strategy is clear about some of the long-term infrastructure renewal challenges confronting the city. Its infrastructure strategy included its renewal assumptions about the drinking, waste, and stormwater infrastructure for the 45 years to 2060.

4.49
The nine local authorities that disclosed infrastructure information beyond the minimum 30 years provided varying levels of information. Central Otago District Council's infrastructure strategy included graphs of water supply and waste water replacement values until 2113. Waimakariri District Council took a more comprehensive approach for all the assets in its infrastructure strategy, including cost forecasts for 100 years – 70 years more than the minimum the Act requires.

4.50
Waimakariri District Council's need to take stock of priorities and the condition of assets after the Canterbury earthquakes appears to have reinforced the Council's long-term outlook. Waimakariri District is typical of a semi-rural district with a dispersed population, but with three differences: it expects a population increase, it is close to supply chains,29 and it has access to the large market of Christchurch.

4.51
With reasonable underpinning forecasts, Waimakariri produced a stronger infrastructure strategy. Waimakariri District Council's inclusion of long-term forecasts also resulted in an integrated story to link the financial strategy and the infrastructure strategy. As well as being inherently more strategic, the 100-year approach gives elected members, ratepayers, and businesses a long-term view of future issues and how the Council plans to address them.

"Other" assets

4.52
Where applicable, all local authorities' infrastructure strategies included disclosures about the infrastructure assets required by section 101B(6)(a) of the Act:

  • water supply;
  • sewerage and the treatment and disposal of sewage;
  • stormwater drainage;
  • flood protection and control works; and
  • roads and footpaths.

4.53
Section 101B(6)(b) of the Act also provides that local authorities' infrastructure strategies can include "any other assets that the local authority, in its discretion, wishes to include in the strategy." These assets could include, for example, community facilities, parks, and solid waste.

4.54
Including "other" assets in infrastructure strategies is not a requirement but a matter for local authorities to consider. Nineteen local authorities included some additional other assets.

4.55
Many local authorities told us that they were likely to include additional assets in future strategies. We consider that including other assets can help improve strategies, by providing readers with a more comprehensive overview of the infrastructure challenges and issues that the local authority is addressing.

4.56
Southland District Council's infrastructure strategy includes other assets of importance to the district, such as Council property, parks and reserves, solid waste, and electricity supply infrastructure on Stewart Island. Gisborne District Council's strategy included infrastructure of particular importance, including its Olympic-sized pool.

4.57
Hamilton City Council's infrastructure strategy included a range of other assets, such as parks and green spaces and community and event facilities. The infrastructure strategy notes that these other activities are important and highlights where significant spending is planned in the 30 years the strategy covers.

4.58
Local authorities in larger urban centres, including Auckland Council, Tauranga City Council, Upper Hutt City Council, and Wellington City Council, also had other assets in their strategies.

More integrated

4.59
Less than one-third of local authorities clearly linked their infrastructure and financial strategies.

4.60
As previously stated, we had expected to see strong links between a local authority's infrastructure strategy and its financial strategy.

4.61
The stronger, more integrated infrastructure strategies connected to important issues of financial and service management.

4.62
The Act recognises this integration and allows for a local authority to adopt a single financial and infrastructure strategy document as part of its LTP. Only one local authority chose to take this approach. In its guidance to the sector, the Society of Local Government Managers did not recommend this approach for 2015. This was because of the timing of the 2014 legislative amendments introducing the requirements for infrastructure strategies.

4.63
We encourage local authorities to consider whether they should adopt a single strategy in the future. However, local authorities need to be aware that integrating financial and infrastructure strategies is broader than bringing two documents together. It is about showing the local authority's clear strategic intent for the future.

4.64
Waimakariri District Council's infrastructure strategy was strong in many ways, particularly its connections with the Council's financial approach and financial strategy.

4.65
Grey District Council's infrastructure strategy highlighted its focus on affordability by giving prominence to the long-term affordability of infrastructure. As well as being clear about the choices for long-term levels of service to its community, the Council's openness about those choices was realistic about what was, in the Council's view, affordable.

More about needs

4.66
An infrastructure strategy can better enable and guide governors to make decisions "to meet the current and future needs of communities for good quality local infrastructure".30 Section 101B(3) of the Act requires that infrastructure strategies address particular matters, including the need to:

  • renew or replace existing assets;
  • respond to growth or decline in the demand for services that rely on those assets;
  • allow for planned increases or decreases in levels of services provided through those assets;
  • maintain or improve public health and environmental outcomes or mitigate adverse effects on them; and
  • provide for the resilience of infrastructure assets by identifying and managing risks relating to natural hazards and by making appropriate financial provisions for those risks.

4.67
Infrastructure strategies generally outlined local authorities' intentions to manage assets while taking account of these particular matters. However, it was often difficult to obtain a clear understanding of the future state that the local authority was working towards − the local authority's vision was not as clear as it could have been.

4.68
We noted that the stronger strategies were clear about choices and the likely effects of trade-offs. Stronger strategies were also clear:

  • about choices of levels of service and risks; and
  • in describing how trade-offs could affect the local authority's longer-term management of infrastructure assets.

Demographic change and changes to levels of service

4.69
As we discussed in Part 3, many local authorities forecast ageing populations, intra-regional consolidation of populations in urban centres and townships, and increased growth in main centres, especially in Auckland.

4.70
Rangitikei District Council's infrastructure strategy confronted the issue of an ageing and declining population. Although many infrastructure strategies raised changing demographics as a concern, few gave clear signals about the longer-term effects expected or detailed responses to these changes. Being plain about the potential effect of such realities can be an uncomfortable challenge.

4.71
The 2013 Census recorded the population of Rangitikei at 14,550. The forecast population for Rangitikei in 2023 is 14,200, a decline of 350.31 Many rural districts anticipate population declines and a few of these declines are significant. The general trend, though, is not a dramatic decline but ageing populations and depopulation of smaller rural townships.

4.72
The Council's infrastructure strategy boldly sets out the likely implication of these demographic trends in a way few other infrastructure strategies do. It talks openly about its priority for roading and areas where infrastructure provision might be abandoned in the longer term. The infrastructure strategy outlines that the Council is working with others to find affordable waste water solutions for the small community of Mangaweka. One solution might be installing septic tank systems on all currently connected properties instead of replacing the existing wastewater plant.

Resilience and natural hazard risks

4.73
Natural hazards and climate change issues featured in the latest LTPs. The legislation requires local authorities to cover how they will manage the resilience of infrastructure at risk from natural hazards. Flood protection measures were an important consideration in many consultation documents and were integrated throughout many infrastructure strategies of local authorities with flood protection assets (such as regional councils).

4.74
Greater Wellington Regional Council's infrastructure strategy included a wide range of issues and options for responding to natural hazards. The Council had a unique proposal for an under-harbour pipeline to ensure that water could still be supplied to Wellington after an earthquake.

Community buildings

4.75
Legislative requirements were introduced in 1976 for managing buildings prone to fail as the result of earthquakes. At the time of writing, the details of amendments to the Building Act 2004 to manage earthquake-prone buildings (EPBs) were not yet complete.

4.76
EPBs are a good example of a significant issue and probable cost to local authorities. EPBs were considered in many consultation documents and LTPs. Because only a few infrastructure strategies addressed community buildings, discussion of the issue in the strategies themselves was minimal.

4.77
We noted that the maintenance and improvement of key community buildings – including the costs of seismic strengthening – was a significant issue in one local authority's consultation document. However, although this was a significant issue in the LTP, it did not feature in the local authority's infrastructure strategy because the strategy did not go beyond the five required asset classes.

4.78
We note that EPB issues and options were discussed in Wellington City Council's consultation document and LTP, raising awareness and stimulating debate about a matter important to its community. The issues were also well integrated within the LTP and featured in its infrastructure strategy and financial strategy.

Provision for risks

4.79
Waimakariri District Council used its strategy to emphasise its potential extra "headroom" to raise debt to help pay for infrastructure repairs after a natural disaster. Infrastructure strategies uniformly note risks of natural disasters. However, not many show the thinking that Waimakariri District Council has shown.

Future infrastructure strategies

4.80
We continue to support the requirement for infrastructure strategies. As a means to focus on the areas where local authorities spend the most, we see infrastructure strategies as an integral part of LTPs. Strong infrastructure strategies give a credible and believable long-term view of the issues and opportunities the local authority faces.

4.81
Our reading of all infrastructure strategies confirmed the strengths and weaknesses that were apparent from our earlier review of a small selection of these strategies.

4.82
Overall, infrastructure strategies prepared as part of the latest LTPs were adequate. Some strategies benefited from additional information and context. Where it was relevant and strategic, this additional information and context helped make these strategies more engaging and visionary.

4.83
Many infrastructure strategies were not clear about how the local authority would be placed in 2045 or did not foresee or plan for changes to either the financial strategy or changes to levels of service. Few strategies were clear about the most likely scenarios between 2025 and 2045 or beyond.

4.84
We encourage local authorities to work on the links between forecast infrastructure investment and financial strategies. Infrastructure spending forecasts beyond 2025 generally appeared to be unconnected to the LTP 10-year forecasts. Those local authorities whose strategies included other assets and more contextual information gave a fuller picture. Where strategies were an integral part of the LTP and clear about scenarios, they were often also more effective at providing readers with clear and useful information about the infrastructure challenges facing the local authority.

4.85
We recognise that the timing of the introduction of the new 2014 legislative amendments for consultation documents and infrastructure strategies put significant pressure on local authorities. This was apparent in this round of documents. We expect more maturity in infrastructure strategies for the 2018-28 LTPs.

24: Consulting the community about local authorities' 10-year plans, page 45, available on our website.

25: Page 48. Available at www.infrastructure.govt.nz.

26: Local Government New Zealand (2015), Improving New Zealand's water, wastewater and stormwater sector, page 13.

27: Controller and Auditor-General (2015), Reflections from our audits: Service delivery.

28: Local Government New Zealand (2015), Mobilising the regions: the role of transport infrastructure in achieving economic success across all New Zealand, page 4.

29: A supply chain is a system of organisations, people, activities, information, and resources involved in moving a product or service from supplier to customer.

30: Section 101B of the Act.

31: Rangitikei District Council (2015), Adopted 2015-2025 Long-Term Plan, page 79.