Part 5: Infrastructure strategies

Matters arising from our audits of the 2018-28 long-term plans.

5.1
In this Part, we outline the legal requirements for infrastructure strategies. We also discuss our observations about the first generation of infrastructure strategies that were part of the 2015-25 LTPs and summarise our observations about the latest infrastructure strategies.

5.2
We saw some improvements to infrastructure strategies in 2018. We saw greater discussion about identifying and managing critical assets. This included more recognition and acceleration of works planned for water supply, stormwater, and flood protection assets. Overall, there was also a new level of sophistication in the discussion and policies for managing assets during their life cycle.

5.3
However, we did not see many of the improvements that we had hoped for and expected to see. In our view, a small number of infrastructure strategies did only the minimum, being more like elaborations on sets of asset management plans than strategies.

5.4
To be more effective, infrastructure strategies could usefully improve in the following ways:

  • being clear about the condition of the council's critical assets and what this means for the management of infrastructure assets;
  • being better integrated and/or consistent with financial strategies;
  • clearly outlining the link between assets and the services they support by better describing the levels of service; and
  • covering the main matters all infrastructure assets face.

5.5
We are concerned that, because of these weaknesses, the long-term realism and the affordability of many infrastructure strategies are questionable, especially from 2028. For the many councils responding to growth and/or funding constraints, these are questions that need to be asked in the strategy and answered.

Legislative requirements for infrastructure strategies

5.6
The Act sets out the purpose and required content for infrastructure strategies.26

5.7
The purpose of an infrastructure strategy is to identify:

  • significant infrastructure issues for a council during the period covered by its strategy; and
  • the principal options for managing those issues and the implications of those options.

5.8
The Act requires that an infrastructure strategy cover existing or proposed infrastructure assets used for:

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

5.9
Infrastructure strategies can also include other assets that a council wants to include, such as community facilities, parks, and solid waste facilities.27

5.10
The Act prescribes the content of infrastructure strategies in some detail. An infrastructure strategy must outline how a council intends to manage its infrastructure assets (having regard to matters such as when assets need to be renewed or replaced), funding options, and other matters, such as the need to improve health or environmental outcomes and to manage risks from natural hazards.

5.11
Strategies must also outline the most likely scenario for the management of a council's infrastructure assets during its 30-year period, the estimated costs of managing those assets, the nature and timing of expected significant capital expenditure decisions, and the assumptions on which the scenarios are based.28

5.12
Section 101B(3)(e) of the Act requires infrastructure strategies to "provide for the resilience of infrastructure assets". We address our observations on resilience issues separately in Part 6.

5.13
We have previously expressed our support for the introduction of infrastructure strategies. Councils hold significant infrastructure assets, and most of their spending is on infrastructure operations and works. An infrastructure strategy offers the opportunity for councils to present a strategic picture of their infrastructure portfolio and to consider a longer time period.29

A summary of our observations in 2015

5.14
In our 2015 report Matters arising from the 2015-25 local authority long-term plans, we discussed the first generation of infrastructure strategies, noting some positive features and some common weaknesses. We also suggested how infrastructure strategies could be more effective. In 2015, we took the view that effective infrastructure strategies:

  • took a longer than 30-year outlook and included more than the required or mandatory asset activities;
  • connected with financial information and the wider context; and
  • were clear about the effects of change on infrastructure needs.

5.15
We also noted some common weaknesses that were in less effective infrastructure strategies. These included:

  • Strategies lacked analysis to show the financial sustainability and affordability of projects in the infrastructure strategy.
  • Explanations about how demographic change would be addressed were often unclear.
  • Although strategies disclosed uncertainties about asset condition, the likely long-term effects on financial and timing profile of projects and work were unclear.
  • The long-term view of economic activities lacked discussion or analysis.

5.16
Many infrastructure strategies were also unclear about where councils would be placed at the end of the 30-year period. They were not as clear as they could have been on the likely scenarios councils faced.

Infrastructure strategies are important

5.17
Since 2015, there has been considerable debate about infrastructure issues – in particular, about water supply and disaster preparedness and recovery. As part of this debate, views have been published and reviews began – for example, the three waters review that the Department of Internal Affairs is carrying out. We have also published several reports about infrastructure issues.30 Because of this activity, we expected improved infrastructure strategies in 2018.

5.18
Infrastructure strategies are the place to identify the challenges and scenarios a council faces. They are important documents.

5.19
Telling a clear and credible story of how a council plans to manage its current and future infrastructure over the next 30 years or more is difficult to do well. This is because the story will often involve tensions, trade-offs, risks, certainties (not enough money), uncertainties (unplanned expenses), and making difficult decisions.

Asset condition and performance information

5.20
In our 2017 report Getting the right information to effectively manage public assets: Lessons from local authorities, we reiterated our views on the importance of councils having a comprehensive understanding of assets:

A comprehensive understanding of the age and condition of critical assets, as well as of future demand (for example, increases or decreases depending on demographic changes or changes to environmental standards), is important in assessing whether the actual and planned expenditure is sustainably maintaining assets.
Once local authorities have a comprehensive understanding of their critical assets and the cost of adequately maintaining them, elected members can make informed decisions about managing their assets and have well-informed conversations with their communities about how to fund that cost or the consequences of not doing so.31

5.21
An infrastructure strategy should be based on accurate information, particularly information on the condition and performance of critical assets. Most infrastructure strategies discussed, to some degree, information that councils had about their assets.

5.22
However, the level of detail, usefulness, and presentation of asset information varied. This information was often scattered throughout strategies or located in asset management plan-type material towards the back of strategies.

5.23
We issued a modified audit opinion for Westland District Council's 2018-28 LTP. The Council disclosed in its LTP (including in its infrastructure strategy) that it did not have reliable asset condition information to support the forecast renewals programmes for water, wastewater, and stormwater assets (the three waters assets). Consequently, we were unable to conclude that the Council's information to support the renewals programmes forecast for the three waters assets was reasonable.

5.24
Westland District Council also disclosed in its LTP that it plans to invest in improving its knowledge of the condition of its three waters assets. It expects to use this information in preparing its 2021-31 LTP. This will enable elected members to make informed decisions about its critical three waters assets in the future.

5.25
As was the case in 2015, many strategies expressed councils' intentions to complete or start gathering better information on their assets, including reliable information about asset condition. There was also an increased emphasis on gaining a better understanding about critical assets, particularly three waters assets. That said, a third of infrastructure strategies contained little or no information about councils' knowledge of the condition of their assets.

5.26
In 2015, only 10 councils explicitly disclosed and described the programmes they were putting in place to collect better information. We are pleased that more councils provided details about their plans to gather better information in their latest infrastructure strategies.

5.27
The less reliable and complete the asset information is, the more uncertain forecasting or risk management will be. We have previously reported our concerns that councils, on the whole, have consistently underspent when reinvesting in their assets. This trend is most concerning in some councils' critical infrastructure assets, such as water supply and flood protection assets.

5.28
If there are gaps or weaknesses in asset condition information, it is important that they and their possible implications are clear to the community. Councils should take a precautionary approach for significant services in the meantime.

Financial sustainability and affordability

5.29
Affordability is a significant issue for councils. Many 2018 consultation documents and LTPs were explicit about the challenge of balancing affordability with the need to maintain or develop infrastructure assets and services.

5.30
Individual infrastructure strategies are required to contain projected capital and operating expenditure estimates for the next 30 years.

5.31
In Part 3, our analysis of LTPs' financial information included councils' proposed capital spending in the LTPs' 10-year period. Figure 11 outlines the aggregated forecast spending on capital in each subsequent period (in five-year groups) that infrastructure strategies cover.32

Figure 11
What councils expect to spend on selected assets, for years 11 to 30 of the infrastructure strategies

Councils' capital expenditure is projected to increase in each five-year period, and to do so at a greater rate in the last five-year period.

What councils expect to spend on selected assets, for years 11 to 30 of the infrastructure strategies.

5.32
This continued growth in capital expenditure will put significant pressure on councils, particularly those that face growth and high debt levels at the end of the LTP period. Councils might need to make important decisions about the financial sustainability of some services in the future.

5.33
For most councils, their infrastructure strategies were not well integrated with their financial strategies to demonstrate how they were considering the continued affordability of their infrastructure services.

The scope of infrastructure strategies

5.34
All infrastructure strategies covered the 30-year minimum time frame. Five infrastructure strategies covered some aspect of the assets in them for more than 30 years.

5.35
Our view remains that infrastructure strategies should cover the period needed to adequately show the situation of the council involved. For example, if a council reliably forecasts major infrastructure renewals for 2050, then it would be helpful for the council to extend the time frame covered by its infrastructure strategy.

5.36
We were pleased to see that more councils put non-mandatory assets in their infrastructure strategies. Twenty-seven councils included assets such as public transport, community facilities, parks and open space, solid waste facilities, and other assets. For example, Greater Wellington Regional Council included public transport, parks, environmental science, and harbour assets.

5.37
From Figure 11, projected capital expenditure for non-mandatory assets is the largest category of projected capital expenditure for 2043/44 to 2047/48. Projected expenditure for these assets more than doubles for 2043/44 to 2047/48, compared with 2028/29 to 2032/33. Forecast capital expenditure for public transport and community facility assets makes up most of the non-mandatory asset expenditure in Figure 11.

5.38
This shows that the non-mandatory assets individual councils hold can be significant. Our view is that infrastructure strategies should cover the important infrastructure matters facing a council. If these matters relate to non-mandatory assets, the strategy should be expanded to cover those assets.

5.39
It is likely that these 27 councils have taken this view. Other councils with infrastructure strategies that covered only the mandatory assets might want to consider whether they are covering all important infrastructure matters.

How did infrastructure strategies approach levels of service?

5.40
Most infrastructure strategies typically described their approach as maintaining current levels of service, while meeting standards and accommodating future growth.

5.41
For an infrastructure strategy to be effective, levels of service and the reasons for changes to those need to be clearly defined. However, few strategies clearly defined either of these.

5.42
Councils sometimes incorrectly used increases in levels of service to refer to bringing an asset up to a level to meet a current standard and/or resource consent condition(s).

5.43
We expect councils to improve their description of levels of service in future infrastructure strategies.

Early clarity helps

5.44
A high-level strategy can be communicated on a single page, but this is unlikely to be a useful and meaningful account of 30 years or more of infrastructure activities. In our view, certain approaches can improve clarity and make infrastructure strategies more effective and useful.

5.45
Typically, the infrastructure strategies we reviewed began with an executive summary or introduction. Many effectively set the scene and outlined the status quo. Overall, the descriptions of change, challenges, and risks were reasonable.

5.46
However, the starting point of most infrastructure strategies was implicitly "now" or the status quo, and the future state of infrastructure provision at the end of the 30 years was often unclear.

5.47
Auckland Council, Hamilton City Council, and Palmerston North City Council made good use of maps and diagrams to illustrate their strategies.

5.48
We saw infrastructure strategies that ranged from 11 pages to 167 pages. We are not convinced that a short infrastructure strategy document would be useful to decision-makers unless it was clear and refined. Nor are we convinced that a long document could act as a practical guide for decision-making.

5.49
The location of information, its detail, and its presentation, as well as defined "start" and "end" points, are important to defining the overall status quo position, and for measuring progress and judging value during the life of a strategy.

26: Local Government Act 2002, section 101B.

27: Local Government Act 2002, section 101B(6).

28: This requirement duplicates clause 17 of Schedule 10 of the Act, which requires the LTP to include significant forecasting assumptions on which the financial estimates in the LTP are based.

29: Controller and Auditor-General (2015), Matters arising from the 2015-25 local authority long-term plans.

30: Our most recent observations are reported in Controller and Auditor-General (2017), Reflections from our audits: Investment and asset management.

31: Controller and Auditor-General (2017), Getting the right information to effectively manage public assets: Lessons from local authorities, Part 1.

32: Figure 11 excludes Wairoa District Council and West Coast Regional Council, which did not have the information available when we prepared this analysis.