Part 2: Implementing the Provincial Growth Fund

Managing the Provincial Growth Fund.

In this Part, we discuss how the PDU, the Ministry for Primary Industries, and the Ministry of Transport implemented their particular responsibilities for administering the Fund.

In particular, we comment on:

In our view, there were some deficiencies in processes and systems, particularly those of the PDU, in the early stages of the Fund. Improvements have since been made to how the Fund is managed at the department level, and we have suggested further improvements.

Meeting early implementation challenges

Setting up – capability and capacity challenges

Setting up the Fund needed a different approach than most funding programmes. The Fund was implemented at speed and encouraged innovation. It had broad and ambitious objectives, a three-year time frame, and a substantial amount of money to invest. The Fund made investments throughout the country, with the exception of Auckland, Christchurch, and Wellington. Its governance and accountability responsibilities were shared between several government departments. The Fund used loans and equity arrangements, as well as the more usual grants to deliver funding.

The Fund benefited from the regional economic development programme and regional support structure (a group of senior regional officials) already in place, albeit on a much smaller scale.16 The capability and capacity of the PDU and the other departments administering the Fund had to increase rapidly after the Fund was launched.

The number of staff in the PDU increased from fewer than 30 in March 2018 to more than 130 in August 2019. There was also a gradual increase in the number of contractors, from fewer than 10 in March 2018 to just over 20 in August 2019. As at 30 April 2020, the PDU had 132 staff and 10 contractors.

From the $3 billion, $155 million was allocated to fund the administration costs. By 31 March 2020, $81.9 million had been spent.

Support while setting up the Fund

At the outset, the three departments did not work together as closely as we expected. This affected the speed with which some basic processes were set up.

We talked to the PDU about shared administrative funding arrangements early in the setting-up stage, but it was some months before the PDU was able to implement them. We expected the three departments and the Treasury, which advises departments on funding arrangements, to work more closely with the PDU and provide it with the advice and support it needed to set up robust and appropriate systems and processes that promoted collaboration.

Managing appropriations

Spending money in the Fund is authorised through appropriations approved by Parliament as part of the Government's budget. Appropriations are fundamental elements of New Zealand's constitutional framework and the public sector financial management system. If expenditure is incurred without an appropriation, or is not in keeping with the approved timing, scope, and amount of the appropriation, the expenditure is unlawful ("unappropriated expenditure"). The unappropriated expenditure would need subsequent approval from Parliament.

Appropriation management was not as robust as we expected at the start. In early 2018/19, MBIE incurred one instance of unappropriated expenditure. Although it is not unreasonable to expect changes to appropriations as the Fund progresses, we consider that there should have been better systems and processes from the beginning to prevent unauthorised expenditure.

Parliamentary scrutiny has been made more difficult by:

  • significant increases in appropriations made during the year, after Parliament has approved the resources needed for the Fund as part of the Government's budget; and
  • the lack of consolidated reporting of the various elements of the Fund.

The regional economic development appropriations for the Fund increased significantly during each year, as part of the Supplementary Estimates process.17 Figure 2, shows these increases during the year in the Regional Economic Development: Provincial Growth Fund MCA18 appropriation. This raises questions about the accuracy of forecasting the Fund's requirements.

The "actual" or "estimated actual expenditure" is also significantly lower than the amounts appropriated. This means that the forecasts do not provide Parliament with an accurate picture when it is asked to approve the Budget.

For example, as shown in Figure 2, a budget of $986.8 million for 2019/20 was sought during the Budget process. An increase to $1,274.8 million was sought during the year, and it was approved in May 2020, as part of the Supplementary Estimates process. However, it was estimated that only $683.7 million of the $1,274.8 million would be spent by 30 June 2020. A similar pattern is evident in previous years.

Figure 2
Regional Economic Development: Provincial Growth Fund MCA

Approved by Parliament in the Budget process at the start of the financial year - 373.7 986.8
Final budget (increased during year, approved by Parliament 12 months later) 123.8 550.0 1,274.8
Actual or estimated actual spending 3.8
(estimated actual)

Ongoing monitoring and reporting against appropriations are important to show that all of the spending has been lawful. The three departments are individually monitoring and reporting this to meet their obligations under the Public Finance Act 1989.

Although reporting on aspects of the Fund has improved, there is still no easy way for Parliament to scrutinise the appropriations for the Fund as a whole. There has been no consolidated monitoring and reporting against appropriations for the Fund as a whole to bring the story of funding and performance together. We consider that this is needed to provide transparency to Parliament and the public about what the $3 billion has been spent on. We discuss this further in Part 4.

The PDU is now reporting to Ministers against all appropriations and is working on improving this reporting. However, we consider this to be late, given the public and Parliament's interest in the Fund from the beginning.

Managing risk

The three departments each have processes to manage risks to the Fund-related projects or programmes that it manages. We expected the departments to identify risks in their processes, generally, as part of their risk management practices. We observed and commented on those processes during our annual audits, with a particular focus on the Fund's management:

  • The PDU commissioned an external review in late 2018 that made several recommendations for improving risk management when assessing applications. The PDU uses MBIE's risk management tools for managing projects and is considering how to improve this as part of its continuous improvement process. In our report to MBIE's Chief Executive at the conclusion of our 2018/19 audit, we recommended that MBIE take a more Ministry-wide approach to identifying and mitigating risks. This would ensure that the strategic risk identification process is consistent throughout MBIE and that PDU-related risks are escalated appropriately within MBIE.
  • The Ministry for Primary Industries' risk framework has gone through a period of change during the last 12 to 18 months. Te Uru Rākau (a business unit of the Ministry for Primary Industries) has largely led the risk management of the One Billion Trees programme, using risk management tools where appropriate. Its risk management approach is evident in its annual report on the programme.19
  • The Ministry of Transport has a risk policy and matrix in place. The Ministry identified strategic risks and put in place an analysis of threats and opportunities, mitigations, and a mitigation lead for each risk. However, improvements could be made to further refine the approach to risk management to ensure that risks are managed at both a strategic level and an operational level.

We will continue to monitor and comment where appropriate on risk management during our annual audits of the three departments.

Data management and progress reporting by departments

Because of the scale of the Fund, and the considerable public interest, public reporting on its progress is important. We looked at how much information about the Fund was publicly available and what analysis the departments have done of it.

Individually, the three departments proactively publish information about the investments they are making at a project level. The PDU tracks individual project milestones (which are linked to payments) and has designed a process to collect reporting information for the Fund's projects. Applicants are required to report on how their project contributes to the Fund's objectives. The PDU told us that, as with the other departments administering the Fund, it maintains close relationships with funding recipients. This will help it to collect the information needed for reporting on an ongoing basis.

The Ministry for Primary Industries publishes its grants, partnerships, and joint ventures information each month, as well as six-monthly and annual reports on the One Billion Trees programme. This process was agreed by the Minister of Forestry in March 2019. Its reporting includes comment on the overall One Billion Trees programme and the expected broad outcomes.20

The Ministry of Transport reports high-level information on the transport packages supported by the Fund.

Information availability

The PDU makes a significant amount of information available on the Grow Regions website.21 This includes the following information:

  • all announced projects, published monthly, with a large data set of information (including funding contracted and funding paid);
  • a summary position of the Fund, published quarterly, showing total appropriations and committed, approved, and amount spent by agency; and
  • regional dashboards with information on specific projects, by region.

We were told that the minutes of meetings of the senior regional officials, the IAP, and the Regional Economic Development (RED) Ministers22 and weekly reports are publicly released in batches every three to four months. We found that papers are now available on MBIE's website – not the Grow Regions website – and that it was harder to find Cabinet papers, advice to Ministers, review reports, and decision-making minutes as a consequence.

The PDU redacts some information because of commercial sensitivity about proposals that have been declined, agreed but not yet announced, or announced but not yet contracted. It also redacts all loan details to protect the PDU's ability to negotiate.

Although we understand the need for commercial sensitivity in individual cases, the PDU could consider whether more aggregated data, such as analyses of trends with the type of proposals, approval rates, and funding allocations might be useful for future regional growth initiatives.

Regional reporting

Public reporting about regional investments from the Fund could be improved by providing information about how the investments will contribute to the Fund's objectives. Although regional dashboards provide a comprehensive picture of funding announced for projects and sectors, the dashboards could also include analysis of how the investments made to date support the objectives of the Fund. We comment in Part 4 on public reporting on the Fund as a whole.

Analysis of the databases

Databases of individual Fund programmes are available on the Grow Regions website, which the PDU usually updates monthly. However, the data does not clearly show the time it takes for applications to be assessed, and the factors affecting that. Based on this reporting, and without evidence as to how many applications might still have been awaiting a decision, to the end of March 2020, we calculated that 42% of applications to the PDU had been approved.

Managing demand and ongoing investment

Demand and supply management

Excess demand for funding is not addressed in the investment statement. The PDU told us that the IAP and the senior regional officials consider this possibility only for certain sectors and regions.

As at 31 March 2020, only $140 million of the Fund had not been ring-fenced. However, in March 2020, applications to the PDU alone totalled just over $149 million ($1.5 billion in the year to 31 March 2020). Although there might have been more than $140 million in funding available through reallocating existing ring-fenced funding, it concerned us that applicants could be wasting their time, effort, and resources on applications that have little chance of being considered because all of the available funding was nearly fully ring-fenced.

We were told that, despite demand outstripping supply, there was no intention to stop accepting applications because of uncertainties about regional economic development policy once the Fund is fully allocated. The policy for regional economic development could change significantly because funding is now available outside the Fund, and through reallocation of the Fund, in response to Covid-19.

Reprioritisation of investments in the Covid-19 recovery phase

On 24 May 2020, the Government announced that up to $600 million of funding was being repurposed from the Fund to support the Covid-19 recovery.23 The PDU reviewed investments to identify funding available to invest in supporting the recovery from Covid-19, and is developing the systems and processes to manage this reallocation of funding.

16: Details of the meetings of the senior regional officials are available through

17: Supplementary Estimates provide members of Parliament with details of the terms of changes to existing appropriations and of new appropriations proposed since the Estimates were finalised.

18: This is a multi-category appropriation covering both operating and capital expenditure.

19: See, for example, Te Uru Rākau (2020), One Billion Trees Fund 12 Month Monitoring and Evaluation Report, at

20: See, for example, Te Uru Rākau (2020), One Billion Trees Fund 12 Month Monitoring and Evaluation Report, at

21: See

22: The RED Ministers group consists of Ministers with portfolios for Finance, Regional Economic Development, Economic Development, and Transport. The group has the highest level of delegation for making funding decisions.

23: Media release (2020), "PGF reset helps regional economics" at