A5 - Management discussion and analysis

Environment and Sustainable Development Directorate, financial year ended 30 June 2013

General overview

Objectives

The Environment and Sustainable Development Directorate (the Directorate) promotes sustainable living and resource use, strengthens the Territory’s response to climate change, and provides a planning and land use system that contributes to the sustainable development of the ACT.

The Directorate’s aim is to lead the Territory in developing and implementing targeted policies and programs that address environment protection and sustainability, nature conservation, heritage, water and energy security, sustainable urban design, and sustainable transport and spatial planning.

The functions of the Directorate are complemented by the regulatory capacity provided through the statutory functions of the Planning and Development Act 2007, the Nature Conservation Act 1980, the Environment Protection Act 1997, the Heritage Act 2004, and the Clinical Waste Act 1990.

Risk management

The Directorate has adopted Enterprise-wide Risk Management, as required by the Australian Capital Territory Insurance Authority model risk management framework. In accordance with the framework, the Directorate has a Fraud Control Plan, a Risk Management Plan and a Business Continuity Plan.

A strategic internal audit program managed by the Directorate’s Audit Committee is an integral part of the Directorate's governance, risk management and strategic planning processes.

Risks associated with running major projects are mitigated through the use of appropriate governance structures, application of risk based management practices and financial reporting processes.

Directorate financial performance

The following assessment of the Directorate’s financial performance is based on the net cost of services framework. Net cost of services facilitates an assessment of performance by showing the full cost and composition of resources consumed in conducting the operations of the Directorate. It shows the extent to which these costs were recovered through user charges and independent sources, and the net cost of operations to the Territory.

The following financial information is based on audited financial statements for 2011–12 and 2012–13, and the forward estimates contained in the 2013–14 Budget Paper Number 4.

Total net costs of services

Table 1: Net cost of services

 

 

Actual 2011‑12 $m

Original Budget

2012-13

$m

 

Actual

2012-13

$m

Forward estimate 2013‑14 $m

Forward estimate 2014‑15 $m

Forward estimate 2015‑16 $m

Total expenditure

95.336

86.958

91.428

110.067

73.851

 

69.743

Total own source revenue

15.025

8.834

14.951

6.946

7.124

7.312

Net cost of services

80.311

78.124

76.534

103.121

66.727

62.431

1. Comparison to original budget

The Directorate’s net cost of services for 2012–13 of $76.5 million was $1.6 million or 2.1% lower than the original 2012–13 Budget, reflecting a combination of factors including:

Revenue:

  • increase in user-charges ($4.4 million) due primarily to the recognition of revenue associated with extension of time to build fees. This has increased as a result of an increase in the land rates used to calculate the revenue owing and
  • increase in other revenue ($0.8 million) due to funding received from the Restructure Fund.

Expenses:

  • increase in employee and superannuation expenses ($5.7 million) mainly due to project costs and transition costs associated with achieving savings targets
  • increase in other expenses ($2.7 million) due to the completion and subsequent transfer of assets to other agencies and the waiver of fees associated with extension of time to build fees ($4.6 million). This is offset by a decrease in transfer expenses ($2.4 million) due to a reduction in the cash generated from the collection of revenue from extension of time to build fees
  • decrease in supplies and services ($4.9 million) due to the deferral of a number of projects to 2013–14, including ACTSmart, Tune-up Canberra, Sustainability Data Management Systems and feasibility studies related to land release and
  • decrease in depreciation ($0.7 million) due to the delay in completion of capital works projects.

2. Comparison to 2011–12 actual expenditure

Total net cost of services for 2012–13 of $76.5 million was $3.8 million or 4.8% lower than the prior year. The decrease is largely attributable to the following:

Revenue:

  • increase in user charges ($0.6 million) reflecting the increase in revenue associated with an increase in the land rates used to calculate the revenue outstanding from leases in breach of their lease covenants (extension of time to build)
  • decrease in other revenue ($0.4 million) reflecting the completion of the Accelerated Land Release program in 2011–12 and
  • decrease in interest earned ($0.3 million) reflecting lower cash balances.

Expenses:

  • increase in other expenses ($0.8 million) reflects the write-off of assets associated with feasibility studies associated with land release and heritage projects, offset by a decrease in the number of assets transferred to the Territory and Municipal Services Directorate
  • increase in employee and superannuation expenses ($0.5 million) due largely to the costs associated with completing projects such as feasibility studies related to transport and land release projects
  • decrease in supplies and services ($5.1 million) reflecting the completion of one off feasibility projects in 2011–12 and
  • decrease in depreciation ($0.2 million) reflecting a decrease in the carrying value of intangible assets.

3. Future trends

Figure 1: Net cost of services
Figure 1: Net cost of services

The Directorate’s net cost of services is estimated to increase by $26.6 million in 2013–14. The increase reflects a combination of factors including: other expenses ($26.3 million) due to the transfer of completed water reticulation infrastructure to the Territory and Municipal Services Directorate; and transfer expenses ($1.8 million) which are related to the transfer of revenue back to the Territory. This is partly offset by a decrease in employee expenses ($5.3 million), reflecting the Directorate’s saving requirements and a reduction in staff required to complete feasibility projects and supplies and services ($1.9 million) due to the completion of projects which were previously rolled over into 2012–13. Further analysis is provided under ‘Total expenditure’ below.

Total expenditure

1. Components of expenditure

The Directorate’s expenditure for 2012–13 is largely related to employee and superannuation expenses, which comprise 53.2% (or $48.7 million) of ordinary expenses. Supplies and services, comprising 31.8% (or $30.4 million) of ordinary expenses, relates largely to consultants and contractors associated with feasibility studies combined with overhead costs such as information technology costs and accommodation. Other expenses, comprising 10.1% (or $9.3 million) mainly relates to completed capital works transferred to other directorates and the waiver of revenue. Grants account for 3.9% (or $3.6 million) of the Directorate’s expenditure and largely relates to grants provided under the Commonwealth Caring for our Country funding agreement and the Outreach program which assist low income households improvement their energy efficiency.

Figure 2 - Components of expenditure
Figure 2 –Components of expenditure

2. Comparison to the original budget

Total expenditure of $91.4 million was $4.5 million, or 5.1% higher than the 2012–13 original budget of $87 million. The increase is the net result of:

  • an increase in employee and superannuation expenses ($5.7 million) mainly due to the costs associated with the time required to fully implement the Directorate’s savings obligations
  • an increase in other expenses ($2.7 million) due to an increase in the number of assets completed and transferred to other agencies (these relate predominantly to design studies associated with land release projects), the write-off of assets associated with feasibility studies associated with land release and heritage projects and the waiver of revenue related to fees for extension of time to build. This is partially offset by a decrease in transfer expenses due to a reduction in the cash generated from the collection of revenue from extension of time to build fees and
  • an increase in user charges of ($4.4 million) reflecting the inclusion of revenue related to leases with are in breach of their lease covenants but who have not yet made an application to the Directorate to extend their completion timeframes.

3. Comparison to 2011–12 actual expenditure

Total expenditure for 2012–13 was $3.9 million or 4.1% lower than the 2011–12 result. The decrease is primarily due to:

  • decrease in supplies and services ($5.1 million) related to the completion of some land infrastructure studies and building quality projects in 2011–12 and increased savings initiatives which resulted in savings in advertising, training and development, and information technology costs.
  • increase in other expenses ($0.8 million), which reflects the write-off of assets associated with feasibility studies associated with land release and heritage projects, offset by a decrease in the number of assets transferred to the Territory and Municipal Services Directorate and
  • increase in employee expenses ($0.5 million) reflecting the increase in staffing costs associated with feasibility projects and in an increase in costs associated with unfunded leave such as maternity leave.

4. Future trends

Expenditure is budgeted to increase in 2013–14 compared to the 2012–13 actual result by $18.6 million due to a combination of factors including:

  • other expenses, which increased in 2013–14 reflecting an increase in the value of assets transferred to other agencies ($26.3 million). These assets are predominantly related to the inner north stormwater reticulation network and
  • increases to transfer expenses ($1.8 million), which reflect the transfer of territorial revenue back to the Territory.

These increased expenses are offset by:

  • a decrease in staffing costs ($5.3 million) largely reflecting reduced costs associated with one-off projects completed in 2012–13 (mainly in transport and land release studies), savings initiatives which are expected to reduce staffing levels by 29 in 2013–14 and reduced leave liabilities
  • decreased supplies and services ($1.9 million) reflecting savings predominantly in relation to ACTSmart water programs and the completion of one-off projects in 2012–13 and
  • decreased grants ($1.6 million) due to the completion of the Caring for the Country Program. This program is expected to continue in 2013–14, however agreement has not yet been reached.

Total own source revenue

1. Components of own source revenue

The Directorate’s own source revenue in 2012–13 largely relates to user charges, comprising 73% (or $10.9 million), which is predominantly revenue from planning activities, in particular extension of time to build revenue. Resources received free of charge, 15.8% (or $2.4 million), relates to legal services provided by the ACT Government Solicitor’s Office, the Parliamentary Counsel’s Office for legislative drafting and advice and the Economic Development Directorate for accommodation services. Other revenue, of 10.8% (or $1.6 million), mainly relates to the reimbursement of costs associated with restructuring the Directorate in order to achieve the required savings.

Figure 3 - Components of own source revenue
Figure 3 - Components of own source revenue

2. Comparison to the original budget

Non-appropriated revenue for the year ending 30 June 2013 was $6.1 million or 69.2% higher than the original 2011–12 Budget of $8.8 million, resulting from increases in:

  • user-charges ($4.4 million) due the recognition of revenue not previously included. This revenue relates to the extension of time to build fees payable for leases which are in breach of their commence and complete construction covenants in their lease as well as revenue which as was waived during the year
  • resources received free of charge ($0.9 million) due to fit out costs for Dame Pattie Menzies House in Dickson received free of charge from the Economic Development Directorate and
  • other revenue ($0.8 million) due to the reimbursement of costs from the Restructure Fund for severance payments.

3. Comparison to 2011-12 actual income

Non-appropriated revenue for the year ending 30 June 2013 was $0.07 million lower than the 2011–12 result of $15.0 million.

4. Future trends

Total own source revenue for 2013–14 is budgeted to decrease by $8.0 million, largely reflecting a decrease in the revenue expected to be generated from extension of time to build revenue as the calculation used to calculate the fees payable was changed in 2012–13.

Directorate financial position

Total assets

1. Components of total assets

The Directorate’s assets as at 30 June 2013 largely relate to capital works in progress for the Canberra Integrated Urban Waterways project, 52% (or $28.7 million). Receivables, of 19% (or $10.3 million), largely relates to amounts receivable for user charges (predominantly extension of time to build revenue) and an increase in the loans taken up by agencies under the Carbon Neutral Government Fund. Property plant and equipment, 17% (or $9 million) largely relates to the Directorate’s finance leased vehicles. Cash and cash equivalents, comprising 9% (or $4.8 million), reflects cash held by the Directorate to cover its short-term liabilities.

Figure 4 -Total assets as at 30 June 2013
Figure 4 -Total assets as at 30 June 2013

2. Comparison to original budget

The total asset position as at 30 June 2013 is $54.7 million, $14.7 million lower than the original 2012–13 Budget of $68.4 million.

The variance is mainly a result of:

  • decrease in property, plant and equipment of $24.4 million largely due to the delay in completing the Inner North Reticulation network including the Dickson and Lyneham ponds
  • decrease in cash ($2.0 million) reflecting the increased costs associated with employee expenses
  • increase in capital works projects ($11.9 million), which reflects projects that are still under construction and have not been completed as originally budgeted, such as the Inner North Reticulation Network and the Valley Ponds in Gungahlin.

3. Comparison to 2011–12 actual

The Directorate’s total asset position is $12.1 million higher than the 2011–12 result of $42.7 million due to:

  • an increase in property, plant and equipment ($6.4 million) as a result of a revaluation of the Directorate’s leasehold improvements
  • an increase in capital works in progress ($4.9 million) reflecting work completed on projects such as the Dickson and Lyneham ponds, the Inner North Reticulation Network and heritage works
  • an increase in receivables ($3.1 million) due to an increased in the revenue receivable from extension of time to build revenue and additional loans to agencies under the Carbon Neutral Government Fund and
  • a decrease in cash ($2.0 million) reflecting the use of this asset to manage increased employee costs.

Total liabilities

The Directorate’s liabilities as at 30 June 2013 largely relate to employee benefits, which includes annual and long service leave accrued by staff, which accounts for 75.6% (or $14.8 million) of the Directorate’s liabilities. Payables, comprising 15% (or $2.9 million), reflects accrued expenditure. Finance leases, comprising 6.5% (or $1.3 million) reflecting cost of leased vehicles.

Figure 5 - Total liabilities as at 30 June 2013
Figure 5 - Total liabilities as at 30 June 2013

Total liabilities are $0.8 million lower than the 2011–12 result of $20.4 million mainly due to decreases in other liabilities as a result of a reduction in the Directorate’s revenue received in advance as a number of Commonwealth-funded projects were completed in 2012–13.

Territorial statement of income and expenses

The territorial financial report includes income, expenses, assets and liabilities that the Directorate administers on behalf of the ACT Government, but does not control; it includes the Office of the Commissioner for Sustainability and the Environment.

Total income

The Directorate’s territorial income for 2012–13 largely relates to fees and fines, comprising 90.2% (or $62.8 million), generated largely from water abstraction charges ($24.6 million), fees from regulatory services ($22.8 million), lease variation charge including change of use charge ($15.4 million). Land rent comprises 6.9% (or $4.8 million).

Figure 6 - Sources of territorial revenue
Figure 6 - Sources of territorial revenue

Total territorial income for 2012–13 was $69.6 million, a decrease of $4.8 million from the 2012–13 Budget of $74.4 million. The decrease is largely due to lower than budgeted revenue from lease variation charge and water abstraction charges.

Total territorial income for 2012–13 was $69.6 million, an increase of $12.8 million from the 2011–12 actual result. This variance largely reflects an increase in revenue from lease variation charge and water abstraction charge.

From 2013–14, total territorial income is forecast to steadily increase.

Total expenditure

The Directorate’s territorial expenditure largely relates to the transfer of revenue to the ACT Government, comprising 85% (or $59.5 million) and other expenses 11.9% (or $8.3 million) which relates to the granting of waivers for lease variation charge.

Figure 7 - Sources of territorial expenditure
Figure 7 - Sources of territorial expenditure

Total actual territorial expenditure in 2012–13 was $69.6 million, which was $4.8 million lower than the 2012–13 Budget of $74.4 million. This was mainly due to lower ‘Transfer to Government Expenses’ resulting from lower lease variation charges and water abstraction charges.

Total actual territorial expenditure in 2012–13 was higher than the previous year’s actual expenditure of $57.0 million by $12.6 million. This variance largely reflects increased Transfer to Government Expenses and waivers granted in 2012–13.

Total territorial expenditure is forecast to increase by $1.6 million, reflecting an increase in Transfer to Government Expenses resulting from higher lease variation and water abstraction charges. From 2013–14, total territorial expenditure is forecast to steadily increase reflecting indexation.