Management Discussion and Analysis

Environment and Sustainable Development Directorate, financial year ended 30 June 2014

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.

Changes to administrative structure

There were no Machinery of Government changes in 2013-14 that affected the Directorate’s organisational structure.

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 and Corruption Prevention 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 2012-13 and 2013-14, and the forward estimates contained in the 2014-15 Budget Portfolio Statements.

Total net cost of services

Net cost of services
  Actual
2012-13
$m
Original
Budget 2013-14
$m
Actual
2013-14
$m
Forward Estimate 2014-15
$m
Forward Estimate 2015-16
$m
Forward Estimate 2016-17
$m

Total expenditure

91.478

110.067

81.582

117.826

72.696

72.046

Total own source revenue

14.944

6.946

13.207

8.483

8.399

8.496

Net cost of services

76.534

103.121

68.375

109.343

64.297

63.550

1. Comparison to original budget

The Directorate’s net cost of services for 2013-14 of $68.375 million was $34.7 million or 33.7% lower than the original 2013-14 Budget, reflecting a combination of factors including:

Revenue:

  • higher user-charges ($5.3 million) primarily due to the recognition of all revenues estimated as outstanding from lessees in breach of their lease covenants (extension of time to build fees) and the extension of funding under the Commonwealth’s Caring for Country program and
  • higher other revenue ($1.3 million) due to funding received from the Biodiversity Fund and the Restructure Fund.

Expenses:

  • lower other expenses ($31.2 million) due to delays in completing the Inner North Reticulation Network and associated infrastructure. This work is now expected to be completed and transferred to the Territory and Municipal Services Directorate (TAMS) in the second half of 2014
  • lower supplies and services ($3.8 million) due to the deferral of a number of projects to 2014-15, including ACTSmart, feasibility studies related to land release and climate change projects
  • higher employee and superannuation expenses ($3.1 million) mainly due to temporary employees to complete feasibility projects, the gradual progression towards savings in full-time equivalent (FTE) numbers and higher long service leave costs
  • higher grants ($2.4 million) due to extension of funding under the Commonwealth’s Caring for Country program, which is primarily provided to community organisations and
  • higher depreciation ($1 million) which reflects the higher depreciable value of the fitout of the Directorate’s office accommodation.

2. Comparison to 2012-13 actual expenditure

Total net cost of services for 2013-14 was $8.2 million or 10.7% lower than the prior year. The decrease is largely attributable to the following:

Revenue:

  • increase in other revenue ($0.5 million) due to funding received from the Commonwealth for the Biodiversity Fund and
  • decrease in user charges ($1.6 million) reflecting lower revenue recognised from extension of time to build fees due a change in the method of calculation under the ACT Government’s Stimulus Package (released in March 2014).

Expenses:

  • decrease in other expenses ($3.7 million) reflecting the write-off of assets associated with feasibility studies for land release and heritage projects in 2012-13 which was not required in 2013-14
  • decrease in supplies and services ($4.4 million) reflecting the deferral of a number of projects including land planning feasibility studies to 2014-15
  • decrease in employee and superannuation expenses ($2.3million) due largely to reductions in the number of staff and
  • increase in depreciation ($0.7 million) which reflects the higher depreciable value of the fitout of the Directorate’s office accommodation.

3. Future trends

Net cost of services

graph information explained in Total net cost of services table

The Directorate’s net cost of services is estimated to increase by $41 million in 2014-15. The increase reflects a combination of factors including:

  • other expenses ($30.8 million), due to the transfer of completed Inner North Reticulation Network and associated infrastructure to TAMS
  • supplies and services ($7.6 million), due to expenditure on the ACT Basin Priority project and the deferral of expenditure on programs such as ACTSmart, land release studies and climate change programs from 2013-14 into 2014-15
  • transfer expenses ($3.3 million), which relate to the transfer of territorial revenue, collected within controlled revenue, back to the Territory.
  • This is partly offset by:
  • employee expenses ($4.7 million), reflecting the Directorate’s saving requirements and a reduction in staff required to complete feasibility projects
  • grants ($1.6 million), which is the result of the rollover of grant funding from 2012-13 increasing the amount available in 2013-14 and small decreases in total funding available for grant programs.

Further analysis is provided under ‘Total expenditure’ below.

Total expenditure

1. Components of expenditure

The Directorate’s expenditure for 2013-14 is largely related to employee and superannuation expenses, which comprise 57% (or $46.4 million) of ordinary expenses. Supplies and services, comprising 30% (or $24.7 million) of ordinary expenses, relates largely to consultants and contractors associated with feasibility studies combined with overhead costs such as information technology and accommodation. Other expenses, comprising 7% (or $5.6 million) mainly relates to the waiver and impairment of revenue. Grants account for 4% (or $3.3 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 assists low income households improve their energy efficiency.

Components of expenditure

Graph explained in the text above Total expenditure 1. Components of expenditure

2. Comparison to the original budget

Total expenditure of $81.6 million was $28.5 million, or 25.9% lower than the 2013-14 original budget of $110.1 million. This is a result of:

  • lower other expenses ($31.2 million) due to the deferred completion and subsequent transfer to TAMS of water reticulation infrastructure and
  • lower supplies and services ($3.8 million), which relates to contractually committed expenditure for projects such as ACTSmart and feasibility studies which will now be incurred in 2014-15, partly offset by
  • higher employee and superannuation expenses ($3.1 million) mainly due to temporary employees to complete feasibility projects, the gradual progression towards savings in FTE numbers and higher long service leave costs and
  • higher grants ($2.4 million) primarily due to the extension of funding under the Commonwealth’s Caring for Country program, which is primarily provided to community organisations.

3. Comparison to 2012-13 actual expenditure

Total expenditure for 2013-14 was $81.6 million, which is 10.8% lower than the 2012-13 result. The decrease is primarily due to:

  • decrease in supplies and services ($4.4 million) related to the completion of some land infrastructure studies and building quality projects in 2012-13 and increased savings initiatives which resulted in savings in advertising, training and development and information technology costs
  • decrease in other expenses ($3.7 million) reflecting the write-off of assets associated with feasibility studies associated with land release and heritage projects in 2013 and
  • decrease in employee expenses ($2.3 million) reflecting a reduction in staffing levels in the Directorate.

4. Future trends

Expenditure is budgeted to increase in 2014-15 compared to the 2013-14 actual result by $36.2 million due to a combination of factors including:

  • other expenses reflecting the value of assets transferred to other agencies ($30.8 million). These assets predominantly relate to the Inner North Reticulation Network
  • transfer expenses ($3.3 million) which reflect the transfer of territorial revenue back to the Territory and
  • supplies and services ($7.6 million) reflecting expenditure for the ACT Basin Priority Project and other consulting expenditure which was previously deferred from 2013-14; partially offset by
  • employee costs ($3.6 million) largely reflecting reduced costs associated with one-off projects completed in 2013-14 (mainly in transport and land release studies), savings initiatives and reduced leave liabilities and
  • grants ($1.6million) associated with the rollover of grant funding from 2012-13 increasing the amount available in 2013-14 and small decreases in total funding available for grant programs.

Total own source revenue

1. Components of own source revenue

The Directorate’s own source revenue in 2013-14 largely relates to user charges, comprising 71% (or $9.4 million), which is predominantly revenue from planning activities, in particular extension of time to build fees. Other revenue, of 16% (or $2.1 million), mainly relates to the reimbursement of costs associated with restructuring the Directorate and funding from the Commonwealth for biodiversity research. Resources received free of charge, 13% (or $1.7 million), relate to legal services provided by the ACT Government Solicitor’s Office and the Parliamentary Counsel’s Office for legislative drafting and advice.

Components of own source revenue

Graph explained in the text above Total own source revenue 1. Components of own source revenue

2. Comparison to the original budget

Non-appropriated revenue for the year ending 30 June 2014 was $13.2 million, which was 90% higher than the original 2013-14 Budget of $6.9 million, resulting from:

  • higher user-charges ($5.3 million) which is due to the recognition of all revenues estimated as outstanding from lessees in breach of their lease covenants (extension of time to build fees) and the extension of funding under the Commonwealth’s Caring for Country program and
  • other revenue ($1.3 million) due to the reimbursement of costs from the Restructure Fund for severance payments and funding from the Commonwealth for the Biodiversity Fund.

3. Comparison to 2012-13 actual income

Non-appropriated revenue for the year ending 30 June 2014 was $1.7 million lower than the 2012-13 result of $14.9 million primarily due to a change in the methodology used to calculate revenue outstanding from extension of time to build revenue.

4. Future trends

Total own source revenue for 2014-15 is budgeted to decrease by $4.7 million largely reflecting a decrease in the revenue expected to be generated from extension of time to build revenue as the method used to calculate the fees was changed under the ACT Government Stimulus Package released in March 2014.

Directorate financial position

Total assets

1. Components of total assets

The Directorate’s assets as at 30 June 2014 largely relate to capital works in progress for the Canberra Integrated Urban Waterways project, 57% (or $34.8 million). Receivables, of 18% (or $11.1 million), largely relates to amounts receivable for user charges (predominantly extension of time to build revenue) and the loans taken up by agencies under the Carbon Neutral Government Fund. Property plant and equipment, 13% (or $8.1 million) largely relates to the Directorate’s leasehold improvements. Cash and cash equivalents, comprising 9% (or $5.7 million), reflects cash held by the Directorate to cover its short term liabilities.

Total assets as at 30 June 2014

Graph explained in the text above Total assets 1. Components of total assets

2. Comparison to original budget

The total asset position as at 30 June 2014 is $61.3million, which was $36.4 million higher than the original 2013-14 Budget of $25.0 million.

The variance is mainly a result of:

  • higher capital works projects ($32.6 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
  • higher property, plant and equipment of $5.2 million largely due to the increase in the value of the fitout of Dame Pattie Menzies House; partially offset by
  • lower receivables ($2.0 million) reflecting the impairment assessment of revenue receivable from extension of time to build revenue.

3. Comparison to 2012-13 actual

The Directorate’s total asset position is $6.7 million higher than the 2012-13 result of $54.7 million due to:

  • an increase in capital works in progress ($6.0 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 ($0.9 million) due to an increase in the revenue receivable from extension of time to build revenue and additional loans to ACT Government agencies under the Carbon Neutral Government Fund
  • an increase in cash ($0.9 million) reflecting Commonwealth funding retained; partially offset by
  • a decrease in property, plant and equipment ($0.9million) as a result of depreciation charged during the year.

Total liabilities

The Directorate’s liabilities as at 30 June 2014 largely relate to employee benefits, including annual and long service leave accrued by staff, which accounts for 83% (or $15.5 million) of the Directorate’s liabilities. Payables, comprising 9% (or $1.7 million), reflects accrued expenditure. Finance leases, comprising 7% (or $1.4 million) reflects cost of leased vehicles.

Total liabilities as at 30 June 2014

Graph explained in the text above Total liabilities

Total liabilities are $2.5 million lower than the original 2013-14 Budget of $21.4 million mainly due to the lower creditors balance.

Total liabilities are $0.7 million lower than the 2012-13 result of $19.5 million mainly due to the lower creditors balance offset by an increase in the long service leave liability.

Territorial statement of income and expenses

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

Total income

The Directorate’s territorial income for 2013-14 largely relates to fees and fines, comprising 89% (or $65.3 million), and generated largely from water abstraction charges ($25.1million), fees from regulatory services ($23.7million) and lease variation charge, including change of use charge, ($14.2million). Land rent comprises 6% (or $4.5 million).

Figure 6 - Sources of territorial revenue

Graph explained in the text above Total income

Total territorial income for 2013-14 was $73.1 million, being $1.9 million higher than the 2013-14 Budget of $71.3 million. This is largely due to land rent payouts which are not budgeted for as they are not known when the Budget is set.

Total territorial income increased by $2.9 million from the 2012-13 actual result. This variance largely reflects an increase in revenue from lease variation charge and water abstraction charge.

From 2014-15, total territorial income is forecast to steadily increase in line with inflation.

Total expenditure

The Directorate’s territorial expenditure largely relates to the transfer of revenue to the ACT Government, comprising 96% (or $70.4 million) and other expenses 2% (or $1.2 million) which relates to the granting of waivers for lease variation charge.

Figure 7 - Sources of territorial expenditure

Graph explained in the text above

Total actual territorial expenditure in 2013-14 was $73.3 million, which was $2.0 million higher than the 2013-14 Budget of $71.3 million. This was mainly due to higher ‘Transfer to Government Expenses’ resulting from higher land rent and land rent payouts.

Total actual territorial expenditure in 2013-14 was higher than the previous year’s actual expenditure of $70.3 million by $3.0 million. This variance largely reflects increased transfer to Government expense offset by a decrease in waivers granted in 2013-14.

Total territorial expenditure is forecast to decrease by $1.5 million in the 2014-15 Budget, mainly due to not budgeting for waivers. From 2015-16 total territorial expenditure is forecast to steadily increase, reflecting inflation.