Briefing for Conservation Budget Bilateral

Transcription

1 Treasury Report: Briefing for Conservation Budget Bilateral Date: 25 February 2005 Treasury Priority: High Security Level: B-S-UNTIL-BUDGET-DAY Report No: T2005/334 Action Sought Action Sought Deadline Minister of Finance Read the attached briefing Prior to the bilateral meeting, Thursday 3 March, 11:15am Associate Minister of Finance (Hon Trevor Mallard) Read the attached briefing Prior to the bilateral meeting, Thursday 3 March, 11:15am Contact for Telephone Discussion (if required) Name Position Telephone 1st Contact [Withheld under Section 9(2)(a) of the Official Information Act 1982]Megan Taylo David Galt Manager, Environment and Natural Resources Enclosure: No

2 25 February 2005 Treasury Report: Briefing for Conservation Budget Bilateral Attached is a briefing for the bilateral between the Minister of Finance and Hon Chris Carter at 11.15am on Thursday 3 March 2005 to discuss the budget initiatives for Vote Conservation. The Bilateral Briefing is structured as follows: Summary of initiatives by Vote Recommendations Analysis by Vote and Vote History Table of Individual Initiatives p3 p4 p12 p17 We expect the key issues for discussion will be the departmental capability bid, the late [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982], and whether there is any scope to fund any of the discretionary initiatives. Our view is Ministers should: Support the capability bid subject to the Department of Conservation (DoC), in consultation with Treasury and SSC, implementing a work programme to put in place the systems and processes necessary to develop a comprehensive output price business case for the 2007 Budget. Defer consideration of the late bid until the 2006 Budget. Not support any discretionary initiatives but consider allowing DoC to use the 2004/05 capital injection not required to fund the capital components of some of the bids with the operating expenses being funded from within baselines. Recommended Action We recommend that you read the attached briefing and use it as the basis for making decisions in your bilateral with Hon Chris Carter at 11.15am on 3 rd March David Galt Manager, Environment & Natural Resources Section for Secretary to the Treasury Hon Dr Michael Cullen Minister of Finance T2005/334 : Briefing for Conservation Budget Bilateral Page 2

3 Bilateral Briefing for Vote Conservation Below is the summary of submissions made by Hon Chris Carter and Treasury s assessment for discussion. $million Vote Minister Seeks Treasury Recommends 2004/ / / / /09 4 year total Operating( GST incl) Total Non- Discretionary 2004/ / / / /09 4 year total Total Discretionary Total Recommended $million Vote Minister Seeks Treasury Recommends Capital 2004/ / / / /09 Total Non- Discretionary 4 year total 2004/ / / / / year total Total Discretionary Total Recommended T2005/334: Briefing for Conservation Budget Bilateral Page 3

4 Recommendations a Departmental Capability analysis p12 Non-Discretionary Vote Minister rank = 4 Treasury rank = 1 The Department seeks to cover a shortfall in its budget caused by ongoing absorption of salary increases, inflationary pressures and decreasing revenue from forestry. The Department faces increasing salary costs of approximately $3 million per annum. It has absorbed these costs for the last five years. The Department originally intended to seek funding to cover its forecast inflationary pressures for the next four years. However, the bid submitted only sought funding to meet cost pressures for the next year based on the presumption that the Department would seek further funding in the 2006 Budget. Not funding this initiative would result in the Department having to stop producing some of its current outputs. The Department does not have the systems in place to demonstrate that it is delivering these outputs in the most effective and efficient way. Treasury recommends providing ongoing funding to meet two years worth of inflationary increases to allow the Department sufficient time to implement measures which would enable it to demonstrate the value for money of its operations. The Department would then submit a comprehensive business case for a sustainable output price in the 2007 Budget. The Department supports Treasury s proposed approach. Operating (GST incl) 2004/ / / / /09 & DoC Treasury Direct the Department of Conservation, in consultation with Treasury and SSC, to develop terms of reference for a work programme to develop an output price business case based on the outline in the Appendix by April T2005/334: Briefing for Conservation Budget Bilateral Page 4

5 b Treaty Settlements analysis p12 Vote Minister rank = 6 Treasury rank = 2 The Department seeks to secure funding for implementation costs associated with Treaty settlements. Treasury supports this initiative at a lower level of funding. If funding is not provided DoC would be required to divert funds from other outputs. Operating (GST incl) 2004/ / / / /09 & DoC Treasury c Thames Coast Flood Risk Mitigation analysis p13 Non-Discretionary Vote Minister rank = 5 Treasury rank = 3 Cabinet has approved pest control on the Thames Coast as part of ongoing flood risk mitigation. Treasury supports this initiative. If funding is not provided DoC would be required to stop higher priority pest control in order to undertake this work. Funding levels should be reviewed in a year s time. Operating (GST incl) 2004/ / / / /09 & DoC Treasury Capital 2004/ / / / /09 & DoC Treasury Direct the Department of Conservation to review the ongoing funding required for the Thames Coast Flood Risk Mitigation pest control programme by the 2006 March Baseline Update. T2005/334: Briefing for Conservation Budget Bilateral Page 5

6 d [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982] analysis perror! Bookmark not defined. Discretionary Vote Minister rank =? Treasury rank = 4 [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982] [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982]om Cabinet. Operating (GST incl) 2004/ / / / /09 & DoC Capital 2004/ / / / /09 & DoC [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982] T2005/334: Briefing for Conservation Budget Bilateral Page 6

7 e Preserving our Icon Historic Sites analysis p13 Discretionary Vote Minister rank = 3 Treasury rank = 5 The Department proposes to preserve and provide interpretation of four historic sites significant to national identity each year. An alternative for the Department is to receive operating funding for the four projects planned in 2005/06 only and fund the capital for that year from a planned capital injection that is not required at this stage. The Department considers that operating costs cannot be funded from within baselines without reducing existing outputs. Treasury considers this initiative to be discretionary. As there is limited funding available in the Other allocation for discretionary initiatives and significant pressure on the capital allocation the Treasury recommends not supporting this bid unless it is funded within baselines or from the existing capital injection. Operating (GST incl) 2004/ / / / /09 & DoC DoC alternative (if capital injection used for four sites) Either: Capital 2004/ / / / /09 & DoC [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982] Or: Agree that the Department of Conservation can use its 2004/05 capital injection to fund the preservation of four historic sites up to $1.1 million. T2005/334: Briefing for Conservation Budget Bilateral Page 7

8 f Icon Visitor Centres: NZ s Most Important Visitor Sites analysis p14 Discretionary Vote Minister rank = 7 Treasury rank = 7 The Department proposes to upgrade two key visitor centres (Aoraki/Mt Cook and. [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982] An alternative for the Department is to receive operating funding for the Aoraki/Mt Cook Visitor Centre only and fund the capital for that year from a planned capital injection that is not required at this stage. The Department considers that operating costs cannot be funded from within baselines without reducing existing outputs. Treasury considers this initiative to be discretionary. As there is limited funding available in the Other allocation for discretionary initiatives and significant pressure on the capital allocation the Treasury recommends not supporting this bid unless it can be funded from within baselines or from the existing capital injection. Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982 Operating (GST incl) 2004/ / / / /09 & DoC DoC alternative (if capital injection used for Aoraki/Mt Cook) Either: Capital 2004/ / / / /09 & DoC Or: Agree that the Department of Conservation can use its 2004/05 capital injection to fund the Aoraki/Mt Cook visitor site development to the extent of $4 million. T2005/334: Briefing for Conservation Budget Bilateral Page 8

9 g [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982]analysis p14 Discretionary Vote Minister rank = 2 Treasury rank = 6 [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982] Operating (GST incl) 2004/ / / / /09 & DoC [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982] Either: Capital 2004/ / / / /09 & DoC [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982] Or: Agree that the Department of Conservation can use its 2004/05 capital injection to fund the [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982]. T2005/334: Briefing for Conservation Budget Bilateral Page 9

10 h Project Hauraki: Restoration Trusts for Special Places at our Doorstep analysis p14 Discretionary Vote Minister rank = 2 Treasury rank = 8 The Department proposes to raise the profile of conservation in the Hauraki Gulf and the profile of the Gulf itself as a visitor destination. Treasury considers this initiative to be discretionary and recommends deferral until decisions are made regarding the establishment of a community initiatives fund. Operating (GST incl) 2004/ / / / /09 & DoC Capital 2004/ / / / /09 & DoC i Auckland Islands: Ecosystem Restoration analysis p144 Discretionary Vote Minister rank = 1 Treasury rank = 9 The Department seeks additional appropriation to eradicate pigs and cats from the main Auckland Island. An alternative for the Department is to carry out the initial phase of this project which would prove the methodology, the bait to be used and look at the impact on non-target endangered species at a cost of $0.510m. Treasury considers this initiative to be discretionary. This bid was submitted in the 2004 Budget and was not supported. Operating (GST incl) 2004/ / / / /09 & DoC Minimum DoC Alternative T2005/334: Briefing for Conservation Budget Bilateral Page 10

11 Capital 2004/ / / / /09 & DoC j Technical adjustment: Operating to Capital Transfer for Research Project Discretionary The department seeks a technical adjustment from operating to capital in order to acquire a vessel and oceanographic instruments. Treasury supports this initiative. Operating (GST incl) 2004/ / / / /09 & DoC (0.140) (0.113) Treasury (0.140) (0.113) Capital 2004/ / / / /09 & DoC Treasury T2005/334: Briefing for Conservation Budget Bilateral Page 11

12 Vote Conservation Analysis Analysis of Initiatives Department Capability (recommendation a) 1. The Department is seeking $4.256 million per annum to meet funding pressures caused by salary increases. DoC has managed to fund salary increases within its baselines for the last five years but has reached a point where it can no longer do so. The Department considers there are limited remaining efficiency gains which can be made to meet these cost increases. It has restructured to generate savings of $2 million per annum. 2. Treasury supports the initiative as the Department has found cost savings to partly fund this year s salary pressures and not funding this bid would result in the Department having to stop producing some of its current outputs. However, it is unclear whether DoC is delivering the right mix of outputs and is delivering these in the most effective and efficient way. Treasury recommends that Ministers not agree to funding ongoing inflationary price increases for DoC at this time and direct the Department to develop a comprehensive business case for an appropriate and sustainable output price for consideration in a future Budget. 3. The development of a comprehensive business case will require the Department to put in place a number of systems and processes to enable it to demonstrate that it is an effective and efficient organisation. The Appendix outlines draft terms of reference for the work programme necessary to develop the business case. If Ministers agree to this approach, DoC and Treasury, in consultation with SSC, will develop full terms of reference for Ministerial approval. 4. The new initiative only seeks funding for the salary increases needed over the next year on the basis that DoC would seek additional funding in the 2006 Budget. A one year time frame would not provide sufficient time for the Department to develop the systems and gather the information necessary to identify the appropriate output price. Treasury therefore recommends that Ministers provide the Department with sufficient funding to meet its salary pressures for two years ($4.256 in 2005/06 and $7.856 million in outyears) and direct the Department to come back in the 2007 Budget with a comprehensive business case. Treaty Settlements (recommendation b) 5. The Department is seeking $0.45 million in 2005/06 and $0.24 million in outyears for the work it is required to do with Iwi following a treaty settlement. The Department is currently not funded to meet these costs nor were they appropriated when the settlements were agreed. 6. Treasury supports this initiative but at a lower level of funding. The funding initially sought included compensation for loss of revenue from transferred properties. Any revenue related to properties should represent cost recovery and a decrease in revenue would be offset by a decrease in costs. If funding is not provided DoC would be required to stop biodiversity and recreational opportunities work to be able to undertake this work. T2005/334: Briefing for Conservation Budget Bilateral Page 12

13 Thames Coast Flood Risk Mitigation (recommendation c) 7. The Department is seeking $1.366 million (decreasing to $0.715 from 2006/07) for pest control in the Thames Coast. This work is not a priority for DoC but is part of a package promoted by Environment Waikato to reduce the risk of river flooding on the Thames Coast. Cabinet has agreed in principle to this initiative and it has been announced by the Prime Minister. 8. Treasury supports this initiative. If funding is not provided DoC would be required to stop higher priority pest control. The funding level required for on-going pest management after 2005/06 is uncertain as it is dependent on the success of the initial eradication. The on-going funding requirements should be reviewed in a year s time by DoC in consultation with the Treasury. [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982] Preserving our Icon Historic Sites (recommendation e) 9. The Department is seeking $0.338 million per annum operating and $1.700 million per annum capital to preserve and provide interpretation of historic sites significant to national identity. Four projects have been scheduled for completion in year one. 10. An alternative for the Department is to receive operating funding for the four projects planned in 2005/06 only and fund the capital for that year from the 2004/05 capital injection of $6.514 million not required at this stage. The Department considers that operating costs cannot be funded from within baselines without reducing existing outputs. The four projects would be: Mimiwhangata Pa sites (Northland) - detailed project plan completed, possible 'first sod' ceremony; Waitawheta tramway (Te Aroha) - stage one track upgrade, interpretation panels completed and opened; Otatara Pa (Hawkes Bay) - stage one completed & opened - last bit of pa site purchased, car park, carved entrance, landscaping & interpretation panels; and T2005/334: Briefing for Conservation Budget Bilateral Page 13

14 Ship Cove (Marlborough Sounds) - project completed & opened - track upgrade, shelter & interpretation panels. 11. Treasury considers this initiative to be discretionary. As there is limited funding available in the Other allocation for discretionary initiatives and significant pressure on the capital allocation the Treasury recommends not supporting this bid unless it can be funded from within baselines or from the existing capital injection. Icon Visitor Centres: NZ s Most Important Visitor Sites (recommendation f) 12. The Department is seeking capital of $8.4 million over four years and operating funding of $1.88 million over four years to upgrade the visitor information services it provides. This will be led off by upgrading two of the Department s key icon visitor centres (Aoraki/Mt Cook [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982]). 13. An alternative for the Department is to receive operating funding for the Aoraki/Mt Cook Visitor Centre only and fund the capital for the work from the 2004/05 capital injection of $6.514 million not required at this stage. The Department considers that operating costs cannot be funded from within baselines without reducing existing outputs. 14. Treasury considers this initiative to be discretionary. As there is limited funding available in the Other allocation for discretionary initiatives and significant pressure on the capital allocation the Treasury recommends not supporting this bid unless it can be funded from within baselines or from the 2004/05 capital injection. [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982] Project Hauraki: Restoration Trusts for Special Places at our Doorsteps (recommendation 0) 15. The Department is seeking $0.5 million in 2005/06 and then $0.35 million per annum to support a range of conservation initiatives which include the restoration of Hauraki Gulf islands through weed/pest control and re-forestation, the protection of historic assets, marine habitat protection and the provision of recreational facilities and services. This funding would be provided mainly to community groups who would undertake the work. 16. Treasury considers this initiative to be discretionary. These community groups cannot seek funding from existing contestable funds as the work is being undertaken on Crown land and is not for high priority biodiversity work. However, the Government is considering the establishment of a community initiatives fund. The Treasury recommends that this initiative be deferred until decisions are made about this fund. It is possible that these community groups could be eligible to apply to this fund. Auckland Islands: Ecosystem Restoration (recommendation 0) 17. The Department is seeking [Information withheld under section 9(2)(f)(iv) of the Official Information Act 1982] over four years to eradicate pigs and cats from Main Auckland Island. 18. An alternative for the Department is to carry out the initial phase of this project which would prove the methodology, the bait to be used and look at the impact on non-target endangered species at a cost of $0.510m. 19. Treasury considers this initiative to be discretionary. This bid was submitted in the 2004 Budget and was not supported. A review of the New Zealand Biodiversity Strategy is T2005/334: Briefing for Conservation Budget Bilateral Page 14

15 being undertaken and is likely to lead to funding bids in the 2006 Budget. No new biodiversity funding should be provided until the outcome of this review highlights whether existing biodiversity funding is targeted at the highest priority areas and what the next highest priority areas should be. T2005/334: Briefing for Conservation Budget Bilateral Page 15

16 Analysis of Vote 20. Vote Conservation s baseline in 2004/2005 is $346 million with an increasing profile. 21. The Vote has increased significantly since 2001/02 due to the recognition of visitor facilities on the Department of Conservation balance sheet and the associated maintenance, depreciation and capital purchase funding implications. The 2000 Biodiversity Strategy package has also contributed to increases in baselines Baselines for Vote Conservation Funding in 1999 Funding Budget Funding sought in Budget 2005 $million / / / / / /05 Year 2005/ / / / The following graph details the history of underspends in the Vote. Previous Underspends in Vote Conseration $ millions / / / / /04 Year 23. There have been consistent underspends in the Vote. The majority of underspends occur in non-departmental output classes. This is largely explained by the Natural Heritage Fund transferring appropriations between years related to commitments which are made but for which the expense is not incurred in that year. Departmental underspends in the operating area have averaged 2% over the past five years. T2005/334: Briefing for Conservation Budget Bilateral Page 16

17 Table of Initiatives The following tables list Hon Carter s initiatives and Treasury s assessment of them. Key: Split recommendations are highlighted in grey Operating Rank Initiative Minister Seeks Treasury Vote Minister Treasury 2004/ / / / /09 & outyears 2004/ / / / /09 & outyears ref Non-discretionary 4 1 Department Capability p4 6 2 Treaty Settlements p5 5 3 Thames Coast Flood Risk Mitigation p5 Total Non-discretionary Discretionary Technical adjustment Operating to Capital Transfer for Research Project p11 [Information withheld under section 9(2)(f)(iv) of the Official Information Act ] p6 3 5 Preserving our Icon Historic Sites p7 Icon Visitor Centres: NZ's Most Important Visitor Sites p8 [Information withheld under section 9(2)(f)(iv) of the Official Information Act ] p9 Project Hauraki: Restoration Trusts for Special Places at our Doorstep p10 Auckland Islands:Ecosystem Restoration p10 Total Discretionary Total Recommended T2005/334: Budget 2005 Conservation Bilateral Brief Page 17

18 Capital Rank Initiative Minister Seeks Treasury Vote Minister Treasury 2004/ / / / /09 & outyears 2004/ / / / /09 & outyears ref Non-discretionary Thames Coast Flood Risk 5 3 Mitigation (Part A) Total Non-discretionary Discretionary Technical adjustment Operating to Capital Transfer for Research Project (Part B) [Information withheld under section 9(2)(f)(iv) of the Official Information Act ] Preserving our Icon Historic Sites 3 5 (Part B) Icon Visitor Centres: NZ's Most 7 6 Important Visitor Sites (Part B) [Information withheld under section 9(2)(f)(iv) of the Official 2 7 Information Act 1982] Project Hauraki: Restoration Trusts for Special Places at our Doorstep (Part B) Auckland Islands:Ecosystem 1 9 Restoration (Part B) Total Discretionary Total Recommended p5 p11 p6 p7 p8 p9 p10 p10 T2005/334: Budget 2005 Conservation Bilateral Brief Page 18

19 Appendix: Review of DoC s Output Prices - Terms of Reference Outline This Document provides a proposed outline for Terms of Reference to establish a work programme to review the output prices paid for the Department of Conservation s (DoC) outputs. If Ministers agree to the proposed approach full terms of reference will be developed. Problem Definition DoC has identified that it can no longer continue producing its current level of outputs for the current price paid for these outputs. The Department has been undertaking improvements in its outcome and output definition, how these can be measured and monitored, and its financial management systems. However, these are not yet at a stage to be able to produce sufficient information that demonstrates that the Department is delivering the right outputs in the most effective and efficient ways. Objective The objective of this project will be to establish the systems necessary to demonstrate that DoC is effectively and efficiently delivering the right outputs and as a result provide information to Ministers on how much it would cost to deliver these outputs on an ongoing basis. Scope of Work The project will investigate all the outputs that DoC delivers with a particular focus on the Management of Natural Heritage and Management of Recreational Opportunities output classes. The project will not review the outcomes desired by the Crown or the desired levels of these. The starting assumption will be that the Crown desires to retain the existing level of output delivery by DoC. The cost of retaining this level will be assessed with options to continue funding the existing level of outputs or to decrease output delivery. Any bids for increased output delivery will need to be the subject of a separate bidding process. The project will investigate the choice of output mix and the monitoring and evaluation of these output choices to assess the effectiveness of DoC. It will also investigate the cost of delivering these outputs to evaluate whether DoC is delivering these in the most efficient way. Work Programme The following points represent the key systems or deliverables that are required to enable an assessment of DoC s output prices. Assessment of the Effectiveness of DoC Treasury:731821v1 19

20 Robust output identification and pricing of outputs including appropriate overhead allocation. Establishment of a comprehensive evaluation and monitoring system to demonstrate intervention logic and appropriate output mix choice, and to assist identification and implementation of best practice output delivery. Explicit demonstration of the Department s prioritisation processes in the Statement of Intent and annual report, including demonstration of robust planning systems how the Department uses the monitoring and evaluation information to determine output mix. Demonstration of testing what are the best ways of achieving the biodiversity and appreciation outcomes. Robust assessment of the recommendations of the Biodiversity Strategy Review (independent review stage) and development of a plan for the next implementation stage of the Strategy. Review of funding sources and the ways in which DoC can recover costs. Assessment of the Efficiency of DoC Demonstration of improved financial management systems in particular linking outputs to the funding source, accurate forecasting, development of a long-term financial plan and a cashflow management plan. Development of a comprehensive asset management strategy. Demonstration of a benchmarking system (internal and/or external) assessing the costs of producing outputs and effectiveness of output delivery. Demonstration of robust outsourcing policy and contract management how does the Department determine what it does internally and what it outsources? Demonstration of internal audit and monitoring processes. Demonstration of how the Department determines what human resource capabilities it requires and what is the appropriate price to pay for these (including relative salary prices and recruitment and turnover statistics). Demonstration of appropriate organisational structure. Timeframe and Key Milestones To be developed. End milestone to be a draft business case developed by 31 October Governance of the Review To be developed. Treasury:731821v1 20