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Revised cost of transition for Wellington

Media Release

12 February 2015

Revised cost of transition for Wellington

A revised table has been produced for the Volume 2: Technical Report which accompanied the draft proposal for reorganisation of local government in Wellington. The revision affects the estimated transition cost for the proposed Greater Wellington Council, which has been adjusted from $184 million to $210 million.

The table (attached below) was revised after the Local Government Commission was advised of potential errors. The Commission asked the external consultants who contributed to the table to review their data. The table was supplied to the Commission by an external provider, who based it on specialist advice from a number of sources.

The external consultants have acknowledged errata in the table which affect savings and costs for four options considered by the Commission. These options were: One Western Territorial Authority (a merger of Wellington, Porirua, and Kapiti Coast councils); Three Territorial Authorities (mergers in the Wairarapa, Hutt Valley, and western Wellington); and One Wellington Council, with and without local boards.

The estimated cost of transition to a Greater Wellington Council is now $210 million over 4-5 years. The payback period for the transition cost is now nine years. Previously, the Commission was advised the transition cost would be $184 million with a payback period of eight years.

The revised cost is due solely to the treatment of estimates for integrating all council IT systems and infrastructure. The Commission has previously been advised there are significant challenges to accurately estimating council IT costs.

Consequential amendments have also been made to paragraphs 6.369, 6.373, 6.384, and 6.400 of Volume 2, to reflect the revised table.

Commission Chair Basil Morrison said he was disappointed to learn of the revisions but was satisfied the external consultants who provided the table had moved swiftly to acknowledge and remedy their errors.

The Commission has also received an apology.

“The revision to the table does not change the Commission’s preferred option. The Commission has taken a long-term view about the council structure that will best serve the region over the next 30 years. The costs and benefits - both financial and non-financial - are viewed over that timeframe. I encourage all those who care about the future of local government in the region to make a submission on the draft proposal before the 2 March deadline,” Mr Morrison said.

To date (12 February), around 400 submissions have been received.

Ends

Table 37 (page 216, Volume 2)

Table 37: Comparison of the “reasonably practicable options” regarding the costs of transition and potential savings

Source: Stimpson & Co (2014, September) Summary report combining work by Stimpson & Co, McGredy Winder & Co and Brian Smith Advisory Services.

Enhanced Local Efficiency One Wellington Council
One Wairarapa Territorial AuthorityOne Hutt Valley Territorial AuthorityOne Western Territorial AuthorityThree Territorial AuthoritiesOne Wairarapa & One Hutt Valley Territorial Authority, plus WCC, PDC & KCDCStronger Regional Delivery – transfer obligations to GWRCwithout local boards with local boards
Annual savings, year 4/5 ($m)1.35.524.831.66.936.340.430.4
Transition costs
Transition board ($m)1.02.05.08.03.07.610.110.3
New council start-up ($m)1.02.05.08.03.07.610.110.3
IT system delivery costs ($m)25.540.067.5133.065.579.0127.5127.5
Business process change ($m)4.26.09.820.010.223.748.248.2
Other ($m)0.20.41.01.60.61.52.02.0
HR costs ($m)0.11.66.68.31.710.211.311.3
Total estimated cost of transition ($m)32529517984129209210
Net present value ($m) at 7%-13.7814319915458
‘Payback’ period (years)25105612579


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