AGENDA


Finance and Governance Committee

 

Monday, 08 February 2021

 

Dragon Room (Level 1,Georges River Civic Centre,

Hurstville)

and

Skype Online Meeting

 

 

 

 

 

 

 

 

 

 

 


Georges River Council – Finance and Governance Committee -  Monday, 8 February 2021                                         Page 1

 

          Finance and Governance Committee

ORDER OF BUSINESS

 

1.      OPENING

2.      ACKNOWLEDGEMENT OF COUNTRY

3.      APOLOGIES / LEAVE OF ABSENCE

4.      NOTICE OF WEBCASTING

5.      DISCLOSURES OF INTEREST

6.      PUBLIC FORUM

7.      CONFIRMATION OF MINUTES OF PREVIOUS MEETINGS

FIN001-21         Confirmation of the Minutes of the Finance and Governance Committee meeting held on 7 December 2020

(Report by Executive Services Officer)....................................................................... 3  

8.      COMMITTEE REPORTS

FIN002-21         Administrative Matter - Execution of Documents Under Delegated Authority (1 December 2020 to 31 January 2021)

(Report by Manager, Office of the General Manager)............................................. 9

FIN003-21         Investment Report as at 30 November 2020

(Report by Senior Financial Accountant - Reporting)............................................ 11

FIN004-21         Investment Report as at 31 December 2020

(Report by Senior Financial Accountant - Reporting)............................................ 27

FIN005-21         Quarterly Budget Review for period ended 31 December 2020

(Report by Business Performance Accountant)...................................................... 43

FIN006-21         NSW Legislative Requirements for Internal Borrowing and Loans

(Report by Chief Financial Officer)............................................................................ 64  

 

 


Georges River Council – Finance and Governance Committee -  Monday, 8 February 2021                                         Page 1

CONFIRMATION OF MINUTES OF PREVIOUS MEETINGS

Item:                   FIN001-21     Confirmation of the Minutes of the Finance and Governance Committee meeting held on 7 December 2020 

Author:              Executive Services Officer

Directorate:      Office of the General Manager

Matter Type:    Previous Minutes

 

 

RECOMMENDATION:

That the Minutes of the Finance and Governance Committee Meeting held on 7 December 2020 be confirmed.

 

 

 

ATTACHMENTS

Attachment 1

Minutes of the Finance and Governance Committee - 7/12/2020


Georges River Council – Finance and Governance Committee -  Monday, 8 February 2021                                         Page 1

 

 

 

 

 

MINUTES


Finance and Governance Committee

 

Monday, 07 December 2020

6.00pm

 

 

Dragon Room (Level 1,Georges River Civic Centre,

Hurstville)

and

Skype Online Meeting

 

 

 

 

 

 

 


PRESENT

COUNCIL MEMBERS

Councillor Vince Badalati (Chair), Deputy Mayor Councillor Stephen Agius, Councillor Sam Elmir, Councillor Con Hindi, Councillor Nick Katris, Councillor Nancy Liu and Councillor Colleen Symington.

COUNCIL STAFF

Director Business and Corporate Services - David Tuxford, Chief Financial Officer - Danielle Parker, Director Legal Services and General Counsel - Jenny Ware, Manager Office of the General Manager - Roxanne Thornton, Executives Services Officer - Marina Cavar, Business Technology Services Officer - Alex Wong and Coordinator Technology - Brendan Scott and Executive Assistant to the Director Business and Corporate Services - Nickie Paras (Minutes).

OPENING

Councillor Badalati opened the meeting at 6:05pm

ACKNOWLEDGEMENT OF COUNTRY

Councillor Badalati acknowledged the traditional custodians of the land, the Biddegal people of the Eora Nation.

APOLOGIES/LEAVE OF ABSENCE  

There were no apologies or requests for leave of absence.

NOTICE OF WEBCASTING

The Chairperson, Councillor Badalati, advised staff and the public that the meeting is being recorded for minute-taking purposes and is also webcast live on Council’s website, in accordance with Section 4 of Council’s Code of Meeting Practice.  This recording will be made available on  Council’s website.

DISCLOSURES OF INTEREST

There were no disclosures of interest made.

PUBLIC FORUM

There were no registered speakers for the meeting.  

 

 

 


 

CONFIRMATION OF MINUTES OF PREVIOUS MEETINGS

Finance and Governance Committee - 09 November 2020

 FIN062-20        Confirmation of the minutes of the previous meeting held on 9 November 2020

(Report by Executive Services Officer)

RECOMMENDATION: Councillor Hindi and Councillor Symington

That the Minutes of the Finance and Governance Committee Meeting held on 9 November 2020 be confirmed.

Record of Voting:

For the Motion: Unanimous

COMMITTEE REPORTS

FIN063-20         Administrative Matter - Execution of Documents Under Delegated Authority (1 November 2020 to 30 November 2020)

(Report by Manager, Office of the General Manager)

Recommendation: Councillor Hindi and Councillor Katris

That Council note, for the period 1 November 2020 to 30 November 2020, there were two (2) documents executed by the General Manager under delegation.

Record of Voting:

For the Motion: Unanimous

 

 

FIN064-20         Investment Report as at 31 October 2020

(Report by Senior Financial Accountant - Reporting)

Recommendation: Councillor  Katris and Councillor Agius

That Council receives and notes the contents of the Investment Report as at 31 October 2020.

Record of Voting:

For the Motion: Unanimous

 

 

FIN065-20         New Rates 2021 Application - Amendments to IPR Documents

(Report by Chief Financial Officer)

Recommendation: Councillor Katris and Councillor Agius

(a)     That Council endorse for the purposes of public exhibition the amended Draft Integrated Planning and Reporting document, being the Long Term Financial Plan within the Resourcing Strategy.

(b)     That the amended Draft Long Term Financial Plan within the Resourcing Strategy be approved for public exhibition for a period to be determined at Council Meeting on 14 December 2020 allowing the community to comment on the amended content of these documents relating to the New Rates 2021 proposal. 

(c)     That the General Manager be delegated authority to make formatting and minor editorial adjustments to the amended Draft Long Term Financial Plan within the Resourcing Strategy during the public exhibition period.

(d)     That submissions received as part of the public exhibition of the amended Draft Long Term Financial Plan within the Resourcing Strategy be reported to a future Council meeting for consideration as part of the adoption of the final document.

(e)     That submissions received as part of the public exhibition of the amended Draft Long Term Financial Plan within the Resourcing Strategy, be collated into the community engagement feedback report as part of the rate restructure application.

Record of Voting:

For the Motion: Deputy Mayor Councillor Agius and Councillors Badalati, Elmir, Katris, Liu and Symington

Against the Motion: Councillor Hindi

On being put to the meeting voting on the Motion was six (6) votes FOR and one (1) vote AGAINST.

 

 

FIN066-20         Draft 2021/22 Budget - Consideration of Establishment of Additional FTE Position

(Report by Manager, Office of the General Manager)

RECOMMENDATION: Councillor Hindi and Councillor Symington

That no change be made to staff resourcing and that council amend the current service standard from a ten (10) working day response period to a twenty (20) working day response period, for correspondents (excluding Ministers and Local Members) who submit in excess of 200 items of correspondence annually.

Record of Voting:

For the Motion: Councillors Badalati, Hindi, Katris and Symington

Against the Motion: Deputy Mayor, Councillor Agius and Councillors Elmir and Liu

On being put to the meeting voting on the Motion was four (4) votes FOR and three (3) votes AGAINST.

 

 

 

FIN067-20         Quarterly Budget Review for Quarter Ended 30 September 2020

(Report by Chief Financial Officer)

Recommendation: Councillor Hindi and Councillor Elmir

That Council receive and note the addendum to the Quarterly Budget Review for quarter ended 30 September 2020.

Record of Voting:

For the Motion: Unanimous

   

CONCLUSION

The Meeting was closed at 7.00pm.

 

 

 

UNCONFIRMED

 

Chairperson

 

 

  


Georges River Council – Finance and Governance Committee -  Monday, 8 February 2021                                         Page 1

COMMITTEE REPORTS

Item:                   FIN002-21          Administrative Matter - Execution of Documents Under Delegated Authority (1 December 2020 to 31 January 2021) 

Author:              Manager, Office of the General Manager

Directorate:      Office of the General Manager

Matter Type:    Committee Reports

 

 

 

Recommendation:

That Council note, for the period 1 December 2020 to 31 January 2021, there were six (6) documents executed by the General Manager under delegation.

 

Executive Summary

At its meeting on 24 February 2020, Council resolved that the General Manager report to Council any lease, contract or hire agreement (excluding staff contracts) executed under delegation.

REPORT

Council at its meeting on 24 September 2018, delegated to the General Manager the General Manager’s Delegations (Instrument of Delegation).

During the period 1 December 2020 to 31 January 2021 the following documents have been executed by the General Manager (or Acting General Manager) under Delegation.

Community Leases

Date Executed

Document Type

Premises

NIL

 

 

Premium Facilities

Date Executed

Document Type

Premises

29 January 2021

COVID-19 Deed of Variation - Sydney Football Club Pty Ltd (Sydney FC)

Netstrata Jubilee Stadium

29  January 2021

COVID-19 Deed of Variation - VenuesLive Management Services (NSW) Pty Ltd

Netstrata Jubilee Stadium

 

 


 

Commercial Leases

Date Executed

Document Type

Premises

11 December 2020

Lease to Nova Employment Ltd

Suites 501 to 503, 34 McMahon Street, Hurstville

21 December 2020

COVID-19 Deed of Surrender - Kim An Pty Ltd

Shop 2, 38 Humphreys Lane, Hurstville

27 December 2020

Lease to Allied OT Pty Ltd

70 Vanessa Street, Beverly Hills

Contracts

Date Executed

Document Type

Premises

13 January 2021

Supply Agreement - Pool Filtration - Bluefit Pty Ltd

Hurstville Aquatic Leisure Centre (HALC)

Financial Implications

No budget impact for this report.

Risk Implications

No risks identified.

File Reference

D21/18545

 

 

 

  


Georges River Council – Finance and Governance Committee -  Monday, 8 February 2021                                         Page 1

Item:                   FIN003-21     Investment Report as at 30 November 2020 

Author:              Senior Financial Accountant - Reporting

Directorate:      Business and Corporate Services

Matter Type:    Committee Reports

 

 

 

Recommendation:

That Council receives and notes the contents of the Investment Report as at 30 November 2020.

 

Executive Summary

1.      This report details Council’s performance of its investment portfolio as at 30 November 2020 and compares it against key benchmarks.

2.      This report also includes the estimated market valuation of Council’s investment portfolio, loan liabilities and any required update on Council’s legal action against various parties.

3.      Council’s annualised rate of return is 1.64% which is 1.20% above benchmark. Income from interest on investments totals $789k which is $60k lower than the 2020/21 year-to-date adopted budget.

Background

4.      Council’s Responsible Accounting Officer is required to report monthly on Council’s Investment Portfolio and certify that the Investments are held in accordance with Council’s Investment Policy, Section 625 of the Local Government Act (NSW) 1993 and Local Government (General) Regulation 2005.

Investment Performance Commentary

5.      Council’s performance against the benchmark for returns of its investment portfolio for November 2020, are as follows:

 

1 Month

3 Month

12 Month

Portfolio Performance

0.10%

0.30%

1.64%

Performance Index

0.01%

0.03%

0.44%

Excess

0.09%

0.27%

1.20%

Notes:                                                      

(a)     Portfolio performance is the rate of return of the portfolio over the specified period.

(b)     The Performance Index is the rate of return of the market (comparable securities) over the specified period.  

(c)     Excess performance is the rate of return of the portfolio in excess of the Performance Index.

6.      Council’s investment portfolio as at the end of November was as follows:

Security Type

Market Value $000's

% Total Value

At Call Deposit

18,075

11.48%

Consolidated Cash Fund

19,210

12.20%

Covered Floating Bond

1,007

0.64%

Flexi Deposit (Fix/Float)

6,000

3.81%

Floating Rate Deposit

7,000

4.44%

Floating Rate Note

33,188

21.07%

Term Deposit

                        73,013

   46.36%

Total Cash and Investments

157,493

100.00%

7.      At the end of October 2020, Total Cash and Investments were $147 million and have increased by $10 million at the end of November 2020.

8.      Council continues to utilise the Federal Government’s current guarantee ($250,000) investing in Term Deposits with a range of Authorised Deposit Taking Institutions (ADI’s) on short to medium term investments (generally 30 days to 180 days maturity).

Legal Matters

9.      Georges River Council is participating in a Group Class Action against Fitch Ratings Inc., in respect to losses suffered on the Corsair (Cayman Islands) No.4 Ltd Series 6 Kakadu Collateralised Debt Obligation (CDO) notes. Council suffered a capital loss of $214,812 on these investments dating back to December 2006 and will seek damages of the capital loss, including lost interest, as part of the action.

10.    Banton Group are the legal firm working on the matter and have continued to confer with counsel to be able to commence proceedings against Fitch Ratings Inc. in the near term. Further updates will be presented to Council as they are received. 

Borrowings

11.    Council’s loan liability, as at 30 November 2020 was $1 million, which represents the balance of a $5 million/10-year loan drawn down on 16 November 2012 for the Jubilee Park upgrade in Mortdale. The next repayment of $125,000 is due on 24 December 2020.

12.    The outstanding balance on this facility is at a variable interest rate of 195 basis points above the three-month BBSW. At the current three-month BBSW rate, the interest rate payable is 1.97% pa.

13.    Council receives a 4% p.a. interest subsidy under the NSW Government’s Local Infrastructure Renewal Scheme funding agreement for the Jubilee Park upgrade facility. It is intended to continue this financially advantageous arrangement through to full term in 2022.

Policy Limits

14.    The graph below shows the Investment Rating limits, as a percentage of total cash investments, which are allowed under Council’s Investment policy. It also compares them to the amounts invested, as a percentage of the total cash investments. It shows that the funds invested are within the limits set in the Investment Policy.

 

Investment Income

15.    Income from interest on investments to 30 November 2020 is $789k which is $60k lower than the 2020/21 year-to-date adopted budget.

16.    Investments have been made in accordance with the Local Government Act (1993), Minister’s Guidelines, Regulations and Council’s Investment Policy.

Analysis of Investments

Investment Duration

Investment Term

Market Value ‘000

% Total Value

Policy Limits

0 to < 1 Year

102,171

64.87%

100%

1 to < 3 Years

48,857

31.02%

70%

3 to < 5 Years

6,465

4.10%

50%

Portfolio Total

157,493

100.00%

 

 

17.    Council’s portfolio is liquid, with 64.87% of assets maturing within 12 months. FRNs, At-Call Funds and Fixed Bonds also provide additional liquidity in an emergency.

18.    The following graphs show analysis of the total cash investment by institution:  

 

 

 

Type of Investments

19.    The majority of Council’s investment portfolio is made up of fixed term deposits, which account for approximately 46% of total investments.

20.    Bank Floating Rate Notes (FRN) offer liquidity and a higher rate of income accrual, which is highly recommended by our Investment Advisors (CPG Research & Advisory).

21.    The following are the types of investments held by Council:

a)      Cash and Call Accounts refer to funds held at a financial institution and can be recalled by Council either same day or on an overnight basis.

b)      An FRN is a debt security issued by a company with a variable interest rate. This can either be issued as Certificates of Deposit (CD) or as Medium Term Notes (MTN). The interest rate can be either fixed or floating, where the adjustments to the interest rate are usually made quarterly and are tied to a certain money market index such as the Bank Bill Swap Rate.

c)      A Fixed Term Deposit is a debt security issued by a company with a fixed interest rate over the term of the deposit.

d)      A managed fund is a professionally managed investment portfolio that individual investors can buy into, purchasing 'units' rather than shares. Each managed fund has a specific investment objective. This is usually based around the different asset classes (cash, fixed interest, property and shares). The money you invest is used to buy assets in line with this investment objective. When you invest in a managed fund, you are allocated a number of 'units'. The value of your units is calculated on a daily basis and changes as the market value of the assets in the fund rises and falls.

* These managed funds have been grandfathered since the NSW State Government changed the list of Approved Investments as a result of the Cole enquiry (which was reflected in the Ministerial Order dated 31/7/2008).

 

 

Credit Rating

22.    Credit ratings are generally a statement as to an institution’s credit quality. Council’s Investment Advisors (CPG Research & Advisory) use Standard & Poor’s Credit ratings to classify the investments held by Council. Ratings ranging from AA to BBB (Short Term) & AA to BBB (long term) are considered investment grade.

23.    A general guide as to the meaning of each credit rating that Council deals with is as follows:

Short-term

AA:            The best quality companies, reliable and stable. An obligor’s capacity to meet its financial commitments on the obligation is very strong.

A:               The obligor’s capacity to meet its financial commitments on the obligation is still strong but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.

BBB:          Adequate capacity to meet financial commitments, but adverse economic conditions or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments.

Unrated:   This category includes unrated Authorised Deposit-Taking Institutions (ADI’s) such as some Credit Unions and Building Societies to the extent not Commonwealth-guaranteed. No rating has been requested, or there is insufficient information on which to base a rating.      

Long-term

AA:            Quality companies, a bit higher risk than AAA. An obligor has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors only to a small degree.

A:               Economic situation can affect finance. An obligor has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.

BBB:          Medium class companies, which are satisfactory at the moment. An obligor has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.

Unrated:  This category includes unrated Authorised Deposit-Taking Institutions (ADI’s) such as some Credit Unions and Building Societies to the extent not Commonwealth-guaranteed. No rating has been requested, or there is insufficient information on which to base a rating.

24.    The credit quality of Council’s portfolio is relatively high with approximately 93% of assets rated ‘A’ or higher. The ‘AAA’ assets represent the deposit investments covered by the Federal Government’s Financial Claims Scheme (FCS).

25.    The remaining 7% rated ‘BBB’ or ‘unrated’ reflects the deposit and FRN investments with the regional and unrated ADIs.

Council’s Investment Powers

26.    Council’s investment powers are regulated by Section 625 of the NSW Local Government Act (1993), which states:

·        A council may invest money that is not, for the time being, required by the council for any other purpose.

·        Money may be invested only in a form of investment notified by order of the Minister published in the Gazette.

·        An order of the Minister notifying a form of investment for the purposes of this section must not be made without the approval of the Treasurer.

·        The acquisition, in accordance with Section 358, of a controlling interest in a corporation or an entity within the meaning of that section is not an investment for the purposes of this section.

27.    Council’s investment policy and strategy requires that all investments are to be made in accordance with:

·        Local Government Act 1993 - Section 625.

·        Local Government Act 1993 - Order (of the Minister) dated 12 January 2011.

·        The Trustee Amendment (Discretionary Investments) Act 1997 - Sections 14A (2), 14C (1) & (2).

·        Local Government (Financial Management) Regulation 1993.

·        Investment Guidelines issued by the Department of Local Government.

Financial Implications

28.    Income from interest on investments totals $789k which is $60k lower than the 2020/21 year-to-date adopted budget.

Risk Implications

29.    Enterprise risk/s identified, and management process applied.

30.    Council’s enterprise risk identified was ‘poor financial management adversely impacts Council’s long-term financial sustainability’. The risk has been managed by Council’s management of investments in accordance with the relevant act and regulations, along with Council adopted Investment Policy. To further minimise the risk, Council will progressively move towards the placement of investments only in investments rated A or above.

COMMUNITY ENGAGEMENT

31.    No community consultation is required. Members of the community can attend and address Council at the Council meeting in relation to this matter in accordance with Council’s Code of Meeting Practice.

File Reference

D20/315063

 

 

ATTACHMENTS

Attachment 1

Investment Report as at 30 November 2020

 


Georges River Council -            Finance and Governance Committee - Monday, 8 February 2021

FIN003-21              Investment Report as at 30 November 2020

[Appendix 1]           Investment Report as at 30 November 2020

 

 

Page 1

 


 


 


 



 


 


 


Georges River Council – Finance and Governance Committee -  Monday, 8 February 2021                                         Page 1

Item:                   FIN004-21     Investment Report as at 31 December 2020 

Author:              Senior Financial Accountant - Reporting

Directorate:      Business and Corporate Services

Matter Type:    Committee Reports

 

 

 

Recommendation:

That Council receives and notes the contents of the Investment Report as at 31 December 2020.

 

Executive Summary

1.      This report details Council’s performance of its investment portfolio as at 31 December 2020 and compares it against key benchmarks.

2.      This report also includes the estimated market valuation of Council’s investment portfolio, loan liabilities and any required update on Council’s legal action against various parties.

3.      Council’s annualised rate of return is 1.56% which is 1.19% above benchmark. Income from interest on investments totals $935k which is $83k lower than the 2020/21 year-to-date adopted budget.

Background

4.      Council’s Responsible Accounting Officer is required to report monthly on Council’s Investment Portfolio and certify that the Investments are held in accordance with Council’s Investment Policy, Section 625 of the Local Government Act (NSW) 1993 and Local Government (General) Regulation 2005.

Investment Performance Commentary

5.      Council’s performance against the benchmark for returns of its investment portfolio for December 2020, are as follows:

 

1 Month

3 Month

12 Month

Portfolio Performance

0.06%

0.29%

1.56%

Performance Index

0.00%

0.02%

0.37%

Excess

0.06%

0.27%

1.19%

Notes:                                                      

(a)     Portfolio performance is the rate of return of the portfolio over the specified period.

(b)     The Performance Index is the rate of return of the market (comparable securities) over the specified period.  

(c)     Excess performance is the rate of return of the portfolio in excess of the Performance Index.

6.     Council’s investment portfolio as at the end of December  was as follows:

Security Type

Market Value $000's

% Total Value

At Call Deposit

15,053

9.52%

Consolidated Cash Fund

7,847

4.96%

Covered Floating Bond

1,007

0.64%

Flexi Deposit (Fix/Float)

6,000

3.79%

Floating Rate Deposit

7,000

4.43%

Floating Rate Note

36,188

22.89%

Term Deposit

                        85,013

   53.77%

Total Cash and Investments

158,108

100.00%

7.      At the end of November 2020, Total Cash and Investments were $157 million and have increased by $1 million at the end of December 2020.

8.      Council continues to utilise the Federal Government’s current guarantee ($250,000) investing in Term Deposits with a range of Authorised Deposit Taking Institutions (ADI’s) on short to medium term investments (generally 30 days to 180 days maturity).

Legal Matters

9.      Georges River Council is participating in a Group Class Action against Fitch Ratings Inc., in respect to losses suffered on the Corsair (Cayman Islands) No.4 Ltd Series 6 Kakadu Collateralised Debt Obligation (CDO) notes. Council suffered a capital loss of $214,812 on these investments dating back to December 2006 and will seek damages of the capital loss, including lost interest, as part of the action.

Banton Group are the legal firm working on the matter and have continued to confer with counsel to be able to commence proceedings against Fitch Ratings Inc. in the near term. Further updates will be presented to Council as they are received.

Borrowings

10.    Council’s loan liability, as at 31 December 2020 was $875,000, which represents the balance of a $5 million/10-year loan drawn down on 16 November 2012 for the Jubilee Park upgrade in Mortdale. The next repayment of $125,000 is due on 24 March 2021.

11.    The outstanding balance on this facility is at a variable interest rate of 195 basis points above the three-month BBSW. At the current three-month BBSW rate, the interest rate payable is 1.97% pa.

12.    Council receives a 4% p.a. interest subsidy under the NSW Government’s Local Infrastructure Renewal Scheme funding agreement for the Jubilee Park upgrade facility. It is intended to continue this financially advantageous arrangement through to full term in 2022.

Policy Limits

13.    The graph below shows the Investment Rating limits, as a percentage of total cash investments, which are allowed under Council’s Investment policy. It also compares them to the amounts invested, as a percentage of the total cash investments. It shows that the funds invested are within the limits set in the Investment Policy.

 

Investment Income

14.    Income from interest on investments to 31 December 2020 is $935k which is $83k lower than the 2020/21 year-to-date adopted budget.

15.    Investments have been made in accordance with the Local Government Act (1993), Minister’s Guidelines, Regulations and Council’s Investment Policy.

Analysis of Investments

Investment Duration

Investment Term

Market Value ‘000

% Total Value

Policy Limits

0 to < 1 Year

95,787

60.58%

100%

1 to < 3 Years

52,856

33.43%

70%

3 to < 5 Years

9,465

5.99%

50%

Portfolio Total

158,108

100.00%

 

 

16.    Council’s portfolio is liquid, with 60.58% of assets maturing within 12 months. FRNs, At-Call Funds and Fixed Bonds also provide additional liquidity in an emergency.

17.    The following graphs show analysis of the total cash investment by institution:  

 

 

 

Type of Investments

18.    The majority of Council’s investment portfolio is made up of fixed term deposits, which account for approximately 54% of total investments.

19.    Bank Floating Rate Notes (FRN) offer liquidity and a higher rate of income accrual, which is highly recommended by our Investment Advisors (CPG Research & Advisory).

20.    The following are the types of investments held by Council:

a)      Cash and Call Accounts refer to funds held at a financial institution and can be recalled by Council either same day or on an overnight basis.

b)      An FRN is a debt security issued by a company with a variable interest rate. This can either be issued as Certificates of Deposit (CD) or as Medium-Term Notes (MTN). The interest rate can be either fixed or floating, where the adjustments to the interest rate are usually made quarterly and are tied to a certain money market index such as the Bank Bill Swap Rate.

c)      A Fixed Term Deposit is a debt security issued by a company with a fixed interest rate over the term of the deposit.

d)      A managed fund is a professionally managed investment portfolio that individual investors can buy into, purchasing 'units' rather than shares. Each managed fund has a specific investment objective. This is usually based around the different asset classes (cash, fixed interest, property and shares). The money you invest is used to buy assets in line with this investment objective. When you invest in a managed fund, you are allocated a number of 'units'. The value of your units is calculated on a daily basis and changes as the market value of the assets in the fund rises and falls.

* These managed funds have been grandfathered since the NSW State Government changed the list of Approved Investments as a result of the Cole enquiry (which was reflected in the Ministerial Order dated 31/7/2008).

 

 

 

Credit Rating

21.    Credit ratings are generally a statement as to an institution’s credit quality. Council’s Investment Advisors (CPG Research & Advisory) use Standard & Poor’s Credit ratings to classify the investments held by Council. Ratings ranging from AA to BBB (Short Term) & AA to BBB (long term) are considered investment grade.

22.    A general guide as to the meaning of each credit rating that Council deals with is as follows:

Short-term

AA:            The best quality companies, reliable and stable. An obligor’s capacity to meet its financial commitments on the obligation is very strong.

A:               The obligor’s capacity to meet its financial commitments on the obligation is still strong but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.

BBB:          Adequate capacity to meet financial commitments, but adverse economic conditions or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments.

Unrated:   This category includes unrated Authorised Deposit-Taking Institutions (ADI’s) such as some Credit Unions and Building Societies to the extent not Commonwealth-guaranteed. No rating has been requested, or there is insufficient information on which to base a rating.      

Long-term

AA:            Quality companies, a bit higher risk than AAA. An obligor has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors only to a small degree.

A:               Economic situation can affect finance. An obligor has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.

BBB:          Medium class companies, which are satisfactory at the moment. An obligor has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments.

Unrated:  This category includes unrated Authorised Deposit-Taking Institutions (ADI’s) such as some Credit Unions and Building Societies to the extent not Commonwealth-guaranteed. No rating has been requested, or there is insufficient information on which to base a rating.

23.    The credit quality of Council’s portfolio is relatively high with approximately 93% of assets rated ‘A’ or higher. The ‘AAA’ assets represent the deposit investments covered by the Federal Government’s Financial Claims Scheme (FCS).

24.    The remaining 7% rated ‘BBB’ or ‘unrated’ reflects the deposit and FRN investments with the regional and unrated ADIs.

Council’s Investment Powers

25.    Council’s investment powers are regulated by Section 625 of the NSW Local Government Act (1993), which states:

·        A council may invest money that is not, for the time being, required by the council for any other purpose.

·        Money may be invested only in a form of investment notified by order of the Minister published in the Gazette.

·        An order of the Minister notifying a form of investment for the purposes of this section must not be made without the approval of the Treasurer.

·        The acquisition, in accordance with Section 358, of a controlling interest in a corporation or an entity within the meaning of that section is not an investment for the purposes of this section.

26.    Council’s investment policy and strategy requires that all investments are to be made in accordance with:

·        Local Government Act 1993 - Section 625.

·        Local Government Act 1993 - Order (of the Minister) dated 12 January 2011.

·        The Trustee Amendment (Discretionary Investments) Act 1997 - Sections 14A (2), 14C (1) & (2).

·        Local Government (Financial Management) Regulation 1993.

·        Investment Guidelines issued by the Department of Local Government.

Financial Implications

27.    Income from interest on investments totals $935k which is $83k lower than the 2020/21 year-to-date adopted budget.

Risk Implications

28.    Enterprise risk/s identified, and management process applied.

29.    Council’s enterprise risk identified was ‘poor financial management adversely impacts Council’s long-term financial sustainability’. The risk has been managed by Council’s management of investments in accordance with the relevant act and regulations, along with Council adopted Investment Policy. To further minimise the risk, Council will progressively move towards the placement of investments only in investments rated A or above.

COMMUNITY ENGAGEMENT

30.    No community consultation is required as a result of this report. Members of the community can attend and address Council at the Council meeting in relation to this matter in accordance with Council’s Code of Meeting Practice.

File Reference

D21/6819

 

 

ATTACHMENTS

Attachment 1

Investment Report as at 31 December 2020

 


Georges River Council -            Finance and Governance Committee - Monday, 8 February 2021

FIN004-21              Investment Report as at 31 December 2020

[Appendix 1]           Investment Report as at 31 December 2020

 

 

Page 1

 


 


 


 



 


 


 


Georges River Council – Finance and Governance Committee -  Monday, 8 February 2021                                         Page 1

Item:                   FIN005-21     Quarterly Budget Review for period ended 31 December 2020 

Author:              Business Performance Accountant

Directorate:      Business and Corporate Services

Matter Type:    Committee Reports

 

 

 

Recommendation:

(a)     That Council receives and notes the contents of this report in relation to the Quarterly Budget Review for the period ending 31 December 2020.

(b)     That Council adopt the proposed amendments to the 2020/21 Budget based on the revised forecast operational impacts from COVID-19, the ICAC investigation and other variations experienced in the first half of the financial year.

(c)     That Council notes there is a substantial decrease in Council’s cash forecast balance since the adopted budget.

(d)     That Council notes the forecast operating financial sustainability issues have accelerated due to COVID-19 with higher than anticipated costs and reduced income in 2019/20.

(e)     That Council acknowledges the risks associated with not resolving the financial operating deficit in meeting its short and long-term commitments.

 

Executive Summary

1.      In accordance with the COVID-19 budget strategy resolved by Council in June 2020, this report highlights Council’s half year performance against the 2020/2021 adopted budget and presents draft budget variations in consideration of projected financial results.

 

2.      To minimise the bottom-line impact of the proposed unfavourable financial variations of
COVID-19 and external investigation costs, senior staff have commenced another review of the 2020/21 Budget with a view to obtaining further reductions and/or alternate revenue and funding sources.

 

Background

3.      Section 203 of the Local Government (General) Regulation 2005 requires that a Quarterly Budget Review be considered by Council that shows the projected year end results for income and expenditure. The report indicates whether there are any proposed changes to the forecast and makes recommendations for variation. In addition, the Quarterly Budget Review highlights key financial information for sound decision making, to ensure the financial sustainability of Council.

 

4.      Council’s adopted 2020/21 budget did not factor in the projected impacts to income and expenditure from the COVID-19 pandemic. The decision to adopt a business as usual approach and then adjust the Budget each quarter was based on critical factors being unknown, such as the scale of the financial impact, the length of time the Public Health Orders would remain in place and any financial support or stimulus packages provided by various levels of government.  

 

5.      This report outlines the proposed budget changes, which include revised forecasts on specific services impacted by COVID-19.

 

QUARTERLY BUDGET REVIEW STATEMENT FOR PERIOD ENDING 31 DECEMBER 2020

Overview of Proposed Changes

 

6.      The proposed amendments to the 2020/21 Operational Budget result in a new forecast operating deficit of $3.2m, which is a $1.3m decline from the previous Quarter 1 (Q1) Budget Review.

 

7.      This unfavourable movement in Council’s projected operating deficit is materially due to an increase in legal expenditure of $1.3 million. The legal fees increase is a result of the NSW Independent Commission Against Corruption (ICAC) investigation into Councillors Badalati and Hindi.

 

8.      Including Capital Grants, the total budget surplus has increased from the Q1 Budget Review of $10.4m to now $11.1m forecast. This is due to increases in Capital Grants, sourced by Council officers for Peakhurst Park, roads and sports field lighting.

 

9.      The proposed amendments to the 2020/21 Capital Budget result in a revised capital budget of $56.9m. This is an increase of $2.8m from the Q1 budget review.  An overview of the changes includes:

·        Road re-sheeting program ($600,000)

·        Building, Playground and Other Assets Critical Safety Program ($2.1m).

 

10.    Attachment 1 contains detailed information on the proposed changes and quarterly results.

 

Financial Quarter Performance Overview

 

11.    The overall financial performance to date of Council is showing a surplus of $5.4m and is in a favourable position compared to current budget. This is attributable to earlier than anticipated land sales totalling $6m in the first half of the financial year (as sales were anticipated in the second half of the financial year). Asset revaluations also need to be performed so this amount is anticipated to change once these are finalised at year end.

 

12.    Operating income is favourable to budget, due to the performance in the following areas (noting that the timing of the receipt of the funds is the main contributing factor):

·        Net Gain on Property Disposals of $6m

·        Operating Grants of $2.1m (RMS/Roads to Recovery Grant; Local Roads and Community Infrastructure Program (LRCI) Grant; Library Services Grant)

 

13.    Expenditure is lower than budget by $2.7m. The expenditure levels are expected to increase in the second half of the year, as per previous year cycles.

 

14.    Currently the impact of COVID-19 on Council’s operating income is being observed in the following areas:

·        Hurstville Aquatic Leisure Centre Income

·        Netstrata Jubilee Stadium

·        Income from Premium Facilities

·        Income from Events

·        Commercial Property Rentals

·        Commercial Car Parking

 

15.    Council officers will continue to manage financial operations to mitigate the adverse impact of COVID-19, whilst continuing to deliver key services and programs for the community. The financial results of Council will be monitored over the coming months, and if major changes are required, these will continue to be communicated to Council.

 

16.    The Quarter 2 cash receipts comparison (table 6 of Attachment 1) highlights a 41% increase in cash from the same quarter last year. A large component of this increase is due to the sale of land.

 

17.    The revised statement of cash flows (table 7 of Attachment 1) is showing a projected decrease in cash of $31.4m at year end. This is a reduction of $18.7m since the original adopted budget with the main contributing factor being the increase in unpaid rates. Senior staff have commenced another review of the 2020/21 Budget with a view to obtaining further reductions and/or alternate revenue and funding sources.

 

Operating Income

 

18.    Operating income for the quarter is above the original budget. This is primarily due to the $6m in land sales which have occurred in the December quarter but were scheduled for the second half of the year and some grant funding.

 

19.    User fees and charges are currently $400,000 under budget in the following areas:

·        Premium Facilities Events Income down $400,000

·        Children’s Services Income down $300,000

·        Hoardings down $200,000

 

20.    The above amounts are being somewhat offset by better than expected income from Road Restorations.

 

21.    Interest income performed below budget by $161,000 and this trend is likely to continue for the remainder of the year given the volatility currently seen in the investment markets, higher dependency  on  cash reserve utilisation to fund capital infrastructure due to the operating deficit and the historically low cash rate.

 

22.    Income from Operating Grants is above budget by $2.1m due to receipt being earlier than budgeted, and mainly due to

·    RMS / Roads to Recovery Grant

·    LRCI Grant

·    Library Services Grant

 

23.    The total income reduction being proposed to the revised operating budget is $153,000 and is materially attributed to a reduction in Jubilee Stadium due to COVID-19 capacity restrictions (details of all changes are outlined in Attachment 1, table 2).

 

Operating Expenditure

 

24.    Operating expenditure for the quarter is trending below the annual budget. Employee costs are currently $17,000 above budget, which is a 0% variance and tracking well.

 

25.    Materials and Contracts are under budget by $1.0m, with the majority of savings in Contractor and Materials expenditure, and timing of consultancy and waste expenditure.

 

26.    Savings have been obtained in other expenses of $1.8m, with savings currently in event costs of $200,000; minor building repair and maintenance costs of $200,000 and $500,000 in Electricity and Street Lighting.

 

27.    A total increase in operating expenditure of $1.2 million is being proposed to the adopted budget, with an increase in legal expenditure predicted to occur in response to the ongoing NSW Independent Commission Against Corruption investigation into Councillors Badalati and Hindi (details are outlined in Attachment 1, table 2).

 

28.    Expenditure on legal fees associated with the Independent Commission Against Corruption (ICAC) investigation into Councillors Badalati and Hindi can now be provided.  Until early December 2020, the ICAC had directed that strict confidentiality in relation to all aspects of the investigation needed to be maintained by the General Manager. 

 

29.    Legal fees incurred by Council (unbudgeted) to end Q2, 2020 are as follows:

 

ICAC investigation

Actual Expenditure

Forecast

January 2020 to June 2020

$678,103

 

July 2020 to December 2020

$625,058

 

January 2021 to June 2021

 

$600,000

Total

$1,303,161

 

 

30.    It is recommended that Council adopt the proposed increase in operating expenditure to the 2020/21 Budget based on actual and forecast legal expenditure for the ICAC investigation and other variations experienced in Q2.

 

Capital Program and Reserve Forecast Balance

 

31.    The revised cash reserves forecast balance for the end of this financial year is $111.9m, which is a $18.7 reduction from the 2020/21 original projected balance.

 

32.    This is largely due to the $10m reduction in forecast developer contribution income foreshadowed in Q1 (due to a legislative change allowing delayed payments), deterioration of Council’s operating result, delayed payments, drop in income from COVID-19 and the increased utilisation of reserves for capital and operational projects.

 

33.    The proposed revised 2020/21 Capital Budget is $56.9m, compared to the original budget of $46.4m (details are outlined in Attachment 1, tables 3 and 4). 

 

34.    Capital expenditure for Quarter 2 was $6.7m, with material year to date expenditure occurring on:

·        Penshurst Park Sporting Hub - Stage 2 ($4.7m)

·        Land Acquisitions ($1.3m)

·        Oatley Park Sporting Amenities ($642,000)

·        Building, Playground and Other Assets Critical Safety Program ($1.2m).

 

Financial Implications

35.    Details of the financial impact are outlined in Attachment 1 and the relevant tables.

 

36.    The variations to budget highlighted above have resulted in the adopted budgeted operating deficit of $3.2m now being forecasted at year end 30 June 2021. The result is materially assisted by the receipt of one-off grants and sale of underperforming assets.

 

37.    The proposed new revised 2020/21 Capital Budget is $56.9m.

 

38.    Including capital revenue, the operating surplus of $18.1m has dropped to $11.1m. 

 

39.    Based on the cash flow dropping for the quarter and the decline in capital contributions, Council must continue to adhere to the principles of sound financial management to protect cash for ongoing operations and resolve the operating deficit, as internal reserves have declined and are largely committed for future expenditure.

 

40.    With no remediation of Council’s financial position, Council is at high risk of not meeting immediate and long-term commitments.

    

Risk Implications

 

41.    Councillors have been apprised of Council’s poor and deteriorating financial outlook over the 10 year period of the Long Term Financial Plan over the past three years. Failure to address the unsustainable financial position places Council in contravention of S.8b of the Local Government Act 1993 and will compel Council to cut and/or reduce services to ease the unfavourable gap between income and expenditure.

 

42.    Council must comply with Section 8B of the Act - Principles of sound financial management; and in particular the following sub sections of section 8B:

“(a)   Council spending should be responsible and sustainable, aligning general revenue and expenses…

 (d)    Councils should have regard to achieving intergenerational equity, including ensuring the following:

(i)      policy decisions are made after considering their financial effects on future   generations,

(ii)     the current generation funds the cost of its services”.

 

43.    At its July 2020 meeting the ARIC comprehensively reviewed and discussed Council’s Budget for 2020/21 and the Long Term Financial Plan projections to 2028-2029.

 

44.    The ARIC expressed concern over the projected operating and cash flow deficits and that the estimates indicate that Council will not be financially sustainable and this will expose Council to significant risks to service delivery, governance and reputation.

 

45.    The current and continuing economic, financial and social impact of COVID-19 will further exacerbate these risks. The ARIC noted that Management has implemented cost saving measures and has previously identified services and programs that Council will need to reduce or delete in order to correct the financial position of Council.

 

46.    Whilst such measures are important, the ARIC is concerned that they will be inadequate to address financial sustainability which may threaten the significant progress achieved since merger in harmonising Council’s processes, systems, risk management, governance and service delivery.

 

47.    In this regard, the ARIC recommended that Council consider measures to immediately address the key financial sustainability risk, particularly in regard to increasing revenues to secure Council’s immediate and long term future. 

 

 

Community Engagement

48.    No community consultation is required as a result of this report.

 

File Reference

20/2156

 

 

ATTACHMENTS

Attachment 1

Quarterly Budget Review Report - Q2 31 December 2020 pdf

 


Georges River Council -            Finance and Governance Committee - Monday, 8 February 2021

FIN005-21              Quarterly Budget Review for period ended 31 December 2020

[Appendix 1]           Quarterly Budget Review Report - Q2 31 December 2020 pdf

 

 

Page 1

 


 


 



 


 


 


 


 



 


 


 


 


 


Georges River Council – Finance and Governance Committee -  Monday, 8 February 2021                                         Page 1

Item:                   FIN006-21     NSW Legislative Requirements for Internal Borrowing and Loans 

Author:              Chief Financial Officer

Directorate:      Business and Corporate Services

Matter Type:    Committee Reports

 

 

 

RECOMMENDATION:

That the report be received and noted.

 

EXECUTIVE SUMMARY

1.      This report explores the relevant NSW legislation, audit and accounting standards that apply to local government borrowing of monies (internally), to fund the design and construction of a new capital asset.

BACKGROUND

2.      On 20 April 2020, Council resolved (NM021-20):

“(a)    That Council investigate the possibility of borrowing money from Council’s internal or external reserves to fund the design and construction of an aquatic facility on the existing Carss Park site or in the Carss Park precinct.

 (b)    That the General Manager prepares a report outlining whether it is feasible to borrow the money from internal reserves and prepare a business case to establish an indicative payback period.”

Current Legislative and Industry Standards

3.      Section 410 of the NSW Local Government Act 1993 provides the process for internal borrowing.

4.      The Minister for Local Government must approve any requests from councils for internal borrowing prior to any borrowing occurring.

5.      The approval process is in place to ensure the funds proposed to be lent are not required for their original intended purpose prior to the repayment of the loan.

6.      An extract from section 410 of the Act is shown below:

“(3)   Money that is not yet required for the purpose for which it was received may be lent (by way of internal loan) for use by the council for any other purpose if, and only if, its use for that other purpose is approved by the Minister.

(4)     In granting such an approval, the Minister must impose conditions as to the time within which the internal loan must be repaid and as to any additional amount, in the nature of interest, that is to be paid in connection with that loan.”

7.      A recent example of Central Coast Council’s request to borrow from internal reserves was rejected by the Minister. Councils in a poor financial position are unlikely to obtain Ministerial approval for borrowing as such action increases the likelihood of the council being unable to repay the internal loan (and lost interest) and compromises the purpose and future delivery of services or infrastructure.

8.      Council must also comply with Section 8B of the Local Government Act 1993 - Principles of sound financial management, and in particular the following provisions:

“(a) Council spending should be responsible and sustainable, aligning general revenue and expenses.

(d)     Councils should have regard to achieving intergenerational equity, including ensuring the following:

(i)      policy decisions are made after considering their financial effects on future   generations,

(ii)     the current generation funds the cost of its services.”

9.      In other words, councils must not borrow funds (whether internally or externally) unless the current ratepayers and community members are willing and able to fund the repayment of the loan.

10.    As detailed in the Council report “ASS042-19 Statutory Processes and Indicative Timeline for the Development of a New Regional Aquatic Facility in Georges River”, Council must adhere to the Office of Local Government’s Capital Expenditure Guidelines 2010 when constructing capital assets of a particular value.

11.    The guidelines require business cases to be prepared and evaluated as to the affordability of expending the estimated project amount. The business cases would also confirm potential funding sources.

Internal and External Reserves

12.    Prior to considering any request to the Minister for approval to borrow internally from Council’s internal or external reserves, it must first be established whether there are sufficient funds available to borrow.

13.    In the absence of such funds, the investigation into the possibility of borrowing from internal reserves becomes superfluous.

14.    Council’s Cash Reserves are made up of the following:

·        Externally Restricted Funds - contributions and levies received under section 7.11 and section 7.12 of the Environmental Planning and Assessment Act 1979 and other funds.  Council is statutorily obligated to restrict their use.

·        Internally Restricted Funds - funds required to be isolated, as per section 8 of the Local Government Act 1993 which are set aside by Council eg: bonds, superannuation.

·        Unrestricted Funds - used as working capital to ensure the comprehensive financing of normal business operations.

15.    The table below highlights the Georges River Council and former council’s audited reserve balances from 2010/11 to 2019/20.

($’000)

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

2019/20

 

Kogarah and Hurstville Councils

Georges River Council

Externally Restricted

24,244

28,079

37,424

43,807

61,403

67,557

76,876

96,048

104,091

102,013

Internally Restricted

31,669

29,091

31,369

34,882

41,121

50,750

83,555

77,118

60,871

43,116

Total

55,913

57,170

68,793

78,689

102,524

118,307

160,431

173,166

164,962

145,129

16.    As a result of reduced revenues due to COVID-19 in 2020/21, the forecast closing balance for 30 June 2021 is $127 million, (External Restricted Reserves forecast of $89 million and Internal Restricted Reserves forecast of $38 million).

Externally Restricted Funds – s7.11 and s7.12

17.    The NSW Government, in response to the hiatus in economic activity due to the COVID-19 pandemic, has taken steps to accelerate public projects in a bid to stimulate the economy.

18.    Consequently, the Minister for Planning and Public Spaces recently issued Directions under the Environmental Planning and Assessment Act 1979, relating to Local Infrastructure Contributions.

19.    While these Directions allow the consolidation of funds, the funds must continue to be used for the public purposes for which they were collected, i.e. they cannot be borrowed for other purposes.

Externally Restricted Funds - Other

20.    The 2020/21 Revised Budget forecasts the 30 June 2021 closing balances are as follows for externally restricted funds:

Description

Balance ($’000)

Percentage of Total

Developer Contributions

69,139

78%

Domestic Waste Reserve

16,312

18%

Town Improvement

1,950

2%

Other

1,366

2%

21.    The Domestic Waste Reserve funds can only be spent on projects related to domestic waste management and remediation of former landfills.  Town Improvement levies must be applied to those areas of the Local Government Area from which they were levied. Funds from Voluntary Planning Agreements (VPA) must be applied to specific proposals in accordance with the relevant planning agreement.

22.    Based on the above, no Externally Restricted funds are available to be borrowed internally to fund the design and construction of a regional aquatic facility.

Internally Restricted

23.    The Internally Restricted funds below have been set aside by resolution of Council pursuant to Section 8 of the Act and the requirement to implement sound financial management practices.

24.    The 2020/21 Revised Budget forecasts for 30 June 2021 closing balances are as follows for internally restricted funds:

Description

Balance ($’000)

Percentage of Total

Strategic Centres

5,743

15%

Employee Leave Entitlements (super, etc)

6,637

18%

Plant Replacement

6,660

18%

Bonds/Security Deposits

4,240

11%

Commercial Property

5,959

16%

Other

3,734

10%

Asset Management

2,302

6%

Council Elections

1,623

4%

Child Care Equipment

848

2%

Aquatic Facilities

0

0%

25.    Strategic Centres and Commercial Property funds are held in reserve to fund the programs of strategic and commercial property investments and significant maintenance and upgrades in those buildings (eg: lift replacement, plant replacement, etc). These investments demand substantial amounts of money and it is not feasible to raise such amounts through operations within a short timeframe, e.g. recent purchase of strategically important commercial property in Penshurst.

26.    The Employee Leave Entitlements (ELE) cash reserve is held to fund staff entitlements such as superannuation, annual leave and long service leave payments to staff who leave the organisation.

27.    Bonds and Deposits are held in trust by Council and withdrawn as the purpose for those deposits is concluded. These funds are held as security by Council to fund any unpaid liabilities on projects and are refundable on completion of the project and the payment of any charges raised, e.g. trees, driveways, etc.

28.    Funds for the replacement of plant/fleet finance the purchase of new and/or replacement plant, vehicles and equipment required to perform normal operations. Annually, approximately $1 million is deducted from this reserve to purchase replacement plant, vehicles and equipment. This is an ongoing annual need to facilitate effective delivery of services.

29.    Asset Management is a legislative requirement to ensure that all assets of Council are maintained in sound working order to enable not only the delivery of services but also safe and effective use of assets. Asset management is a continual process which requires expenditure beyond that of normal maintenance. Funds are allocated to this reserve in accordance with Council’s various asset management plans. Examples include the 8-year scheduled replacement of the synthetic surface of the recently constructed synthetic field at Peakhurst Park ($1 million) and the replacement of the roof at the HALC. These investments demand substantial amounts of money and it is not feasible to raise such amounts through operations within a short timeframe.

30.    The election reserve is used to fund the cost of the local government election, usually held every four years.  The average cost is between $750,000 - $1,200,000 depending on the extent of pre-polling, polling booths, etc.  The next local government elections are scheduled for 4 September 2021 and September 2024.

31.    Child Care services are budgeted to be cost neutral in terms of operating results and therefore do not generate sufficient additional cash to fund the purchase of required equipment. The funds held in this reserve are used annually for that purpose.

32.    The funds set aside in the aquatic facilities reserve are used to fund aquatic plant and equipment replacement, substantial upgrades or repairs, or to match/supplement grant funding for special projects e.g. Sans Souci Swimming Pool upgrade in 2018-19.

33.    It is noted that in the event unrestricted cash is in negative, internal reserves will be required to rebalance the cash position. This is not sustainable and will result in Council not being able to fund its immediate operational commitments.

Internal Borrowing Feasibility

34.    As is evident from the above, the monies held in each internally reserve is ‘restricted’ for a particular purpose. This action by Council is essential to meet operating requirements and future commitments. Any reductions in the balance of these cash funds can prevent the effective functioning of Council operations and services and/or the delivery of the original intent of those reserves.

35.    Without prior Ministerial approval, it would be a contravention of the Act to abandon the original intent of the reserve restrictions and borrow to fund another project or program.

36.    In the event that Ministerial approval could be obtained to borrow internally, given the poor operating results of Council now and into the future, there is low likelihood of Council generating the additional funds necessary to replenish any funds (and lost interest) that may be withdrawn from these reserves.

Other Potential Funding Sources

37.    In order to fund a capital project with an estimated cost of $75-110 million, Council would have to explore the following funding options in isolation or in combination. All options have specific restrictions or limits in funding/approval:

·        Grant funding

·        External Loan

·        Special Rate or Special Rate Variation

·        Internally or Externally Restricted Reserves

Grant Funding

38.    If grant funding is sought, funding is normally required to be matched on a 50/50 basis by Council. Should the funding be provided by NSW Treasury, the project may be subject to an Infrastructure NSW Investor Assurance gateway review and potentially a Design for Excellence Process.

39.    If funding is to be sought under a Grant Program, an expression of interest (EOI) must first be lodged.

40.    If an EOI is successful, the applicant will be requested to formally submit a detailed application (project plan, budget and business case), based on the known scope of the project.

41.    At the business case stage, evidence of an approved or lodged Development Application is required to demonstrate the readiness of the project.

TCORP Loan

42.    The NSW Government provides loans to Local Government via TCORP. The loans must be for a minimum of 3 years and maximum of 20 years, solely for infrastructure and can be a fixed amortising loan with annual, semi or quarter instalments.

43.    Based on current rates, TCORP advised the following indicative amortising loan options:

Term (years)

Indicative Rate

Amount

Annual Repayment

Total Interest

Total Principal and Interest

20

2.4%

$75,000,000

$4,743,750

$18,375,000

$94,875,000

20

2.4%

$110,000,000

$6,957,535

$26,950,000

$139,150,700

44.    In order for a council to be approved for a TCORP loan, it must meet the following criteria:

·        It cannot have greater than 30% of its investment portfolio in BBB or unrated investments

·        It must meet the OLG Financial Ratios (operating ratio).

45.    In terms of the first criteria, Council has less than 30% of its investment in BBB or unrated investments.

46.    In terms of the second criteria, Council does not meet the operating performance ratio and based on current projections is unlikely to meet it in the future. Council therefore will not meet the TCORP loan criteria to qualify for a loan.

47.    This is an on-going issue that has been highlighted by officers in Council’s Long Term Financial Plan since 2016 and is the indicator supporting the current need for Council to seek a Special Rate Variation.

48.    Servicing a loan annually will also impose further strain on Council’s current and projected financial position, unless any new regional aquatic facility generates sufficient revenue to not only fund operating costs (including maintenance and depreciation) but also enables the servicing of a loan. 

Special Rate or Special Rate Variation (SRV)

49.    A special rate is in addition to the normal ordinary rate charged on a ratepayer’s annual notice. Special rates are a means to clearly outline a specific rate for a specific project.

50.    The special rate scenarios outlined below would need to be in addition to any SRV put in place by Council to improve its long-term financial sustainability and avoid service reductions.

Loan Term

Amount

Total Principal and Interest

Annual Special Rate per ratepayer

Annual operating and renewal expense per ratepayer

Total Annual cost per ratepayer

Total special rate paid per ratepayer after 20 year loan period

20 years

$75,000,000

$94,875,000

$86

$42

$128

$2,560

20 years

$110,000,000

$139,150,700

$127

$49

$176

$3,520

*These scenarios are based on the average annual amount of 55,000 residential rateable properties.

51.    For each residential ratepayer, a special rate for a regional aquatic centre would have to be levied at between $86 - $127 every year for 20 years.  This amount excludes the additional operating and renewal cost to ratepayers of $24 - $49 every year.  A separate application for an SRV to IPART would be required in addition to any existing or proposed SRV for Georges River.

Internally or Externally Restricted Reserves

52.    The adopted 2020/21 Revised Budget forecasts the 30 June 2021 projected closing total balance to be $127 million.

53.    Currently there is a nil balance in the internally restricted Aquatic Reserve. Funds have been used for the Hurstville Aquatic Leisure Centre (HALC) roof repair and the technical studies at Todd Park.  Any proposed increase to this Reserve will require the generation of cash from the annual operations of the HALC. In the current environment of COVID-19 the HALC is not operating in surplus and is being supported under Council’s COVID-19 and ESRP hardship provisions.

FINANCIAL IMPLICATIONS

54.    Any decision relating to funding a $75-$110 million capital project, such as a regional aquatic facility, will require the preparation of preliminary and final business cases in accordance with the OLG Capital Expenditure Guidelines 2010.

55.    Regardless, based on Council’s current and projected operating position, Council would not qualify for a TCORP loan to fund the construction of a regional aquatic facility.

RISK IMPLICATIONS

56.    Over the past three financial years, the Long Term Financial Plan (LTFP) has illustrated Council’s poor and deteriorating financial outlook over the 10 year period.

57.    Failure to address the unsustainable financial position places Council in contravention of Section 8b of the Local Government Act 1993 and will compel Council to cut and/or reduce services to ease the unfavourable gap between income and expenditure.

58.    Council officers have previously identified over 100 services and programs that Councillors may need to reduce or delete in order to correct the financial position of Council.

Audit Risk and Improvement Committee (ARIC)

59.    At its July 2020 meeting the ARIC comprehensively reviewed and discussed Council’s Budget for 2020/21 and the Long Term Financial Plan projections to 2029.

60.    The ARIC expressed concern over the projected operating and cash flow deficits and that the estimates indicate that Council will not be financially sustainable and this will expose Council to significant risks to service delivery, governance and reputation.

61.    The current and continuing economic, financial and social impact of COVID-19 will further exacerbate these risks.

62.    The ARIC noted that Management has implemented cost savings measures and has previously identified services and programs that Council will need to reduce or delete in order to correct the financial position of Council.

63.    Whilst such measures are important, the ARIC is concerned that they will be inadequate to address financial sustainability, which may threaten the significant progress achieved since merger in harmonising Council’s processes, systems, risk management, governance and service delivery.

64.    In this regard, the ARIC recommended to Council in July 2020 that it consider measures to immediately address the key financial sustainability risk, particularly in regard to increasing revenues to secure Council’s immediate and long-term future. 

65.    The adopted 2020/21 Reserve Budget forecasts do not account for the continuing unknown impacts of COVID-19 on future cash levels. The forecast closing balances quoted in this report are likely to drop even further due to COVID-19 impacts.

FILE REFERENCE

D20/162000