sept 21-09 c&w agenda - woollahra.nsw.gov.au · the debate unless specifically called to do so...

Agenda: Corporate & Works Committee Date: Monday 21 September 2009 Time: 6.00pm

Outline of Meeting Protocol & Procedure: • The Chairperson will call the Meeting to order and ask the Committee/Staff to present apologies or late

correspondence. • The Chairperson will commence the Order of Business as shown in the Index to the Agenda. • At the beginning of each item the Chairperson will ask whether a member(s) of the public wish to address the

Committee. • If person(s) wish to address the Committee, they are allowed four (4) minutes in which to do so. Please direct

comments to the issues at hand. • If there are persons representing both sides of a matter (eg applicant/objector), the person(s) against the

recommendation speak first. • At the conclusion of the allotted four (4) minutes, the speaker resumes his/her seat and takes no further part in

the debate unless specifically called to do so by the Chairperson. • If there is more than one (1) person wishing to address the Committee from the same side of the debate, the

Chairperson will request that where possible a spokesperson be nominated to represent the parties. • The Chairperson has the discretion whether to continue to accept speakers from the floor. • After considering any submissions the Committee will debate the matter (if necessary), and arrive at a

recommendation (R items which proceed to Full Council) or a resolution (D items for which the Committee has delegated authority).

Recommendation only to the Full Council (“R” Items) • Such matters as are specified in Section 377 of the Local Government Act and within the ambit of the

Committee considerations. • The voting of money for expenditure on works, services and operations. • Rates, Fees and Charges. • Donations • Matters which involve broad strategic or policy initiatives within responsibilities of the Committee. • Matters not within the specified functions of the Committee. • Asset Rationalisation. • Corporate Operations:-

- Statutory Reporting; - Adoption of Council's Community Strategic Plan, Delivery Program and Operational Plan; - Delegations; and - Policies.

• Tenders as per Regulation requirements. • Leases. • Matters reserved by individual Councillors in accordance with any Council policy on "safeguards" and

substantive changes. Delegated Authority (“D” Items) • General financial and corporate management of the Council, except those specifically excluded by statute, by

Council direction or delegated specifically to another Committee. Note: This not to limit the discretions of nominated staff members exercising Delegated Authorities granted by

the Council. • Statutory reviews of Council's Delivery Program and Operational Plan; • Finance Regulations, including:-

- Authorisation of expenditures within budgetary provisions where not delegated; - Quarterly review of Budget Review Statements; - Quarterly and other reports on Works and Services provision; and - Writing off of rates, fees and charges because of non-rateability, bad debts, and impracticality of collection.

• Auditing. • Property Management. • Asset Management. • Traffic Management - Works Implementation. • Works and Services - Monitoring and Implementations. • Legal Matters and Legal Register. • Parks and Reserves Management. • Infrastructure Management, Design and Investigation. • To require such investigations, reports or actions as considered necessary in respect of matters contained within

the Business Agenda (and as may be limited by specific Council resolution). • Confirmation of the Minutes of its Meetings. • Any other matter falling within the responsibility of the Corporate and Works Committee and not restricted by

the Local Government Act or required to be a Recommendation to Full Council as listed above.

Committee Membership: 6 Councillors Quorum: The quorum for a Committee meeting is 4 Councillors.

WOOLLAHRA MUNICIPAL COUNCIL

Notice of Meeting 17 September 2009 To: His Worship The Mayor, Councillor Andrew Petrie ex-officio

Councillors Greg Medcraft (Chair) Anthony Boskovitz Peter Cavanagh (Deputy) Nicola Grieve Ian Plater Isabelle Shapiro

Dear Councillors

Corporate & Works Committee Meeting – 21 September 2009 In accordance with the provisions of the Local Government Act 1993, I request your attendance at a Meeting of the Council’s Corporate and Works Committee to be held in the Council Chambers, 536 New South Head Road, Double Bay, on Monday 21 September 2009 at 6.00pm. Gary James General Manager

H:\Corporate & Works Committee\AGENDAS\2009\sept21-09c&wage.doc

H:\Corporate & Works Committee\AGENDAS\2009\sept21-09c&wage.doc

Additional Information Relating to Committee Matters

Site Inspection

Other Matters

Woollahra Municipal Council Corporate & Works Committee 21 September 2009

H:\Corporate & Works Committee\AGENDAS\2009\sept21-09c&wage.doc Page 1 of 59

Meeting Agenda Item

Subject

Pages

1 2 3

Leave of Absence and Apologies Late Correspondence Declarations of Interest

Items to be Decided by this Committee using its Delegated Authority D1 Confirmation of Minutes of Meeting held on 7 September 2009 1

D2 Monthly Financial Report – August 2009 – 349G 2

Items to be Submitted to the Council for Decision

with Recommendations from this Committee

R1 Stage 3 – Streatfield Road, Bellevue Hill Road, Footpath and Drainage Reconstruction Works – Tender 09/15

10

R2 31 Chester Street, Woollahra – Road Reserve Encroachment – 96.31 15

R3 General Purpose Financial Report for the Year Ended 30 June 2009 23

R4 IPART’s Revenue Framework for Local Government Draft Report – July 2009 - 87.G IPART

39



Item No: D1 Delegated to Committee Subject: Confirmation of minutes of meeting held on 7 September 2009

Author: Les Windle, Manager – Governance File No: See Council Minutes Reason for Report: The Minutes of the Meeting of Monday 7 September 2009 were previously

circulated. In accordance with the guidelines for Committees’ operations it is now necessary that those Minutes be formally taken as read and confirmed.

Recommendation: That the Minutes of the Corporate and Works Committee Meeting of 7 September 2009 be taken as read and confirmed. Les Windle Manager – Governance



Item No: D2 Delegated to Committee

Subject: Monthly Financial Report – August 2009

Author: Don Johnston, Manager Finance File No: 349G Reason for Report:

To present the monthly financial report for August 2009

Recommendation: THAT the monthly financial report for August 2009 be received and noted.

Background: The monthly financial report for August 2009 is submitted to the Committee for consideration. The monthly report includes the following: • Summary of Receipts, Payments and Bank Balance • Summary of Investments • Details of Investment Portfolio • Weighted Average Maturity and Weighted Average Returns Charts • Maturity Profile Chart • Movements in Book Value of Investments The valuations in this report are consistent with the valuations used in the 30 June 2009 financial report. Additional information has been provided on these valuations in a further report on the 30 June 2009 financial report later on tonight’s agenda. Any changes to valuations arising from the consideration of the later report will be incorporated into future Monthly Financial Reports. Investment Transactions for the Month Date Transaction Description Amount ($) 31 July Book Value of Investments Held 30,141,087.90 30 June Adjustment 30 June 2009 Fair Value adjustment

(net of adjustments posted pre 30 June 09) (1,015,130.84)

1 July Purchase Correct Reinvestment of Blackrock Dividend 97,713.22 13 Aug Purchase Maitland Building Society TD 60 days @ 4.12% 1,000,000.00 13 Aug Purchase Australian Central Credit Union 60 days @4.12% 1,000,000.00 13 Aug Purchase Australian Defence Credit Union 60 days @ 4.26% 1,000,000.00 13 Aug Purchase Members Equity Bank TD 90 days @ 4.50% 1,000,000.00 13 Aug Purchase MyState Financial Credit Union TD 90 days @ 4.45% 1,000,000.00 17 Aug Maturity Home Building Society FRN (1,000,000.00)

Adjustment Fair Value write back on Home BS FRN 39,500.00 20 Aug Purchase Banana Cost Community CU TD 120 days @ 4.53% 1,000,000.00 27 Aug Purchase Citibank TD 153 days @ 4.70% 1,000,000.00 27 Aug Purchase Suncorp TD 151 days @4.51% 1,000,000.00 28 Aug Purchase Westpac TD 150 days @ 4.50% 1,000,000.00 Various Deposit Net Movement in AMP Easy Cash Management Acct 2,406.90 Various Deposit Net Movement in Online Savings Cash Account 4,104,256.20 Various Withdrawal Net Movement in GPO ANZ Cash Account

(Coupon payments + GPO interest – GPO Fees - Withdrawals) (240,520.16)

Net Change in Portfolio 10,988,225.32 31 Aug Book Value of Investments Held 41,129,313.22



Summary of Receipts, Payments and Bank Balance

Cash Book Balance as at 31 July 2009 48,786.75

ReceiptsRates 10,501,300.05Other 17,461,185.37 27,962,485.42Total ReceiptsDescription Amount

S/Drs-Rates -10,501,300.05Other Contributions -4,000,000.00Sundry Debtors Control -550,678.07Parking Fines -413,956.69Workers' Comp Insurance -387,569.66Deposits & Bonds Control Account -189,930.00Trade Waste Debtors Control -97,197.15GST Clearing Balance Account -96,656.00Other Developer Contributions -69,655.39GST Clearing Account - Supplies -54,335.54

Payments - ChequeCheque Payments -867,691.85Cancelled Cheques 1,255.00Total Cheque Payments for period -866,436.85Cheque No Cheque Date Payee Description Amount

204827 13/08/2009 GHD Geotechnics Project work re Victoria Road collapse -81,338.90204826 13/08/2009 Energy Australia Street lighting - Jul 09 -63,852.07204957 20/08/2009 Vaucluse Bowling Club Rent - 12mth to 30/06/10 -37,667.00204805 07/08/2009 Withheld Refund of security deposit -36,128.85204903 20/08/2009 City Ford, Mascot Fleet Purchases -31,233.17204758 06/08/2009 Aerial Access Australia Fleet Purchases -29,677.30204802 06/08/2009 Thompson Berrill L'scape Design General works - Gap Park/Watsons Bay -25,982.00204904 20/08/2009 City of Sydney Council Council Rates - O'Dea Av - 1st instalment -24,848.70204973 27/08/2009 City Plan Services Sydney Legal fees - 27-29 Wilberforce Av., Rose Bay -20,922.00204890 13/08/2009 Wilshire Webb Staunton Lawyers Legal fees - various -19,954.57

Payments - EFTEFT Payments -25,684,258.14Returned EFT PaymentsTotal EFT Payments for period -25,684,258.14Reference EFT Date Payee Description Amount

22342 27/08/2009 StateCover Mutual Limited Workers Comp premium 30/6/09 to 30/06/10 -444,490.1622216 14/08/2009 Sydney Civil Pty Ltd General works - Eastborne Rd., Darling Point -247,355.2122255 20/08/2009 Local Govt Super Scheme-Div.A Employer/employee super contribs - Jul'09 -177,775.9722172 13/08/2009 D & D Traffic Management Site management costs - B'vue Hill/Victoria Rds -168,957.4022168 13/08/2009 Collex Waste Management Collection of recyclables Jun'09 -128,873.0322256 20/08/2009 Local Govt Super Scheme-Div.B. Employer/employee super contribs - Jul'09 -128,529.19

190809 19/08/2009 Australian Taxation Office PAYG WK 8 -99,494.14 260809 26/08/2009 Australian Taxation Office PAYG WK 9 -96,354.1450809 05/08/2009 Australian Taxation Office PAYG WK 6 -95,398.14

120809 12/08/2009 Australian Taxation Office PAYG WK 7 -95,172.14

Payments - Direct Debits From Bank A/cPayroll -1,331,838.49Bank Charges -9,173.65Credit Cards 0.00Councillors' fees -38,749.80Council Rates 0.00Total Direct Debits for period -1,379,761.94Total Payments -27,930,456.93

Cash Book Balance as at 31 August 2009 80,815.24

Unpresented Cheques No. of Cheques: 133 199,564.84Outstanding Deposits & Miscellaneous Items 1,570,094.58Reconciled Cash Book Balance as at 31 August 2009 1,850,474.66Bank A/c Balance as at 31 August 2009 1,850,474.66

Unpresented Cheques > $30,000.00Cheque No. Cheque Date Payee Amount 0.00

204417 06/07/2009 Datacom Holding Pty Ltd 102,789.74



INVESTMENTS AS AT 31 AUGUST 2009 31/08/2009

CATEGORY

FACEVALUE

$

BOOK VALUE

$

1. LEHMAN BROTHERS (formerly Grange Securities Ltd)Funds previously under management 18,224,049 9,006,336

2. OAKVALE CAPITAL LimitedFunds previously under management 6,247,114 2,802,936

RATING CATEGORYPURCHASE

DATEMATURITY

DATE

TOTAL TERM

(DAYS)

REMAINING DAYS TO

MATURITY %

FACEVALUE

$

BOOK VALUE

$ GOV'T

GUARANTEE

3. WMC DIRECT INVESTMENTS

AAA* SAVINGS & LOANS CREDIT UNIONTERM DEPOSIT 10/12/2008 10/12/2010 730 466 5.15 1,000,000 1,000,000 Guaranteed

AAA* BANK OF QUEENSLANDTERM DEPOSIT 04/03/2009 04/03/2010 365 185 4.25 1,000,000 1,000,000 Guaranteed

BBB IMB LTDTERM DEPOSIT 27/11/2008 27/11/2009 365 88 5.00 1,000,000 1,000,000 GuaranteedTERM DEPOSIT 02/12/2008 02/12/2009 365 93 5.00 1,000,000 1,000,000 Guaranteed

AAA* AMP BANKCASH MNGMT ACCT 11/06/2009 4.00 3,004,155 3,004,155

AAA* ELDERS RURAL BANKTERM DEPOSIT 24/11/2008 24/11/2009 365 85 6.55 1,000,000 1,000,000 Guaranteed

AAA* BANK WESTTERM DEPOSIT 27/11/2008 27/11/2009 365 88 5.00 1,000,000 1,000,000 Guaranteed

AAA* INVESTEC BANKTERM DEPOSIT 28/11/2008 26/11/2009 363 87 5.65 1,000,000 1,000,000 Guaranteed

AAA* ARAB BANKTERM DEPOSIT 10/12/2008 10/12/2010 730 466 5.65 1,000,000 1,000,000 Guaranteed

AAA* CREDIT UNION AUSTRALIATERM DEPOSIT 29/07/2009 27/09/2009 60 27 4.20 1,000,000 1,000,000 Guaranteed

AAA* BENDIGO BANKTERM DEPOSIT 21/01/2009 16/10/2009 268 46 4.65 1,000,000 1,000,000 Guaranteed

AAA* VICTORIA TEACHERS CREDIT UNIONTERM DEPOSIT 21/01/2009 21/12/2009 334 112 4.25 1,000,000 1,000,000 Guaranteed

AAA* MAITLAND BUILDING SOCIETYTERM DEPOSIT 13/08/2009 12/10/2009 60 42 4.12 1,000,000 1,000,000 Guaranteed

AAA* AUSTRALIAN CENTRAL CREDIT UNIONTERM DEPOSIT 13/08/2009 12/10/2009 60 42 4.12 1,000,000 1,000,000 Guaranteed

AAA* AUSTRALIAN DEFENCE CREDIT UNIONTERM DEPOSIT 13/08/2009 12/10/2009 60 42 4.26 1,000,000 1,000,000 Guaranteed

AAA* MEMBERS EQUITY BANKTERM DEPOSIT 13/08/2009 11/11/2009 90 72 4.50 1,000,000 1,000,000 Guaranteed

AAA* MYSTATE FINANCIAL CREDIT UNIONTERM DEPOSIT 13/08/2009 11/11/2009 90 72 4.45 1,000,000 1,000,000 Guaranteed

AAA* BANANA COAST COMMUNITY CREDIT UNIONTERM DEPOSIT 20/08/2009 18/12/2009 120 109 4.53 1,000,000 1,000,000 Guaranteed

AAA* CITIBANKTERM DEPOSIT 27/08/2009 27/01/2010 153 149 4.70 1,000,000 1,000,000 Guaranteed

AAA* WESTPACTERM DEPOSIT 28/08/2009 25/01/2010 150 147 4.50 1,000,000 1,000,000 Guaranteed

AAA* SUNCORPTERM DEPOSIT 27/08/2009 25/01/2010 151 147 4.51 1,000,000 1,000,000 Guaranteed

AA COMMONWEALTH BANKTERM DEPOSIT 16/12/2008 16/12/2011 1095 837 6.03 1,000,000 1,000,000 ONLINE SAVER A/C 3.00 5,315,886 5,315,886

Total WMC Direct Investments 29,320,041 29,320,041

Weighted Average Days to Maturity of WMC Direct Investments 141.73

Weighted Average Return of WMC Direct Investments 4.71(excluding CBA floating rate deposit)

% Government Guarantee of WMC Direct Investments 68%

PORTFOLIO TOTALS 53,791,204 41,129,313

* Government Guaranteed deposits have been rated AAA I hereby certify that the above investments have been made in accordance with Section 625 of the Local Government Act 1993, Clause 212 of the Local Government (General) Regulation 2005 and Council's investment policy. Don Johnston Manager Finance



INVESTMENTS PORTFOLIO AS AT 31 AUGUST 2009

Security ClassificationPurchase

Date

Final Maturity

Date

Face Value(FV)

Total Purchase Price

Current Book Value

Notes

1. LEHMAN BROTHERES (formerly GRANGE SECURITIES)Issued by non-ADIsLehman Global Property Note Other 13/06/2007 15/06/2009 60,000 60,000 0 1Herald Limited (Quartz AA) CDO 04/07/2007 20/12/2010 400,000 403,644 0 1BELO (Kalgoorlie AA+) Other 27/02/2007 27/02/2012 500,000 500,000 410,000 1Magnolia (Flinders AA) CDO 08/06/2007 20/03/2012 500,000 513,670 0 1Omega (Henley AAA) CDO 20/12/2006 22/06/2012 450,000 450,000 0 1Helium (Esperance AA+) CDO 04/07/2007 20/03/2013 500,000 501,565 0 1Zircon (Merimbula AA) CDO 06/06/2007 20/06/2013 250,000 250,000 175,000 1Corsair (Torquay AA) CDO 04/07/2007 20/06/2013 500,000 501,860 0 1Start (Blue Gum AA-) CDO 08/01/2007 22/06/2013 400,000 402,768 0 1Corsair (Kakadu AA) CDO 22/01/2007 20/03/2014 500,000 503,300 0 1Helium (Scarborough AA) CDO 17/01/2007 23/06/2014 400,000 402,620 0 1Helium (Scarborough AA) CDO 04/07/2007 23/06/2014 500,000 502,270 0 1Helium (Scarborough AA) CDO 23/07/2007 23/06/2014 500,000 503,810 0 1Zircon (Coolangatta AA) CDO 20/03/2007 20/09/2014 500,000 500,000 350,000 1Beryl (AAA Global Bank Note) Other 03/04/2007 20/09/2014 100,000 100,000 70,000 1Zircon (Coolangatta AA) CDO 04/07/2007 20/09/2014 500,000 501,430 350,000 1Beryl (AAA Global Bank Note) Other 04/07/2007 20/09/2014 350,000 350,917 245,000 1Aphex (Glenelg AA-) CDO 10/01/2007 22/12/2014 500,000 501,960 0 1Aphex (Glenelg AA-) CDO 04/07/2007 22/12/2014 500,000 501,405 0 1MAS6-7 (Parkes IIA 'AA-') CDO 13/06/2007 20/06/2015 450,000 461,687 0 1MAS6-7 (Parkes IIA 'AA-') CDO 04/07/2007 20/06/2015 500,000 504,315 0 1Zircon (Miami AA) CDO 16/04/2007 20/03/2017 50,000 50,137 35,000 1

8,910,000 8,967,358 1,635,000Issued by ADIsHome Building Society FRN (BBB+) FRN 10/01/2007 17/08/2009 500,000 511,820 Matured 1Home Building Society FRN (BBB+) FRN 11/01/2007 17/08/2009 500,000 511,920 Matured 1Royal Bank of Scotland (AA) FRN 04/07/2007 28/10/2009 500,000 508,290 487,520 1Elders Rural Bank Sub Debt (BBB-) FRN 04/07/2007 23/03/2010 500,000 504,780 442,240 1NM Rothschild FRSD (unrated) FRN 09/07/2007 10/08/2010 1,000,000 1,013,290 957,230 1HSBC Sub Debt (AA-) FRN 04/07/2007 20/05/2011 500,000 503,915 449,475 1Suncorp Metway Sub Debt (A) FRN 19/01/2007 22/06/2011 500,000 503,285 445,890 1St George Bank Sub Debt (A+) FRN 10/01/2007 26/07/2011 1,000,000 1,014,990 954,400 1HSBC FRN (AA-) FRN 07/02/2007 22/09/2011 500,000 505,470 425,070 1CBA FRN (AA) FRN 19/01/2007 28/09/2011 500,000 503,640 474,300 1CBA FRN (AA) FRN 31/01/2007 28/09/2011 500,000 504,785 474,300 1CBA FRN (AA) FRN 04/07/2007 28/09/2011 500,000 502,360 474,300 1Westpac FR Sub Debt (AA) FRN 07/02/2007 24/01/2012 500,000 501,590 471,985 1Royal Bank of Scotland (AA) FRN 31/01/2007 17/02/2012 1,000,000 1,014,560 822,900 1Adelaide Bank FRN (BBB+) FRN 04/07/2007 28/03/2012 500,000 501,445 467,450 1

9,000,000 9,106,140 7,347,060

Macquarie Cash Trust (AAA) Cash 1,989 1,989 1,989 4Grove Portfolio Online Cash 22,287 22,287 22,287 4

24,276 24,276 24,276

Total Lehman Brothers 17,934,276 18,097,773 9,006,336

2. OAKVALE CAPITALEmeral Reverse Mortgage Series 2007-1 Class B Mortgage Backed 06/07/2007 06/07/2011 1,000,000 1,000,000 851,350 1Momentum (Calyon Nickel) Credit Linked Note CDO 15/05/2007 30/06/2012 1,000,000 1,000,000 0 3Aramis (Merrill Lynch) Clear 40 - ABS CDO 02/04/2007 20/12/2012 1,000,000 1,000,000 0 3Blackrock (Merrill Lynch) Diversified Credit Fund Managed Fund 05/01/2007 3,247,114 3,247,114 1,951,586 2

Total Oakvale Capital 6,247,114 6,247,114 2,802,936



Security Classification

Purchase Date

Final Maturity

Date

Face Value(FV)

Total Purchase Price

Current Book Value

Notes

3. WMC INVESTMENTSCredit Union Australia (4.20% 60 days) TD 29/07/2009 27/09/2009 1,000,000 1,000,000 1,000,000 4Maitland Building Society (4.12% 60 days) TD 13/08/2009 12/10/2009 1,000,000 1,000,000 1,000,000 4Australian Central Credit Union (4.12% 60 days) TD 13/08/2009 12/10/2009 1,000,000 1,000,000 1,000,000 4Australian Defence Credit Union (4.26% 60 days) TD 13/08/2009 12/10/2009 1,000,000 1,000,000 1,000,000 4Bendigo Bank (4.65% 268 days) TD 21/01/2009 16/10/2009 1,000,000 1,000,000 1,000,000 4Members Equity Bank (4.5% 90 days) TD 13/08/2009 11/11/2009 1,000,000 1,000,000 1,000,000 4MyState Financial Credit Union (4.45% 90 days) TD 13/08/2009 11/11/2009 1,000,000 1,000,000 1,000,000 4Elders Rural Term Deposit (6.55% 365days) TD 24/11/2008 24/11/2009 1,000,000 1,000,000 1,000,000 4Investec Aust Ltd (5.65% 363 days) TD 28/11/2008 26/11/2009 1,000,000 1,000,000 1,000,000 4Bank West Term Deposit (5.00% 365 days) TD 27/11/2008 27/11/2009 1,000,000 1,000,000 1,000,000 4IMB Term Deposit (5.00% 365 days) TD 27/11/2008 27/11/2009 1,000,000 1,000,000 1,000,000 4IMB Term Deposit (5.00% 365 days) TD 02/12/2008 02/12/2009 1,000,000 1,000,000 1,000,000 4Banana Coast Community CU (4.53% 120 days) TD 20/08/2009 18/12/2009 1,000,000 1,000,000 1,000,000 4Victoria Teachers CU (4.25% 334 days) TD 21/01/2009 21/12/2009 1,000,000 1,000,000 1,000,000 4Westpac (4.5% 150 days) TD 28/08/2009 25/01/2010 1,000,000 1,000,000 1,000,000 4Suncorp (4.51% 151 days) TD 27/08/2009 25/01/2010 1,000,000 1,000,000 1,000,000 4Citibank (4.7% 153 days) TD 27/08/2009 27/01/2010 1,000,000 1,000,000 1,000,000 4Bank of Queensland (4.25% 365 days) TD 04/03/2009 04/03/2010 1,000,000 1,000,000 1,000,000 4Arab Bank Ltd (5.65% 730 days) TD 10/12/2008 10/12/2010 1,000,000 1,000,000 1,000,000 4Savings & Loans CU (5.15% 730 days) TD 10/12/2008 10/12/2010 1,000,000 1,000,000 1,000,000 4CBA TCD (90 day BBSW + 1.60% - 3 yrs) TD 16/12/2008 16/12/2011 1,000,000 1,000,000 1,000,000 4AMP Cash Management Account Cash 16/06/2009 3,004,155 3,004,155 3,004,155 4CBA Online Saver Cash 5,315,886 5,315,886 5,315,886 4

Total Direct Investments 29,320,041 29,320,041 29,320,041

Total Portfolio 53,501,431 53,664,928 41,129,313

PORTFOLIO SUMMARISED BY CLASSIFICATIONCDO 9,900,000 9,956,441 910,000FRN 9,000,000 9,106,140 7,347,060Mortgage Backed 1,000,000 1,000,000 851,350Managed Fund 3,247,114 3,247,114 1,951,586TD 21,000,000 21,000,000 21,000,000Cash 8,344,317 8,344,317 8,344,317Other 1,010,000 1,010,917 725,000

53,501,431 53,664,928 41,129,313

1. Book Value (Fair Value) as at 30 June 20082. Current Value. Fund Closed - Assets being sold and repaid3. Defaulted4. Face value of deposit / bank bill

CDO - Collateralised Debt Obligation

FRN - Floating Rate Note

Managed Fund

Mortgage Backed Security

Term Deposit Term Deposit is a money deposit at an approved deposit taking (ADI) institution for a fixed term at a fixed interest rate. When the term is over it can be withdrawn or it can be held for another term.

CDOs are constructed from a portfolio of assets. These assets are divided by the issuer into different tranches: senior tranches (rated AAA), mezzanine tranches (AA to BB), and equity tranches (unrated). Losses are applied in reverse order of seniority and so junior tranches offer higher coupons (interest rates) to compensate for the added default risk.

Floating rate notes (FRNs) are bonds that have a variable coupon, equal to a money market reference rate, plus a spread. The spread is a rate that remains constant. Almost all FRNs have quarterly coupons, i.e. they pay out interest every three months.

Managed Funds are a way of investing money with other people to participate in a wider range of investments than those feasible for most individual investors, and to share the costs of doing so.

A mortgage-backed security is an asset-backed security whose cash flows are backed by the principal and interest payments of a set of mortgage loans. Payments are typically made monthly over the lifetime of the underlying loans.



Weighted Average Days to Maturity

0

50

100

150

200

250

D J F M A May-09

Jun-09

Jul-09

Aug-09D

ays

ec-08

an-09

eb-09

ar-09

pr-09

Weighted Average Return

0.001.00

2.003.00

4.005.00

6.007.00

8.00

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09%

Ret

urn



Direct Investments Maturity

2,004,155

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

5,315,886 1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

1,000,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

3 MONTHS 6 MONTHS 9 MONTHS 12 MONTHS 2 YEARS 3 YEARS

AMP Sav & Loan Elders Investec BankWest IMB Arab CBABendigo Vic T CU BOQ CUA Mait BS ACCU ME MyStateBCCCU Citi Westpac Suncorp

$17,320,041 $6,000,000 $1,000,000 $0 $2,000,000 $1,000,000


Movements in Book Value of Investments

Lehman Brothers

Date Description SecuritiesCash

(Macq Trust)

Grove Portfolio Online

TotalBook Value

01/07/2009 10,560,626.00 1,988.94 312,060.16 10,874,675.10Blackrock Interest from May 51,747.03 10,926,422.13

01/07/2009 Blackrock Dividend 97,713.22 11,024,135.35Reinvestment of Blackrock Dividend (97,713.22) 10,926,422.13Interest - GPO Cash Account 588.16 10,927,010.29

13/07/2009 Withdrawal (312,648.31) 10,614,361.9821/07/2009 Withdrawal (49,000.00) 10,565,361.9828/07/2009 Blackrock Dividend 233,170.93 10,798,532.91

Various July Coupon Payments 26,889.08 10,825,421.9930 June 2009 Fair Value Adjustment (618,066.00) 10,207,355.99

01/08/2009 Interest - GPO Cash Account 611.15 10,207,967.1417/08/2009 Maturity - Home Building Society FRN (1,000,000.00) 1,000,000.00 10,207,967.14

FV Adjustment (BV @ maturity $960,500) 39,500.00 10,247,467.1420/08/2009 GPO Cash Management Redemption (1,270,000.00) 8,977,467.1426/08/2009 GPO Fee (756.93) 8,976,710.21

Various August Coupon Payments 29,625.62 9,006,335.83

8,982,060.00 1,988.94 22,286.89

Oakvale Capital

SecuritiesBlackrock

Managed FundTotal

Book Value01/07/2009 851,350.00 2,484,109.02 3,335,459.02

Dividend Reinvestment 97,713.22 3,433,172.2428/07/2009 Capital repayment (233,170.93) 3,200,001.31

30 June 2009 Fair Value Adjustment (397,064.84) 2,802,936.47

851,350.00 1,951,586.47 Don Johnston Manager Finance

ANNEXURES: Nil.



Item No: R1 Recommendation to Council

Subject: Stage 3 – Streatfield Road, Bellevue Hill Road, Footpath and Drainage Reconstruction Works

Author: David Byatt – Purchasing Coordinator File No: Tender No 09/15 Reason for Report:

To recommend to Council the acceptance of a Tender

Recommendation: A. That Council enter into a Contract with Melhemcorp for Streatfield Road, Bellevue Hill -

Civil Infrastructure Project for the lump sum of $169,625 (excluding GST), and provisional rates used.

B. That successful and unsuccessful tenderers be advised accordingly. Background Council adopted an Asset Management Strategy in 2005 which includes a detailed condition indicator analysis of all our infrastructure assets. This condition analysis identified that the road pavement, kerb and gutter, footpath and driveways, drainage pits and pipes in Streatfield Road, Bellevue Hill require renewal. The area of works to be carried out under this contract is shown in the location aerial photograph below:

AREA OF WORK




Detailed design plans and specifications were prepared for the following works: • Removal and reconstruction of segments of footpath and driveways using concrete; • Road pavement milling & correction, patching and re-sheeting in asphalt; • Construction of new kerb access ramps; • Adjust service covers to suit new surface levels and/or reconstruction of new service boxes

and/or lids; • Reconstruction of storm water drainage pits and lintels, storm water pipes including the

reinstatement and reconnection of all household storm water connections; • Reinstatement of traffic signs, parking signs and pavement line-marking; • Protection of all existing services as required; • Protection of all existing items of heritage significance, including the recycling of existing

sandstone kerb and gutter materials (where feasible) and protection of street name inlays; • Provision and establishment of associated landscaping, including tree plantings, garden beds

and verges; Invitation to Tender Tender 09/15 for the Streatfield Road, Bellevue Hill, road, footpath & drainage reconstruction works advertised in the Tenders section of the Sydney Morning Herald commencing on Tuesday 4 August 2009, and in the Wentworth Courier on Wednesday 5 August 2009. A pre-tender meeting was held on Wednesday 19 August 2009. All tenderers who had registered their interest in the tender were invited to attend. Questions raised by tenderers were answered and a record of the questions and answers was circulated to all tenderers who attended, or who were unable to attend but registered their wish to receive information. Tenders for this project closed at 2:30pm on Thursday 27 August 2009. Ten (10) tenders were received by the closing date and time. No late tenders were received. Tender Assessment The tender assessment panel comprised Mr David Byatt as the convenor and independent member of the tender panel, Mr Sathiya Sathiyamoorthy as the Commissioning Officer, and Mr Sam Badalati as the Project Manager. Prior to the tender closing date, the tender panel agreed on the following weightings that would be used against the advertised selection criteria:

Cost and Pricing 45% Demonstrated experience and capacity 25% Program and methodology 15% Management systems (OHS, quality and environment) 10% Duration of works 5%

Council has resolved that a probity adviser should be included during the tender assessment stage for high risk, high value or sensitive projects. This project was deemed not to require a probity adviser. The conforming tenders were first checked for conformance. Nine (9) tenders were accepted by the evaluation panel as having met the requirements for further consideration. Nine qualifications were included with the submission from Civil Edge Contracting and the panel considered it as non conforming.



The tender prices were then ranked excluding any provisional amount. Provisional amounts apply where the final cost cannot be determined. All figures in the tables are net of GST:

RANKING BY PRICE

TENDERER

Lump sum tender price

Time

(Weeks)

1 Melhemcorp Pty Ltd $169,625 4 2 Sydney Civil Pty Ltd $212,565 4 3 North Shore Paving $243,709.45 12 4 Celtic Civil Pty Ltd $246,937 7 5 Ozpave Aus $275,518.60 8 6 Kelbon Projects $275,554 5 7 Roadworx Civil $278,694 5 8 Boss NSW $280,719 5 9 QMC $399,265 10

The tender documents were then assessed in detail, including the responses to the qualitative criteria. Lump sum prices were scored relative to the lowest price. As the tender from Melhemcorp is significantly lower, in price, than the others, the panel agreed that it warranted further evaluation by way of interview. With the exception of QMC, the other tenders were closely grouped on price and there were no issues that needed further clarification by way of interviews. The tenders were scored on each item of the qualitative criteria, lump sum prices and price components to achieve a total score out of 100. Tenderers were then ranked in accordance with their scores.

CRITERIA

TENDERER

Cos

t and

pr

icin

g

(45%

) D

emon

stra

ted

expe

rien

ce

and

capa

bilit

y (2

5%)

Prog

ram

and

m

etho

dolo

gy

(15%

)

Man

agem

ent

Syst

ems

(OH

& S

, E

nvir

onm

enta

l and

Qua

lity)

(1

0%)

Dur

atio

n of

w

orks

(5

%)

T

OT

AL

SC

OR

E

(100

%)

Melhemcorp Pty Ltd 45 19.79 7.50 6.88 5.00 84.17 Sydney Civil Pty Ltd 35.91 22.92 11.25 8.13 5.00 83.20 North Shore Paving 31.32 23.96 7.50 9.38 1.67 73.82 Celtic Civil Pty Ltd 30.91 23.96 15.00 8.75 2.86 81.48 Ozpave Aus 27.70 23.96 11.25 8.13 2.50 73.54 Kelbon Projects 27.70 21.88 11.25 8.13 4.00 72.33 Roadworx Civil 27.39 22.92 7.50 10 4.00 71.81 Boss NSW 27.19 14.58 5.63 7.50 4.00 58.90 QMC 19.12 23.96 7.50 9.38 2.00 62.58

Explanatory notes: 1. Cost and Pricing: Tenderers provided information on estimated quantities and rates that make up the lump sum

price, with a weighting of 45%. The lowest tender price received the highest score, with all other prices ranked accordingly using the formula (lowest price/each price)x 45).

2. Experience and capacity: Each tender was scored on scope and complexity of past civil experience, particularly for this type of project where drainage and site access are significant issues.

3. Program & Methodology: Information was requested on each tenderer’s approach to the project program and construction methodology to check the tenderer’s ability to meet the stated works duration.

4. Duration of Works: The shortest duration of 4 weeks received the maximum score, with others ranked according using the formula (shortest duration in weeks/each duration in weeks) x 5.



5. Management Systems: Assessment of Quality, Environment controls and OH & S, scored according to comprehensiveness of documentation and evidence of it being applied to past projects. The highest scores were allocated for systems with independent accreditation.

Comment The three highest scoring tenderers, after interviewing Melhemcorp are, Melhemcorp, Sydney Civil and Celtic Civil. The evaluation panel agreed that Sydney Civil and Celtic Civil are known to Council, and do not need to be interviewed. The tender panel wanted to confirm that Melhemcorp understood the requirements for the work and at the interview on 8 September 2009 and subsequently by email, Mr Joseph Melhem, the director of Melhemcorp, confirmed as follows:

(i) All waste would be properly disposed of and he would be providing dockets to the superintendent’s representative.

(ii) A 5 MPa lean mix concrete base under the kerb & gutter base would be used. (iii) The rate provided under item 5(a) in the schedules of rates and amounts allowed for the

removal and proper disposal of coal tar, if any was present.

Mr Melhem was questioned closely on his work programming, traffic and pedestrian management planning, environmental management, experience of his staff and subcontractors, use of plant and material deliveries. Mr Melhem’s responses were satisfactory and satisfied the panel that this tenderer could do the work for the price he provided. The panel considered that 4 weeks is probably too tight a time frame but was not a critical aspect of the project. It is normal practice to allow tenderers to submit provisional rates for tasks or activities that could possibly apply, or where it is not practical to determine the quantity required. For such items provisional rates are sought from the tenderer and these are used only if applicable. The only provisional item is for the supply of sandstone kerb sections. Melhem’s rate is $290 more than the next highest scorer’s rate. However, the amount of sandstone kerb that needs to be replaced with new sandstone will be minimal (1 to 2 metres) and will have little effect on the final price. A referee submitted by Melhemcorp at Ryde City Council was contacted. The feed back received from the referee was very positive. In the referee’s view Melhemcorp was a capable contractor. Melhemcorp maintained good on site supervision, was very flexible in relation to any changes to the work and the only variations were instigated by the Principal. A recent redevelopment of the Parramatta River foreshore area bounded by Belmore, Parsonage and Porter Streets, Ryde carried out by Melhemcorp for a developer in which Ryde Council had an interest (the site formerly contained a Ryde Council depot), was inspected on 14 September 2009. The work carried out by Melhemcorp included kerb and gutter, footpath and road reconstructions, construction of roundabouts, sandstone retaining walls, landscaping and remediation of contaminated land. The work was completed in August 2008 and was found to be satisfactory. Tender Assessment Panel Opinion Melhemcorp’s tender price is $42,940 lower than the next highest scoring tenderer, Sydney Civil. Melhemcorp achieved the highest overall score when the qualitative factors, interview and referee responses are taken into account, including community consultation, site and construction management. The tender panel agreed that Melhemcorp provides the best value to Council and recommends they be appointed to carry out the work.


Identification of Income and Expenditure: All figures in this report exclude GST. The preferred tenderer’s lump sum price for this project is $169,625. In addition, a contingency amount of approximately $10,000 should be allowed for potential provisional items and variation claims and $5000 for project management. To date, funds of $3611 have been expended on design and project management. The total funding required for this project is estimated to be $184,625. A total budget of $148,005 is available for this project. It is proposed to transfer the additional $36,620 required from the Environmental & Infrastructure Levy reserve, which has funds available. Recommendation: That Council enter into a Contract with Melhemcorp for the Streatfield Road, Bellevue Hill- Civil Infrastructure Project for the lump sum of $169,625 excluding GST, plus any provisional rates used. David Byatt Purchasing Coordinator

Warwick Hatton Director Technical Services





Subject: 31 Chester Street, Woollahra - Road Reserve Encroachment

Author: Anthony Sheedy, Property Officer File No: 96.31 Reason for Report: To give consideration to the formalisation of existing encroachments by

granting of an easement to permit existing structures to remain on roadway adjoining the property.

Recommendation: A. That the encroachments on Attunga Street and Chester Street road reserve adjoining

31 Chester St, Woollahra, be formalised by granting of an Easement to Permit Encroaching Structures to Remain, to continue for the life of the building, or the redevelopment of the site, or the redevelopment of the structure, whichever occurs first.

B. That compensation of $14,867 (plus any applicable GST), and all Council’s costs in this

matter, be payable to Council by the owner of 31 Chester St, Woollahra in return for granting the Easement.

Background: For personal reasons the owners of 31 Chester Street, Woollahra are selling their property and have accordingly applied for a Building Certificate from Council (BC 101/2009). However, during inspection of the property and review of the current survey by Council’s Building & Compliance staff it became apparent that there were encroaching building structures upon the adjoining road reserve of Attunga Street and Chester Street, being respectively located at the front and side of the property (Annexure 1). The surveyor’s report accompanying the application and dated 25 February 2009 indicated the following encroachments: Stone wall and steps located adjacent to the northern boundary and encroaching upon Attunga

Street by 2.2 metres to 2.5 metres; Sandstone retaining wall located adjacent to the north eastern boundary encroaches upon

Chester Street by 0.18 metres; Garden Bed and the main entrance steps located adjacent to the eastern boundary encroach

upon Chester Street by 0.38 metres to 0.43 metres; and The post support and motor of the gate located adjacent to the south eastern boundary

encroach upon Chester Street by 3 metres. A search of Council records shows no approval for these encroachments and revealed a prior survey of the site dated 10 August 1990, which shows no encroachment upon Attunga Street or Chester Street (Annexure 3). This would indicate that they have occurred since that date without Council approval. The management of encroachments on Road reserves requires Council to ensure that community’s interest is not compromised by unauthorised enclosure or occupation of public roads by plantings, private buildings or structures. Where Council becomes aware of such occupation it will take steps to either have the encroachment removed, or to require the owner to enter into a suitable formal agreement for continued occupation.



The matter of the above encroachments was referred to Council’s Technical Services Division which advised that they considered that the encroachments should either be removed or be managed by an Easement, on the grounds that it increased the size of the land developed, decreased the width of the road reserve and footpath, and that Council could not accept any liability arising from the encroachment and would not accept any responsibility for ongoing maintenance of the structure encroaching on the road. Following discussion with Council’s Property Department, the owner’s legal representative wrote to Council on 19 August 2009 stating that they wished to resolve the matter promptly as they were selling the property, suggesting that Council might consider granting an easement for the life of the structures, citing as reasons for leaving the structures in place that: 1. Their client has sold the property at 31 Chester Street, and the sale is conditional upon the

issue of a building certificate. 2. It is essential that this matter is resolved as expeditiously as possible in order that their client

does not lose his sale. 3. They have agreed to pay Council’s costs and compensation in this matter. In response to the letter it was considered that the extent and circumstances of the encroachment did not warrant removal, but that an Easement to Permit Existing Structure to Remain on the roadway under S181 of the Conveyancing Act, 1919 was appropriate. With respect to Council’s legal options, the legal advice recently obtained from Council’s consultant Lawyers is that the said Easement does have general application. The proposed treatment is also in accordance with the Policy for Managing Encroachments on Road Reserves, which was the subject of a separate report. Council Property staff were advised that the Vendor owner has exchanged a Contract of Sale of Land with a Purchaser; being due for completion in late September or early October 2009. I understand that it is agreed between the parties; that the Purchaser will enter into a Deed of Agreement and Easement with Council after settlement of the Contract. I note that Council is currently engaged in confirming its Title to Chester Street, Woollahra. However, if the Title search results in a similar finding to Attunga Street where Daniel Cooper was found to be the owner; then it will be necessary for Council to enter into a Deed of Agreement with the Purchaser, that provides for Council to cause the land to be dedicated as a public road in accordance with S16 Roads Act, 1993.. This process was described in the Corporate & Works Meeting report R3 of 7 September 2009 titled “Attunga St (formerly Queen St East), Woollahra – acquisition of Roadway for Public Use -17 (Part 2)”. Council’s Valuer provided advice dated 1 September 2009 that compensation of $14,867 plus GST should be payable for the granting by Council of an easement. I note that although the survey plan showed a driveway gate and post on the road reserve, at site inspection the Valuer observed that the gate and post had been removed, and thus does not form any part of the compensation assessment. The Vendor was advised that compensation would be payable in respect of such an easement, and agreed by letter to Council on 8 September 2009 to pay $14,867 easement compensation and Council’s reasonable costs, plus any applicable GST. The Vendor was advised that granting of an Easement and the amount of compensation payable would be reported to Council and would be a decision for the elected Councillors. In view of the Vendor’s desire to proceed with the Sale of the property, it was agreed that a report would be put before Council at the earliest opportunity for Council determination.



The building structure on the road reserve which encroaches upon Attunga Street and Chester Street is shown on the attached plan (Annexure 1). The Attunga St encroachment area is estimated to be 8 square metres and Chester Street some 2 square metres. An aerial view and site photos are also included with this report in Annexure 2 & 3. Conclusion: It is recommended that the road reserve encroachments at the front and side of 31 Chester Street, Woollahra be formalised by granting of an Easement to Permit Encroaching Structures to Remain for the life of the building, or the redevelopment of the site, or the redevelopment of the structure, whichever occurs first, and that easement compensation of $14,867 (plus any applicable GST), and all Council’s costs in this matter be payable by the owners of 31Chester Street, Woollahra to Council. Anthony Sheedy Property Officer

Warwick Hatton Director, Technical Services

ANNEXURES: 1. Sketch Plan drawing dated 25/2/2009, showing the Attunga and Chester Street road reserve

encroachments. 2. Aerial view of 31 Chester Street, Woollahra. 3. Sketch plan drawing of site dated 10/8/1990. 4. Site photos, showing extent of the Attunga and Chester St encroachments.




Subject: General Purpose Financial Report for the Year Ended 30 June 2009

Author: Don Johnston, Manager Finance File No: 331G 2008/2009 Reason for Report: To present the General Purpose Financial Report for the year ended 30 June

2009 to the Committee and seek the adoption of Council's statement in relation to the Reports

Recommendation: 1. That Council note the further information presented in the report regarding the valuations of

Council’s investments at 30 June 2009. 2. That Council, having noted the statement by the General Manager and Responsible

Accounting Officer, adopt the following statement in relation to its Financial Report for the year ended 30 June 2009: That, in relation to the Financial Report for the Year Ended 30 June 2009, Council is of the opinion that: The Financial Report has been drawn up in accordance with:

i. the Local Government Act 1993 (as amended) and Regulations made thereunder; ii. the Australian Accounting Standards and professional pronouncements; and iii. the Local Government Code of Accounting Practice and Financial Reporting

and to the best of our knowledge and belief the Report:

presents fairly Council’s financial position and operating result for the year; and accords with Council’s accounting and other records;

and further, the signatories to the Report, to the best of our knowledge and belief, know of nothing that would make the render the report false or misleading in any way;

3. That Council formally refer the 2008/2009 Financial Reports for audit; and 4. In anticipation of receiving the Auditor’s Reports, set the Corporate & Works Committee

meeting to be held on 19 October 2009 as the meeting at which the General Purpose Financial Report will be presented to the public.

Background: The Financial Report for the year ended 30 June 2009 was considered by the Corporate & Works Committee at its last meeting when it was resolved:

THAT consideration of the report be deferred pending the presentation of further information regarding the valuation of Council’s investments at 30 June 2009.



This report provides additional information on the valuation of Council’s investment portfolio. Additional Information on the Valuation of Council’s Investment Portfolio AASB 139 – Financial Instruments: Recognition and Measurement, requires Council’s investments to be valued at ‘fair value’. ‘Fair value’ is defined in the standard as:

Fair value is the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

And notes that:

The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, an entity establishes fair value by using a valuation technique.

Quoted prices in an active market are readily available for Council’s floating rate notes. This is not the case with its CDOs, although issuer/arranger pricing is readily available. Floating Rate Notes As at 30 June Council’s holdings in floating rate notes (investments issued by Approved Deposit-taking Institutions (ADIs) on Council’s Monthly Financial Report) have been valued on a mark-to-market basis by Reportfolio. Reportfolio was recommended to Council as a report provider when Lehman Brothers Australia ceased providing portfolio reporting services in May 2008. The basis of the valuation, as advised by Reportfolio is:

All of Council’s ADI holdings take the form of floating rate notes (FRNs) where the coupon rate is reset each quarter by reference to the 90 day bank bill rate at the start of each coupon period plus the coupon margin applicable to the security. The coupon margin is set at the time of issue and reflects market conditions prevailing at that time. The main variant in determining the current value of an FRN is referred to as the ‘trading margin’ and is effectively the coupon margin demanded by the market in the conditions at the time of revaluation. The formula used to value FRNs is set by AFMA (Australian Financial Markets Association) and, in effect, discounts projected future cash flows at current interest rates using the trading margin as the primary input. Trading margins for the Reportfolio Valuations are provided by RIM Securities as at the end of each month. For example, the Westpac security held by Council was issued with a coupon margin of +0.27% in times of looser credit. As at 30-Jun-09 this security revalued using a margin of +2.95% being indicative of the much tighter credit conditions now prevailing. The higher margin leads to the value of the security being recorded at a discount to par in the valuation. As time passes and the security approaches its expected maturity date the capital value of the security will increase towards $100 (providing the market remains confident that Westpac will be able to repay the debt when due). There is one further complicating factor being that many of the securities are bank subordinated debt which feature an issuer option to call (repay) the security 5 years after issue. If a security is not called then the issuer must pay a higher margin (step-up) until the security is called or matures after a further 5 years. In the past, the market has treated this option as a technicality with every issue expected to be repaid on the call date (this is to do with capital adequacy ratios). At the moment, however, the market is assessing each issuer on a case by case basis to see if, in fact, the subordinated debt issues will be called as expected. For this reason, some subordinated debt issues are still being marked down in value just in case the investor is left holding the security for a further five years with a (relatively) low coupon margin.



The trading margin and market value of each of Council’s FRNs is detailed in the table below. The market value shown in the table below is the proposed valuation as presented in the report to the Corporate & Works Committee on 7 September 2009.

Security Coupon Holding Margin Unit Price Market Value Home Building Society 90d + 1.40% 1,000,000 +37.00% 96.050% 960,500 CBA 90d + 0.30% 1,500,000 +2.80% 94.860% 1,422,900 HSBC (Sept ‘11) 90d + 0.28% 500,000 +8.10% 85.014% 425,070 Adelaide Bank 90d + 0.35% 500,000 +3.00% 93.490% 467,450 St George Bank 90d + 0.31% 1,000,000 +3.00% 95.440% 954,400 Suncorp Metway 90d + 0.33% 500,000 +6.50% 89.178% 445,890 Westpac 90d + 0.27% 500,000 +2.95% 94.397% 471,985 Royal Bank of Scotland (Oct ‘09)

90d + 0.37% 500,000 +10.25% 97.504% 487,520

Elders Rural Bank 90d + 0.90% 500,000 +18.50% 88.448% 442,240 HSBC (May ’11) 90d + 0.23% 500,000 +6.40% 89.895% 449,475 NM Rothschild 90d + 0.90% 1,000,000 +5.50% 95.723% 957,230 Royal Bank of Scotland (Feb ’12)

90d + 0.28% 1,000,000 +8.50% 82.290% 822,900

9,000,000 8,307,560 This valuation methodology is consistent with the methodology used for the 30 June 2008 year end. Collateralised Debt Obligations (CDOs) In the absence of an “active market” Council has to apply a “valuation technique” to estimate the fair value of its securities. Guidance on the use of valuation techniques is provided with AASB 139

AG69 Underlying the definition of fair value is a presumption that an entity is a going concern without any intention or need to liquidate, to curtail materially the scale of its operations or to undertake a transaction on adverse terms. Fair value is not, therefore, the amount that an entity would receive or pay in a forced transaction, involuntary liquidation or distress sale. However, fair value reflects the credit quality of the instrument. AG74 If the market for a financial instrument is not active, an entity establishes fair value by using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, and option pricing models. If there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, the entity uses that technique. AG75 The objective of using a valuation technique is to establish what the transaction price would have been on the measurement date in an arm’s length exchange motivated by normal business considerations. Fair value is estimated on the basis of the results of a valuation technique that makes maximum use of market inputs, and relies as little as possible on entity-specific inputs. A valuation technique would be expected to arrive at a realistic estimate of the fair value if (a) it reasonably reflects how the market could be expected to price the instrument and (b) the inputs to the valuation technique reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument.

The valuation used as at 30 June 2009 places emphasis on the credit quality of the securities. Council’s advisor has noted that, with the exception of the CDOs with Lehman Brothers as the swap counter party, Council’s CDOs have, statistically, almost 100% probability of eventual loss in most cases. It is this probability, and the desire to provide a realistic valuation, that underlies the valuation of these CDOs at $0.



Alternatively, Council could utilise issuer/arranger valuations, in line with the approach at 30 June 2008. These valuations range from $1 to $70 and would increase the valuation of Council’s portfolio by $1,077,160. Lehman Swap Counter Party CDOs Based on an initial assessment of at least a 20% capital loss on unwinding, the securities with Lehman Brothers as the swap counter party have been valued at 70 cents in the dollar at 30 June 2009 as a conservative estimate of the return of collateral to noteholders, noting the continuing Court action in the United Kingdom. Based on further information more recently provided by Council’s investment consultant, this approach may have been a little conservative. The consultant’s recommendation is to value these securities at collateral value (ranging between $75 and $87 at 30 June) less $5 being the Trustee’s indicative costs. If Council were to use this approach rather than 70 cents in the dollar, the valuation of the portfolio would increase by $174,500. Collateralised Commodity Obligation (CCOs) Council has one CCO in its portfolio, Kalgoorlie. It has been valued at 82 cents in the dollar at 30 June based on a bid which is in line with the advice received from Council’s consultant. A comparison of the recommended valuation previously reported to Council and the alternate valuations is shown in the table below.

Recommended

Valuation Alternate Valuation

Security

Face Value

$ Price

$ Value

$ Price Source / Derivation Value Omega (Henley AAA) 450,000 0 0 31.46 Verbal advice from arranger 141,570 Start (Blue Gum AA-) 400,000 0 0 2.8 HSBC 11,200 Aphex (Glenelg AA-) 500,000 0 0 9.99 Nomura (indicative unwind) 49,950 Helium (Scarborough AA) 400,000 0 0 1 Merrill Lynch 4,000 Corsair (Kakadu AA) 500,000 0 0 28 JP Morgan 140,000 BELO (Kalgoorlie AA+) 500,000 82 410,000 82.6 Bid 413,000 Zircon (Coolangatta AA) 500,000 70 350,000 77.77 GECA 1 spread, $5 trans cost 388,850 Beryl (AAA Global Bank Note) 100,000 70 70,000 77.77 GECA spread, $5 trans cost 77,770 Zircon (Miami AA) 50,000 70 35,000 69.78 GECA spread, $5 trans cost 34,890 Zircon (Merimbula AA) 250,000 70 175,000 82.1 GECA spread, $5 trans cost 205,250 Magnolia (Flinders AA) 500,000 0 0 69.9 CSFB (indicative unwind) 349,500 Lehman Global Property Note 60,000 0 0 15 Refer Note 2. 9,000 MAS6-7 (Parkes IIA 'AA-') 450,000 0 0 4.75 Morgan Stanley 21,375 Herald Limited (Quartz AA) 400,000 0 0 45.14 Verbal advice from arranger 180,560 Helium (Esperance AA+) 500,000 0 0 13 Reportfolio 65,000 Corsair (Torquay AA) 500,000 0 0 10 JP Morgan 50,000 Helium (Scarborough AA) 500,000 0 0 1 Merrill Lynch 5,000 Zircon (Coolangatta AA) 500,000 70 350,000 77.77 GECA spread, $5 trans cost 388,850 Beryl (AAA Global Bank Note) 350,000 70 245,000 77.77 GECA spread, $5 trans cost 272,195 Aphex (Glenelg AA-) 500,000 0 0 9.99 Nomura (indicative unwind) 49,950 MAS6-7 (Parkes IIA 'AA-') 500,000 0 0 4.75 Morgan Stanley 23,750 Helium (Scarborough AA) 500,000 0 0 1 Merrill Lynch 5,000 8,910,000 1,635,000 2,886,660



1. Collateral is a GE Capital Australia FRN. 2. This note, issued by Lehman, is in default. It is valued at $15 by Reportfolio; this compares to $20 reported by

UBS for Lehman senior debt. While this 75% ratio does not appear to have any theoretical justification, it is a fact that a large amount of this Note has traded since year end – at a similar 75% ratio. (The Lehman FRN is stronger in the distressed debt market, now in the high $20s. The Lehman Property Note traded in substantial volumes at $21.75 in September.) Reportfolio’s valuation was consistent with bids received around year end. Deutsche Bank in particular has been actively seeking Lehman debt for some time.

The alternative valuation approach would, in total, increase the value of council’s portfolio by $1,251,660 and reduce the proposed write down in value from $1,323,000 to just $71,340. Ultimately the valuation methodology to be applied is a policy decision of the Council. It is considered prudent to take a longer term view in this regard and the statistical probability of an almost 100% likelihood of default of most of Council’s non-Lehman CDOs. If Council was to use the alternate valuation approach, the Investments disclosed on Note 6b to the Financial Report would increase by $1,251,660 as would Restricted Cash disclosed on Note 6c (as the proposed fair value adjustment has reduced council’s internally restricted cash). Consequently, there would be no improvement to Council’s working funds position. Clarification of a comment in the previous report In the report to the Corporate & Works Committee on 7 September 2009, the following comment was made:

Within this amount [the total fair value write down of Council’s investment portfolio over the 2008 and 2009 financial years] is a $692k write down of FRNs that can be confidently anticipated to be written back upon the maturity of the respective FRNs. Council has already received full repayment of $1m from its Home Building Society FRN.

This comment refers to the difference between the face value of Council’s FRNs and the market valuation at 30 June 2009, $9,000,000 and $8,307,560. It should be noted that the mark-to-market value of these securities actually increased from 30 June 2008 to 30 June 2009. As and when the various FRNs mature the $692,440 adjustment will be reversed, restoring the value of Council’s investment portfolio to the face value of the securities. Further Consideration of the Report presented to the Corporate & Works Committee on 7 September 2009 Information provided in the previous report to the Corporate & Works Committee on 7 September 2009 in relation to Council’s General Purpose Financial Report for the year ended 30 June 2009 is presented below. Councillors are asked to bring the separately circulated Annexure 1 (identified as Annexure 2) to the Corporate & Works Committee Meeting 7 September 2009, Item R2 – General Purpose Financial report for the Year Ended 30 June 2009. Executive Summary: The financial reports for the financial year have been prepared and informally referred for audit. While the audit of the financial reports attached to this report has been completed, Council needs to adopt its statement in relation to the reports and formally refer them for audit prior to the provision of an auditors report.



The financial report discloses: Income Statement • an operating deficit for the year of $1.317m compared to the prior year surplus of $3.256m. Balance Sheet • Net assets having decreased from $680.745m to $679.428m. Performance Measurement Indicators (Note 13) • Council’s unrestricted current ratio reducing from 3.22:1 to 2.51:1 reflecting the expenditure

of previously restricted cash reserve, in particular unexpended loan funds. • Council’s debt service ratio increasing to 2.36% from 0.85% reflecting the first full year’s

repayments of Council’s loan portfolio. • The Rates and Annual Charges Coverage ratio increasing to 58.75% of Council’s revenue.

The 52.87% ratio for 2007/2008 reflected the one off receipt of $7.95m associated with the Cosmopolitan Centre Agreement.

• Outstanding Rates increasing to 4.86% from 4.21%. While still below the 5% benchmark for metropolitan Councils, the increase is indicative of the difficult economic conditions that prevailed over the financial year.

• The relatively new Building & Infrastructure renewals ratio remains well above 100% at 124.02%, up slightly from 121.28% reflecting Council’s commitment to infrastructure asset renewal.

As a result of the year’s operations, working funds have been reduced from $2.164m to $2.010m. An earlier report on tonight’s business paper details the movement in working funds. Overall, Council’s financial position remains sound. Index

Section

Page No.

Background 3 Statement by the General Manager and Responsible Accounting Officer 4 Overall Financial Position 5 Comparison – 30 June 2008 to 30 June 2009 6 30 June 2009 Actual to 30 June 2009 Original Budget 10 Valuation of Council’s Investments Portfolio 10 Restricted Cash Balances 11 Events Occurring After Balance Sheet Date 11 Other Entities 12 Conclusion 12



Background: Each year, Council is required to prepare a general purpose financial report, and must refer it for audit as soon as practicable after the end of that year. The audited financial report must be included in Council’s Annual Report. The financial report must include a general purpose financial report, other matters prescribed by Regulation, being the notes to the financial report and special schedules, and a statement by the Council as to its opinion on the general purpose financial report. The Financial Report for the Year Ended 30 June 2009 has been circulated as a separate Annexure to this report, Annexure 1. This Financial Report is the financial report of the Council only and does not, at this stage, incorporate the financial operations of Holdsworth Street Community Centre or Premsure Insurance Pool. It should be noted that, while Council remains a member of the Premsure Insurance Pool, it has nil equity. It was considered appropriate to bring Council’s financial report to Council separately to allow it to review and adopt its statement in relation to the report. To this end, the separately audited financial reports from the other entities, which are not yet available, have not been consolidated. This does not impact on Council being able to adopt its statement in relation to its own financial reports, noting that the other entities will be consolidated into the reports that are ultimately presented to the public. The general purpose financial report must be prepared in accordance with the Local Government Act 1993 and Regulations made thereunder, Australian Accounting Standards and professional pronouncements and the Local Government Code of Accounting Practice and Financial Reporting. Before the financial report can be formally referred for audit, Council is required to adopt a statement on its financial reports. The statement must indicate: (a) Whether or not the financial report has been drawn up in accordance with:

i. the Local Government Act 1993 (as amended) and Regulations made thereunder; ii. the Australian Accounting Standards and professional pronouncements; and iii. the Local Government Code of Accounting Practice and Financial Reporting

(b) whether or not those report presents fairly Council’s operating result and financial position for the year;

(c) whether or not the report accords with Council’s accounting and other records; and (d) whether or not the signatories know of anything that would make the report false or

misleading in any way. The statement must be signed by the Mayor, at least one Councillor (generally the Chair of the Corporate & Works Committee), the General Manager and the Responsible Accounting Officer. The Manager Finance is the Responsible Accounting Officer. The audit of the Financial Report commenced on 24 August and concluded on 28 August 2009. Statement by the General Manager and the Responsible Accounting Officer: To assist Councillors with their decision in respect of the recommendations to this report, the following statement by the General Manager and Responsible Accounting Officer is provided:

We acknowledge our responsibility for the preparation of the general purpose financial report. We confirm, to the best of our knowledge and belief, the following:



The financial report has been prepared in accordance with the Local Government Act 1993 (as amended) and Regulations made thereunder, Australian Accounting Standards and professional pronouncements and the Local Government Code of Accounting Practice and Financial Reporting so as to present fairly Council’s operating result and financial position for the year. There have been no irregularities involving management or employees who have a significant role in the accounting and internal control systems or that could have a material effect on the financial report. We have made available to the auditors all books of account and supporting documents and all minutes of meetings of Council. The financial report is free of material misstatements, including omissions. The Council has complied with all aspects of contractual arrangements that could have a material effect on the financial report in the event of non-compliance. There has been no non-compliance with requirements of regulatory authorities that could have a material effect on the financial report in the event of non-compliance. We have recorded or disclosed, as appropriate, all liabilities, both actual and contingent, and have disclosed all guarantees that we have given to third parties. All claims have been properly accrued in the financial reports. No other claims in connection with litigation have been or are expected to be received. There are no formal or informal set-off arrangements with any of our cash and investment accounts. Except as disclosed in the financial reports we have no overdraft arrangements.

Overall Financial Position At the end of the 2008/2009 financial year, Council’s financial position remains sound. A summary of the three indicators provided with each quarterly review of the Budget is provided below. Working Funds Working funds are accumulated funds that have not been set aside for a specific purpose and provide Council with some capacity to respond to unforeseen circumstances. Council’s working funds reduced from $2.164m to $2.010m as a result of the year’s operations. At this level, Council’s workings funds balance is a little below the benchmark (arrears of Rates plus Inventory) of $2.083m. There is a separate report on tonight’s agenda dealing with the June quarter budget review and 2008/2009 year end result Unrestricted Current Ratio The unrestricted current ratio is the ratio of current assets to current liabilities after allowing for external restrictions on our cash such as Section 94 Contributions and unexpended grants. It provides an indication of our capacity to cover our liabilities.



The reported unrestricted current ratio is 2.51:1. As at the March Review, the 2008/2009 Budget forecast an unrestricted current ratio of 2.17:1. At this level, Council’s unrestricted current ratio remains above the minimum benchmark level of 1:1. The ratio shows a reduction from the previous year (3.22:1) due to the expenditure of previously restricted cash reserves, particularly unexpended loan funds. Operating Result before Capital Movements The Income Statement discloses a net operating deficit $1.317m compared to last year’s surplus of $3.256m. The operating deficit includes an expense of $10.092m for Depreciation and a further fair value adjustment of Council’s investment portfolio of $1.323m. Total income decreased from $66.228m in 2007/2008 to $63.090m in 2008/2009, a decrease of $3.138k or 4.74%. The movement in income includes the Cosmopolitan Centre Agreement for Lease payments of $7.95m received in 2007/2008 and Interest & Investment Losses on 2007/2008 returning to Interest & Investment Revenue in 2008/2009. Allowing for these impacts, the increase of other income sources was $3.06m or 5.25%. Expenses increased from $62.972m to $64.407m, an increase of $1.435m or 2.28%. The movement includes $6.319m relating to Interest & Investment in2007/2008. Allowing for this, the increase in other expenditure was $7.75m or 13.7%. Details of the changes year to year are provided in the next section of the report. Comparison - 30 June 2008 to 30 June 2009 Income (Page 3 of Annexure 1) Rates & Annual Charges (Increased from $35,713k to $37,066k ($1,353)) (Note 3 p.26 of Annexure 1)

Ordinary Rates income increased from $25,202k to $26,013k, an increase of $811k or 3.2% which reflects the permissible increase of 3.2%. Special Rates increases by $99k also reflecting the 3.2% permissible increase. The domestic waste management charge (annual charge) increased from $267 to $281 for 2008/2009 or 5.2%. Income increased from $7,014k to $7,453, an increase of $439k or 6.3% based on the increased charge and the number of services provided. These variations add to $1,349k. User Charges & Fees (Increased from $7,293k to $7,873 ($580k)) (Note 3 pp.27 - 28 of Annexure 1)

The largest increase relates to the Restoration Charges generating additional income of $838k based on additional works undertaken (and offset by an $820k increase in Contract expenditure noted later in the report). There were also material increases in Trade Waste Service charges $88k and Kindergarten Fees $44k. Decreases in income relate to Development Application Fees ($169k), Compliance Levy ($94k), PCA Service Fees ($64k) and Certificate fees ($76k). These variations add to $567k.



Interest (Increased from ($6,319)k to $1,748k ($8,067k)) (Note 3 p.29 of Annexure 1) Interest disclosed in the 2008/2009 financial reports improved by $8,067 from Interest Losses of $6,039 to Interest Revenues of $1,748k. The 2007/2008 Interest Losses included a fair value adjustment of $9,709k while the 2008/2009 figure includes a fair value adjustment of Council’s investment portfolio of $1.323m. The reduction in fair value adjustments was $8,386k. Actual interest earned for the year was $3,070m, a decrease of $320k over 2007/2008. Investment returns were generally lower during 2008/2009 due to the global financial crisis and official interest rates decreasing over the course of the year.

These variations add to $8.07m. Other Revenues (Increased from $9,626k to $10,013k ($387k)) (Note 3 p.30 of Annexure 1) Major increases year to year relate to Car Park Leases $326k, Parking Fines $264k, Recovered Costs $95k, 2007/2008 Fair Value adjustments to Investment Properties $76k, Sportsfield Leases $73k and Legal Costs Raised $65k. These increases were offset by the following reductions in income, Depot Leases ($287k) following the vacation of the tenant from O’Dea Avenue, ($101k) in Risk Management Bonuses arising from the timing of payments from Council’s insurer, ($35k) in Sales of Recyclables, ($31k) in Work Zone Charges and ($23k) in Pre Lodgement Advice fees. These variations add to $422k. Operating Grants & Contributions (Decreased from $9,364k to $2,994k ($6,370k)) (Note 3 pp. 31-32 of Annexure 1) Last year this item included payments related to the Cosmopolitan Centre Agreement for Lease totalling ($6,500k). The major increase year to year was the $435k in the Financial Assistance Grant (FAG) which includes the early payment of the first quarter of the 2009/2010 FAG as part of the Federal Government’s stimulus package. This payment of $340k has been restricted as at 30 June. The Roads to Recovery grant of ($172k) was previously disclosed as Operating however a change to the Code of Accounting Practice and Financial Reporting now requires this grant to be disclosed as Capital. There were minor changes in other grant programs based on the projects undertaken. These variations add to ($6,237k). Capital Grants & Contributions (Decreased from $4,206k to $3,396k ($810k)) (Note 3 pp. 31-32 of Annexure 1) Revenue from capital grants can vary significantly from year to year depending on the nature of projects being undertaken and the timing of related expenditure and also the payment policies of funding bodies. The major variance between 2007/2008 and 2008/2009 is the receipt of an in-kind contribution last year related to the Cosmopolitan Centre Agreement for Lease Car Park works of ($1,450k).



There were also increases in capital grants for Open Space including Gap Park $248k (again part of the Federal Government’s stimulus package) and Christison Park Irrigation $155k. As noted above, the Roads to Recovery grant of $172k is now disclosed as Capital as per the Code of Accounting Practice and Financial Reporting. There were other minor changes in other grant programs based on the projects undertaken. These variations add to ($875k). Gain/(Loss) on Sale of Assets (Decreased from $26k Gain to $272k Loss ($298k)) (Note 5 p.38 of Annexure 1) Part of this reduction relates to proceeds from the sale of unmade roads falling from $167k to $110k, a reduction of ($57k). The remainder of the decrease arises from variations in the routine disposal of Council’s plant and vehicle fleet. These variations add to ($298k). Expenses (Page 2 of Annexure 1) Employee Costs (Increased from $25,452k to $27,976 ($2,524k)) (Note 4 p.34, Annexure 1) Salaries and wages increased year-on-year by ($1,379k) or 6.2%. This increase includes an Award increase of 3.5%, market increases allowing Council to remain competitive in attracting and retaining staff and a lower vacancy rate (Council budgets for a 6% vacancy rate). Superannuation expenses increased by ($438k) (24.3%), $331k of which is attributable to increased Retirement Scheme contributions. Last year’s reduction in the provision for employee leave entitlements changed to an increase in the 2008/2009 year, a movement of ($876k). Workers’ Compensation insurance decreased by $114k. These variations add to ($2,579k). Borrowing Costs (Increased from $220k to $680k ($460k)) (Note 4 p34, Annexure 1) This increase relates to the first full year’s repayments of the $6.525m loan drawn down in June 2008. Materials & Contracts (Increased from $11,775k to $13,907 ($2,132k)) (Note 4 p.35, Annexure 1) Raw Materials & Consumables (Increased by $504k) Increases in this area included materials utilisation in:

• Garden Refuse - a grant funded Organics Trial, $125k; • Information Systems and Network Telecommunications - software and

telecommunications annual maintenance agreements, $131k; • Business Centres Streetscape Maintenance $52k; and • A new Library book maintenance contract $28k.

The remainder relates to projects budgeted as part of the Capital Budget but not capitalised such as:

• external works at depots $31k; • repairs to community centres $33k; • property inspections $34k;



• painting $28k; and • various small plant purchases $42k

These variations add to $504k. Contractor & Consultancy Costs (Increased by $870k) The main increase in the use of general contracts relates to restorations work $820k offset by increase in income. Other increases include recycling contract $165k and maintenance and security contracts $46k. These increases are offset by decreases in other Civil Works contracts ($43k), contracts for Traffic, Signs and Lines ($34k) and Finance consultants ($62k). These variations add to $892k. Audit Fees No major variances Legal and Appeals Consultants Expenses (Increased by $680k) There was a reduction in legal expenses for compliance ($158k), however, this was offset by increases in Development Control $622k, Finance $80k, Environment and Public Health $59k, Human Resources and Organisational Support $25k and Animal Control $20k. These variations add to $648k. Operating Leases (Decreased by $18k) Operating lease payments continued to be paid on our various equipment leases. Depreciation (Increased from $9,064k to $10,092 ($1,028k) (Note 4 p.36 of Annexure 1) There were increases across most asset classes as a result of the full year depreciation of 2007/2008 acquisitions plus the increase in value of building assets as a result of fair value revaluation at 30 June 2008. Other Expenses (Increased from $10,142k to $11,480 ($1,338k)) (Note 4 p.37 of Annexure 1) There are numerous increases and decreases making up this overall variance. Among the increases were NSW Fire Brigades contribution $179k, waste disposal costs $349k, election expenses $265k, insurance deductibles and claims payments $186k, contribution to Double Bay partnership $125k, recoverable expenses $74k and street lighting charges $61k. There was a decrease in expenditure arising from advertising ($109k). These variations add to $1,130k. 30 June 2009 Actual to 30 June 2009 Original Budget (Material Variations) Details of material variations between the 2008/2009 Original Budget and Actuals form part of the notes to the financial report and are disclosed at Note 16 on page 62 of Annexure 1.



Valuation of Council’s Investments Portfolio For the 30 June 2008 year end Council used a combination of bid pricing (CDOs) and mark-to-market valuations (FRNs) to value its investment portfolio. This resulted in a write down in the value of the portfolio of $9.709m. For the 30 June 2009 year end, with a view to providing a more realistic portfolio valuation, “at maturity” valuations have been applied to CDOs except for those with Lehman Brothers as the swap counter party. These securities have been valued at 70 cents in the dollar on the basis that the collateral is to be returned to noteholders, although it is the subject of ongoing Court proceedings. Supporting this view, Council’s independent investment advisor has advised as follows in regard to Council’s CDOs:

The risk of universal default in credit CDOs must be contemplated – the Lehman CDOs of course are looking at unwinding near face value (a technical default), but the default environment is so severe that it is difficult to be confident about any others. Only the ‘Kalgoorlie’ CCO is genuinely on track to repay full capital; the risk (previously regarded as somewhat speculative) has eased with the strong recovery in metals prices. The valuation would currently be well into the $90’s. All other CDOs are rated in the CCC range or worse, other than ‘Flinders’ with a somewhat dated BB (Negative Watch) rating.

On this basis, all other CDOs have been valued at $0 at 30 June 2009. The Kalgoorlie CCO security has been valued at 82 cents based on a 30 June 2009 bid. FRNs continue to be valued on a mark-to-market basis. This approach is effectively a worst case scenario and results in a further $1.323m write down in the value of Council’s portfolio bringing the total write down over the two years to $11.03m. Within this amount is a $692k write down of FRNs that can be confidently anticipated to be written back upon the maturity of the respective FRNs. Council has already received full repayment of $1m from its Home Building Society FRN. A full list of securities and their valuations has been attached as Annexure 2. Restricted Cash Balances The table below details Council’s restricted cash balances and the notional fair value adjustment arising the valuation of Council’s investment portfolio.

Externally Restricted Cash

Purpose Opening Balance July 08

Transfer To

Transfers From

Closing Balance June 09

Notional Fair Value Adjustment

Closing Balance June 09

Section 94 Contributions 3,541,442 533,968 107,301 3,968,109 -1,919,102 2,049,007Section 94A Contributions 1,593,279 1,599,980 1,033,675 2,159,584 2,159,584Unexpended Grants 932,408 938,730 454,966 1,416,172 1,416,172Environmental Levy 1,140,156 931,054 209,102 209,102Infrastructure Levy 256,768 247,277 9,491 9,491Enviro & Infrastructure Levy 1,378,171 3,207,053 2,570,369 2,014,855 2,014,855Stormwater Mgt Charge 306,591 478,783 486,889 298,485 298,485Domestic Waste 1,187,410 7,558 349,426 845,542 -443,794 401,748 10,336,225 6,766,072 6,180,956 10,921,340 -2,362,896 8,558,444



Internally Restricted Cash Employee Leave Entitlements 1,564,799 23,558 1,541,241 -584,844 956,397Plant Replacement 196,420 55,955 123,620 128,755 -73,412 55,343Insurance 344,696 60,280 111,225 293,750 -128,830 164,920Computer 351,398 392,636 744,034 -131,335 612,699Infrastructure 601,311 25,741 575,570 224,740 350,830Election Reserve 200,000 50,000 200,000 50,000 50,000Deposits 6,600,837 6,600,837 6,600,837Kindergarten 141,944 114,301 256,245 -53,052 203,193Loan 6,149,300 3,336,504 2,812,796 2,812,796Loan Repayment Reserve 933,023 920,312 12,711 12,711Property Reserve 15,430,233 874,400 547,194 15,757,439 -7,089,933 8,667,506Carry Over Works 2,671,017 355,374 2,315,643 2,315,643Investments Reserve 1,000,000 1,000,000 1,000,000Financial Assistance Grant 339,937 339,937 339,937General Reserve 1,026,042 614,949 411,093 -383,483 27,610 37,211,021 1,887,509 6,258,478 32,840,052 -8,669,629 24,170,423Total Restricted Cash 47,547,246 8,653,581 12,439,435 43,761,392 -11,032,525 32,728,867

Events Occurring After Balance Sheet Date Details of events occurring after balance sheet date form part of the notes to the financial report and are disclosed at Note 23 on page 81 of Annexure 1. Disclosures have been made in relation to Council joining the IMF funded action against Lehman Brothers Australia, the voluntary administration of Premier Parking (the operators of Council’s three car parks) and the ongoing remediation works at Bellevue Hill. Other Entities Holdsworth Street Community Centre’s (HSCC) financial reports are consolidated into Council’s as a controlled entity. The HSCC is subject to separate audit and Council receives financial reports from it for consolidation purposes. Another organisation included in Council’s Financial Report by way of joint venture is the Premsure Insurance Pool, although Council holds zero equity. Again Premsure is subject to separate audit and Council is provided with financial reports for the purposes of consolidation. These financial reports are not available for consolidation at this time. Rather than wait, it was considered appropriate to bring Council’s financial reports to the Council to allow it to review the year end results and adopt its statement in relation to its general purpose financial report. This is consistent with the approach taken for last year’s Financial Report. The audited financial reports from these entities will be consolidated into Council’s reports for presentation to the public in October. Conclusion: Each year Council is required to prepare a general purpose financial report. Council’s 30 June 2009 financial report has been prepared and audited. This report has outlined the major variances between the 30 June 2008 and 30 June 2009 results while Note 16 to the financial report contains the material variances to the original Budget. An earlier report on tonight’s business paper has provided details of the 30 June result compared to Council’s revised budget forecasts.



As at 30 June 2009, working funds and liquidity are both adequate and Council’s overall financial position is sound. This report recommends adoption of Council’s statement in relation to its General Purpose Financial Report for the year ended 30 June 2009. Don Johnston Manager Finance Gary James General Manager

Stephen Dunshea Director Corporate Services

ANNEXURES: 1. General Purpose Financial Report for the year ended 30 June 2009 (previously circulated as

Annexure 2 to the Report to the Corporate & Works Committee on 7 September 2009) 2. Valuation of Council’s Investment Portfolio




Subject: IPART’s Revenue Framework for Local Government Draft Report – July 2009

Author: Stephen Dunshea, Director Corporate Services File No: 87.G IPART Reason for Report: To recommend to Council the forwarding of a submission in response to

IPART’s Revenue Framework for Local Government Draft Report – July 2009.

Recommendation: A. That Council note the release of the IPART Revenue Framework for Local Government Draft

Report and the reports Findings and Recommendations presented as Annexures 1 and 2 to this report.

B. That Council note the two options (Option A and Option B) put forward by IPART in its

Draft Report as a proposed framework for regulating local government rate increases. C. That Council make a submission to IPART in response to the Draft Report incorporating the

following comments:

i. Welcoming IPART’s review of the Revenue Framework for Local Government and the release of its Draft Report – July 2009.

ii. Highlighting the inconsistency of IPART’s findings regarding the financial sustainability of NSW councils with the findings of the “Independent Inquiry into the Financial Sustainability of Local Government 2006” (The Percy Allan Report).

iii. Expressing Council’s disappointment that IPART has not recommended an option that removed mandatory rate pegging as noted in Option 5 of the previous IPART Issues Paper released for public comment in July 2008.

iv. Recommending that IPART undertake further detailed investigation of Option 5 from their July 2008 Issues Paper, including consideration of a range of accountability measures that would apply to councils in order to qualify for an exemption from the default rate cap.

v. Welcoming the proposal for IPART to develop and publish an annual Local Government Cost Index.

vi. Recommending that the published Local Government Cost Index be used by councils to substantiate the level of rate increase proposed by the individual council to their community under a revised system that removed mandatory rate pegging.

vii. That in the absence of an alternate recommendation in IPART’s final report that proposes the removal of mandatory rate pegging, Woollahra Council supports Option B as the preferred of the two recommended options presented in the Draft Report.

viii. Highlighting the difficulties associated with, and costs involved, in seeking and gaining community support to increase rates as suggested in the Draft Report that would be required for the Minister to approve special variations under both Option A and Option B.

ix. That the requirements for councils to earn their independence in setting the level of rate increase under Option B be amended to include a requirement to have in place appropriate financial and asset management policies and plans and be able to demonstrate a track record of improvement in implementing those policies and plans, rather that having a track record of positive operating results over the reporting cycle.



Introduction: In May 2008, the then Premier of NSW asked the Independent Pricing and Regulatory Tribunal of NSW (IPART) to assist the Department of Local Government by undertaking a review of the regulation of council rates and charges in NSW. Specifically, IPART was to investigate and make recommendation on the following matters:

1. An appropriate inter-governmental and regulatory framework for the setting of rates and

charges that facilitates the effective and efficient provision of local government services in NSW.

2. A role for lPART in the setting of local government rates and charges in future years. 3. A framework for the setting of charges by certain public authorities such as the Sydney

Harbour Foreshore Authority, Redfern Waterloo Authority, Sydney Olympic Park Authority and the Growth Centres Commission, to enable these authorities to recover costs for the provision of services that are normally provided by local government.

By way of background, since 1977, the regulation of council rates in NSW has been based on an approach known as ‘rate pegging’ whereby each year the NSW Government determines the maximum amount by which councils can increase their annual general (rates) revenue. Where councils wish to increase general revenue above the rate pegging limit, they must obtain approval from the Minister for Local Government for a Special Rate Variation. It has been the long held view of Local Government in NSW that the system of rate pegging has significantly reduced councils’ ability to maintain services and service levels, particularly in respect of the maintenance and renewal of critical public infrastructure. Local Government’s long standing position has been that rate pegging should be abolished and councils given the opportunity to determine the level of rate increases in consultation with their respective communities as happens in other States of Australia. Conversely, the NSW State Government has had a long term commitment to rate-pegging, largely because it believes the approach protects ratepayers from excessive rate increases. Having completed the first stage of this review, IPART released its draft report “Revenue Framework for Local Government” on 23 July 2009 for public comment. In releasing the draft report, IPART advised that it was holding a series of public workshops to discuss its report and provide stakeholders with an opportunity to make comment. Council was represented at the public workshop held in Sydney on 2 September 2009 by the Director Corporate Services. IPART also advised that following the public workshops and the consideration of submissions received, that they anticipate presenting their final report to the Minister in November 2009. The due date for lodgment of submissions was Friday 18 September. However, given the timing of the Sydney Workshop on 2 September 2009 and the need to report the matter to Council through the Corporate & Works Committee, Woollahra Council has obtained an extension until Tuesday 29 September 2009 to lodge a submission. This report presents IPART’s findings and recommendations and recommends that Woollahra Council lodge a submission in response to the Draft Report.



IPART Report Overview: IPART notes in its Draft Report that the NSW State Government has had a long standing commitment to rate pegging as it believes it protects ratepayers from excessive increases in rates. However, IPART also acknowledges that rate pegging places financial pressure on councils and restricts their ability to provide infrastructure and services required by the local community.

The Draft Report proposes an alternative model for the Revenue Framework for Local Government which comprises two options for the setting of rate increases for NSW councils. The first option (Option A) retains much of the current rate pegging arrangements, and would be the default position for all councils. A second option (Option B) offers increased flexibility and would be available to eligible councils which meet certain predetermined criteria. Option B allows those councils to have autonomy in setting annual rate increases over the four year electoral term. Further details regarding these options are discussed later in this report. Details of IPART’s 44 findings and 45 recommendations contained in the Draft Report are provided as Annexures 1 and 2 to this report. The full 269 page draft report is available on the IPART Website and a copy can be made available to Councillors upon request. A copy of the IPART media release and accompanying background information from 23 July 2009, previously forwarded to Councillors, is also provided as Annexure 3 to the report.

IPART’s Findings:

Key findings to note from IPART’s Draft Report include:

To improve transparency and promote long term financial sustainability, the minimum

changes to the rate pegging framework should include the use of an explicit and independently calculated price index to update council revenue requirements for movement in costs from year to year.

The utility of the rate pegging and variations system could be enhanced by moving away from the current year by year focus towards one that encourages planning and budgeting process over a number of years.

The special variation process has not prevented councils from increasing rates revenue by more than the rate peg amount. However, it may have provided an important check mechanism on increases of this type.

For most of the period from 1976/77 growth in total revenue per capita in NSW has been comparable to other states. This suggests that rate pegging did not greatly affect growth in total revenues for most of the period. However, growth in the 10 years to 2006/07 was significantly lower in NSW.

Rate pegging has constrained the growth of NSW councils’ rate revenue relative to the other states.

NSW councils have substituted rates income with other sources, particularly user charges and fees, and this has enabled average growth in overall revenue to match that of the rest of Australia.

NSW councils’ capital expenditure ratios from 1999/2000 to 2006/07 suggest that local governments, on average, may have been under-funding infrastructure. However, most councils have managed to reduce the level of under-funding in recent years.

Due to considerable variability in estimates of infrastructure renewals and maintenance it is very difficult to accurately estimate the existence and size of an infrastructure backlog.

NSW councils have tended to accumulate much less debt than other Australian councils.



IPART has adopted a functional definition of cost shifting based on compulsory transfer of assets and legislative mandates, resulting in a smaller number of activities being considered to be examples of cost shifting.

While there are a number of demands on councils’ resources arising from increasing costs of services (eg, street lighting) and expectations of the community, the impact of cost shifting using IPART’s definition on councils’ financial position is likely to be small for most councils.

The current rate pegging framework provides a non-transparent rate peg amount that is not reflective of efficient increases (or decreases) in costs.

The current framework has not been effective in limiting overall expenditure nor placing pressure on councils to achieve efficient and effective quality and composition of service delivery and may promote a short term focus.

Interestingly, IPART found that the perception that there were widespread problems of financial sustainability for councils in NSW is not supported by the evidence. IPART found that most councils are financially sustainable in terms of their recurrent position, while capital sustainability is more difficult to assess because of the lack of reliable asset management measures or estimates of backlogs. IPART also noted that operating results for NSW councils have continued to improve, and that revenue and expenditure growth in NSW has been comparable to other states. The Draft Report states that “IPART has concluded that there is no evidence to suggest that the average financial position of councils in NSW is worse than in other states. Specifically, IPART cannot find that rate pegging has had an adverse effect on the financial position of councils in NSW on average.” Further, “IPART has noted, there appears to be a backlog of council infrastructure works in NSW that needs to be addressed. However, this also exists in other states and the evidence suggests that it is no worse in NSW than elsewhere.” These particular findings are inconsistent with the findings of the previous “Independent Inquiry into the Financial Sustainability of Local Government 2006” (The Percy Allan Report), which concluded that NSW Local Government is facing major challenges, including a real infrastructure funding crisis, an inadequate revenue base, skills shortages and the ever increasing demands being placed on Local Government by the community and other spheres of government. IPART further observed that the majority of councils assessed as being financially sustainable generally had the following characteristics:

had adopted special rate variations; tended to have over half their total revenue sourced from rates; generally recorded operating surpluses; tended to have lower infrastructure backlogs; tended to have a lower proportion of expenditure on traditional services (i.e. governance,

administration, public order and safety, transport, communication/amenities).



Council Response It is recommended that should Council resolve to forward a submission to IPART in response to the Draft Report that the submission highlight the inconsistency of IPART’s findings in respect of the financial sustainability of NSW Local Government with the findings of the “Independent Inquiry into the Financial Sustainability of Local Government 2006” (The Percy Allan Report) and that the final report clearly identify the reasons for the significant difference in the findings of the two reports.

Further, in response to IPART’s conclusion that there is no evidence to suggest that the average financial position of councils in NSW is no worse than in other states (as a result of rate-pegging), then our submission also suggest that this could also indicate that the absence of rate pegging in other states has not resulted in a situation of excessive rate increases in those other states which has lead to situation where NSW Local Government is disadvantaged in respect of its financial position (on average). This could therefore be viewed as an argument in support of the abolition of rate-pegging. Options Considered by IPART:

The Draft Report notes that IPART considered five options for improving the current framework in its initial Issues Paper, previously released for public comment in July 2008. In summary, those five options were:

Option 1 Retain existing rate pegging arrangements but:

o Publish the economic indicators or indices to be used in determining the uniform rates cap to be applied across local government each year.

o Modify the special variations process to ensure that the mandatory criteria required to justify a Section 508 (2) or a Section 508A variation are published and that the process of application and approval is fully transparent and forms part of local government regulatory system.

o Leave all charges unregulated (except s 94 charges which are being dealt with separately under amendments to the NSW Planning and Assessment Act).

Option 2

Implement a more disaggregated form of rate pegging which incorporates cost indices relevant to each council (or groups of councils). This option would be the same as Option 1 but either:

o Councils would be grouped based on specific criteria and a rate peg specific to each group would be calculated, or

o A specific cap for each council would be calculated based on specific criteria (eg, cost structures, service dimensions).

Option 3

Reduce the scope of rate pegging to cover only local government revenue needed to fund operating expenditure and thus exclude capital expenditure from rate pegging (noting that operating expenditure should include some expenditure approximating asset depreciation). This option includes:



o Leaving other fees and charges (except s 94 charges) largely unregulated as is. o Providing separate guidelines on operating and capital expenditure planning and

pricing. These guidelines could require approaches to operational revenue raising, related expenditure, capital expenditure plans and costings, pricing policies and charges, depreciation policy and proposed funding options including debt financing and public private partnerships. A section on relationship of Section 94 plans to these guidelines could be included.

o Modifying the special variation arrangements as described in Option 1 above.

Option 4 Maintain rate pegging power but promote greater freedom by exempting individual councils from rate pegging subject to a mandatory demonstration of:

o financial accountability and governance o financial sustainability o comparative efficiency and effectiveness indicators (including affordability and

availability of local services and facilities) o ability to achieve the above objective criteria over a 10-year time frame through an

approved and independently audited management plan. This audited plan could be tabled in Parliament.

Option 5

Institute measures to enhance accountability to the local community and remove mandatory rate pegging. This option includes compulsory reporting on a comparable basis to enable comparisons between councils. Where councils fail to meet these criteria a default rate cap could apply. While IPART had included this option for discussion, it notes that the Minister for Local Government favours the continuing of rate pegging.

Options 1, 2 and 3 involved retaining rate pegging, but with modifications to the current arrangements. Options 4 and 5 involved moving away from rate pegging to provide an element of earned autonomy and responsibility for councils, subject to councils meeting minimum performance criteria.

The Draft Report states that during the consultative process, councils generally expressed support for moving away from rate pegging. They also indicated that in general they could accept a framework based on earned autonomy (that is, Option 4). While there was some limited support for Option 2, under which individual councils (or groups of similar councils) would have a rate peg amount specific to it, there was only very small support for Option 3 (reducing the scope of rate pegging so it only related to revenue required for operating expenditure). The Draft Report also notes that ratepayer groups, such as the Vaucluse Progress Association, favoured retaining rate pegging. IPART’s proposed framework outlined in the Draft Report is essentially a combination of Options 1 and 4 above.



Council Response As previously stated, it has been the long held view of Local Government in NSW that the system of rate pegging has significantly reduced councils’ ability to maintain services and service levels, particularly in respect of the maintenance and renewal of critical public infrastructure. This position was supported in the finding of the “Independent Inquiry into the Financial Sustainability of Local Government 2006” (The Percy Allan Report). Local Governments’ long standing position has been that rate pegging should be abolished and councils given the opportunity to determine the level of rate increases in consultation with their respective communities as happens in other States of Australia.

The absence of an option for the removal of mandatory rate pegging in the Draft Report was raised as a question to IPART at the public workshop held on 2 September 2009. IPART’s response was that Option 5 from their initial Issues Paper, which suggested the removal of mandatory rate-pegging but with a default rate cap that would apply to councils that had failed to meet measures imposed by the State Government for enhanced accountability, was considered but they were guided in their deliberations by all submissions received in response to their initial discussion paper, some of which, particularly those from ratepayer associations, supported the retention of rate-pegging. It is considered that such an option would provide an effective balance between the need for Local Government to provide facilities and services for its community, consistent with its obligations set out in Section 8 of the Local Government Act (the Act), “The council’s charter”, and the perception that ratepayers need to be protected from councils wanting to impose excessive rate increase on ratepayers. In this regard, Councillors should note that included in the principles contained in “The council charter” is the requirement for councils to provide adequate, equitable and appropriate services and facilities for the community, and to effectively account for and manage the assets for which it is responsible. It is argued that in order to meet these obligations, the constraints of rate-pegging must be removed and NSW councils allowed to determine it own levels of rate income in consultation with, and having regard to, the wants and needs of its own community. It is recommended that Council’s submission express disappointment that IPART has not recommended an option that removed mandatory rate pegging as noted in Option 5 of the previous IPART Issues Paper released for public comment in July 2008 and that further consideration of this option be given prior to the release of its final report. This should also include detailed consideration of accountability measures that councils would need to meet in order to qualify for exemption from the default rate cap. Other Factors Considered:

In conducting its review, IPART considered a range of factors. These included their assessment of the general financial position of NSW councils, which they found to be no worse than those of other states. The Draft Report states that IPART acknowledged the following issues with the current system of rate-pegging:

the arrangements for determining the rate cap are not sufficiently transparent the one-year approach to setting rates encourages a short term focus and discourages

medium term planning of expenditure and income the lack of clear guidelines for the approval or rejection of variation proposals has led to a

perception that the process lacks consistency, predictability of outcomes and transparency,



the timing of the rate peg announcement in March each year and the variation approvals by June each year do not allow councils sufficient time to provide up to date financial information to underpin proposed revenue policy and linked service plans in the Management Plans which are required to be exhibited for public comment by the end of the financial year

the current arrangements do not allow for sufficient council autonomy or community participation in determining revenue requirements and expenditure plans.

IPART also noted what some regard as the primary benefit of rate-pegging, that is, the protection for ratepayers from large increases in their rates. This would appear to clearly be the view of many ratepayer associations and also the State Government. Council Response It is pleasing to see however that whilst IPART has concluded that rate-pegging plays an important role in ratepayer protection, it has been at the expense of reduced transparency and accountability to ratepayers and the community. Additionally, short term controls on rate increases may impose constraints on the ability of councils to plan and deliver financial sustainability and service provision over the medium to longer term. It is also pleasing to see IPART acknowledge the significant shortcomings in the current system for determining the rate-pegging cap and approving special rate variations. Any recommendations aimed at improving the transparency and accountability of these processes are welcomed. In endeavouring to develop an alternative model, IPART sought to incorporate some of the features developed in the pricing frameworks adopted by regulated utilities in recent years. These include:

a multi-year approach to 'revenue raising' the linking of the revenue model to a planning process that establishes efficient levels of

capital and operating expenditure for a number of years into the future the use of an explicit and independently calculated input price index to reflect council

revenue requirements to fund annual cost increases the use of productivity adjustment factors within pricing paths to encourage efficiency

improvements in councils.

IPART Recommendations

Having regard for the various factors identified above, IPART in its Draft Report has proposed an alternative model for the Revenue Framework for Local Government. This alternative model comprises two options for the setting of rate increases for NSW councils. The first option (Option A) retains much of the current rate pegging arrangements, and would be the default position for all councils. A second option (Option B) offers increased flexibility and would be available to eligible councils which meet certain predetermined criteria. This option allows those councils to have autonomy in setting annual rate increases over the four year electoral term. Option A IPART consider that this option retains the current rate pegging arrangements, while improving the rigour, transparency and independence of the rate pegging process. It considers this option also emphasises a longer term focus for revenue planning and rate setting and improves links between strategic revenue and expenditure plans. Under this approach:



IPART would annually calculate a local government cost index, which would have reference to price changes specific to local government as well as productivity improvements.

IPART would then advise the Minister for Local Government of this index. the Minister would then determine an appropriate increase in the annual rate cap.

Option A is aimed at creating a focus on a longer term revenue path and improved links between rate setting and strategic planning. The current arrangements whereby councils seek annual variations of the rate pegging limit would be replaced with a mechanism that enables councils to seek Ministerial approval for "multi-year revenue path". This would be for the duration of the electoral term and allow councils to request rate increases above the regulated annual rate increase for that period. Eligibility for a multi-year revenue path would be based on council compliance with the new Integrated Planning and Reporting Framework. IPART envisage that the two elements of Option A, i.e., the regulated annual rate increases and multi-year revenue paths, would operate together. Those councils that cannot or do not want to move beyond the regulated annual rate increase would apply the regulated annual rate increase. Those councils that seek and fail in their requests for a multi-year revenue path would, by default, revert to the regulated annual rate increase for that year. Councils would only be able to apply for a further rate variation in subsequent years within the electoral term in exceptional circumstances. The combination of these elements is designed to provide flexibility for councils and greater certainty of outcomes. Council Response IPART’s proposal to develop and publish annually a specific Local Government Cost Index is a welcome initiative and should be supported. It should be recommended to IPART however that it is Woollahra Council’s view that such an index should be used as a guide for councils in determining its own proposed level of rate increase each year (under a system that sees the abolition of rate-pegging) and used as the benchmark indicator against which council need to justify to their own communities any variation in their individual proposed level of rate increase from the index percentage increase. The Local Government Cost Index could also form the basis of the default rate cap to apply in the previous recommendation put forward regarding Option 5 from IPART’s initial Issues Paper.

Option B

This option would provide increased flexibility for councils. IPART do not envisage that Option B would operate in isolation of Option A, rather, Option A would provide a default mechanism, and Option B would provide an adjunct for eligible councils. In summary, this option provides an alternative mechanism for determining over the medium term (i.e. the duration of the electoral term) the revenue path for eligible councils. This would provide those councils with autonomy in setting revenue requirements and annual rate increases above the regulated rate of annual increase. To be eligible for this option, councils would have to earn their independence by demonstrating:

a track record of sound financial management, and a community mandate for the council’s proposed medium term revenue plan.



Option B would be available to councils that: have demonstrated high standards of financial management have developed a medium term approach to revenue, expenditure and service delivery

plans and their plans have the support of their constituent communities, especially when these plans

involved greater than the regulated annual rate increase.

In outlining the specifics of Option B in the Draft Report, Recommendation 22 states that the financial performance and asset management criteria should include the following:

have a track record of having positive operating results over the economic cycle have a reasonable liquidity ratio; have sustainable debt levels; comply with the Local Government Code of Accounting Practice and Financial; Reporting

and report on the KPIs shown in Table 16.2; have a responsible funding policy; have a track record of asset management; have a comprehensive asset management plan.

In demonstrating community support for the council’s medium term revenue plan, the Draft Report suggests that there would be clear guidelines on what councils need to do to demonstrate this community support. For example, where councils relied on community surveys, IPART proposes that at least 25-30 percent of ratepayers would have to participate in a survey with 50-60 percent support for a council’s proposal for it to pass. Alternatively, where a four year financial plan was adequately debated in the run-up to a council election, and supported by the incoming council, that council could be considered to provide a mandate from the community for that plan. Councils not achieving rate variations under either Option A or B would revert to being subject to the Option A rate cap arrangements. The Draft Report states that the Options proposed in the IPART recommendations involve several key changes to the current rate pegging system.

Enhanced processes for rate capping Replacement of one-year special rate variations with a medium term revenue path New processes for councils to submit rate revenue requirements New processes for community consultation and approval Revised roles for the Department of Local Government and the Minister A role for IPART in the development, calculation and publication of a transparent local

government cost index A new opportunity for local government to earn autonomy in setting rate requirements

Annexure 2 to this report provides Councillors with details of all 45 recommendations contained in the Draft Report.



Council Response It is argued that the difficulty for many councils with having a track record of positive operating results over the economic cycle as one of the criteria for “earning independence” in rate setting is that it is the very system of rate pegging over the past thirty years that has placed many councils in a financial position where achieving a track record of positive operating results over the economic cycle would not be possible in the absence of significant cuts in expenditure and resultant reductions in service delivery. Consequently meeting the criteria to earn the independence in rate setting is not possible for many councils.. An alternate suggestion is that this criteria be amended to read as follows:

have in place appropriate financial and asset management policies and plans and be able

to demonstrate a track record of improvement in implementing those policies and plans.

It is suggested that this represents a practical and sensible improvement to the proposal in the Draft Report. Also of significant concern with Option B is the requirement to demonstrate 50-60 percent community support for the proposal to increase rates after surveying between 25-30 percent of ratepayers. In addition to the impact that the cost of the required survey would have on council budgets, there is the great difficulty any council would have in obtaining majority community support for an increase in rates. It is argued in this regard that a survey of ratepayers in respect of the Minister’s permissible increase under rate-pegging would not achieve majority support of between 50-60 percent. A further difficulty in this regard would be obtaining community wide support for a funding strategy that was to support improvement works in one particular location of the municipality. An alternative to demonstrating 50-60 percent support for a proposal could be to demonstrate a minimal level, or absence, of community objection following effective community consultation on the proposal. It is also suggested that the proposal under Option B to establish medium term revenue, expenditure and service delivery plans for the four year electoral term, and allow qualifying councils the freedom to set rates to deliver those plans, is inconsistent with the Draft Integrated Planning and Reporting legislation. The draft legislation includes a requirement for councils to have in place a long-term resourcing strategy to achieve the objectives established in the Community Strategic Plan. The resourcing strategy must include provision for long-term financial planning (minimum ten year planning), workforce management planning and asset management planning. This integrated approach to long term planning (over a ten year period) to achieve strategic objectives developed in consultation with the community, is an initiative that has been welcomed by Local Government and its implementation should be supported by the removal of rate-pegging so that councils have a level of certainty in their revenue raising capacity in order to deliver on those plans. Timetable for Implementing the Framework: If the proposals outlined in the Draft Report were to be introduced, IPART recommends that the framework would be introduced over a number of years:

The proposed methodology under Option A for the local government cost index based annual rate increases should come into effect for the financial year 2010/11.

The proposed medium term (special variations) under Options A and B should come into effect following the conclusion of the 2011/12 financial year, prior to council elections.



IPART should commence a survey of councils’ costs during 2009/10 to determine the weightings for the cost index model to apply from 2010/11.

Councils with existing special variation applications or approvals may continue to implement these beyond the starting point for the new framework.

For the years 2010 and 2011/12, the cost index methodology will be used to inform the rate capping process and will operate in conjunction with the current special variation system.

Following the conclusion of the 2011/12 financial year, the current special variation system will be abolished and replaced by the medium term revenue path outlined under Options A and B of the proposed framework. Conclusion

IPART has proposed two options to the current system of rate pegging, which has been in operation for thirty years. The main difference between Option A and autonomy in setting rates under Option B is that under Option A, the Minister is required to approve councils' rate revenue plans every four years. Under Option B, if a council has demonstrated to the Minister's satisfaction a community mandate for its rating proposal, consistent with the guidelines required, the Minister would have no further role to set or approve/disapprove rate increases for that council over that four year electoral period. These councils would have autonomy to set rates in accordance with a four year revenue plan.

It is encouraging that IPART has acknowledged the limitations of the current system of rate pegging and it is considered that the recommendations contained in the Draft Report are preferable to the current system of rate pegging which has been in operation for over thirty years. It will therefore be recommended that Council forward a submission to IPART welcoming the release of its Draft Report and incorporating the comments detailed in this report. The basis of Council’s submission will be that whilst Council considers that the proposed alternative framework represents an improvement to the current system for local government, it is disappointing that IPART have not put forward an alternate recommendation that proposes the removal of mandatory rate pegging as suggested in its initial Issues Paper released in July 2008 and that such an option be investigated further prior to the release of IPART’s final report. Stephen Dunshea Gary James Director Corporate Services General Manager Annexures: Annexure 1: IPART Revenue Framework for Local Government - Draft Report

Recommendations

Annexure 2: IPART Revenue Framework for Local Government - Draft Report Findings

Annexure 3: IPART Revenue Framework for Local Government – Media Release 23 July 2009



Annexure 1 SUMMARY OF RECOMMENDATIONS CONTAINED IN IPART DRAFT REPORT Improving Financial Management and Asset Management 1. Councils should disclose the Net Operating Result (surplus/deficit), excluding capital

revenues, on the Income (Operating) Statement as the principal measure of operating result. Capital revenues to be excluded from the result include: proceeds from asset sales developer contributions, and capital grants.

2. Councils should:

report maintenance costs relating to public works in their operating statements; report actual annual expenditure on renewal of capital works within Special Schedule

No. 7 of the published financial statements;

have asset management systems based on a common definition of asset condition.

3. The Department of Local Government and local councils should develop consistent definitions of asset condition. These definitions should be used in asset management planning, asset management systems and asset reporting by all councils.

Improving the Effectiveness of the Provision of Services 4. Each council should conduct a survey every two years to measure community satisfaction

with delivery of key services. The result should be published in each council’s Annual Report. 5. The Department of Local Government and the LGSA should develop a survey of community

satisfaction with the delivery of key services that is suitable to be used by all councils. A new Framework for Local Government 6. The NSW Government should introduce a new framework for regulating local government

rates that has: a four-year rate setting horizon, but includes, as a minimum, regulated annual rate

increases; a closer relationship between rate setting and strategic planning; a more transparent and rigorous process for rate setting; and two options for rate setting (Option A and Option B).

7. The NSW Government should adopt Option A as the new default arrangement for all

councils, which: retains rate pegging and includes a more transparent, empirically-based cost index for

setting the rate peg; and

introduces a multi-year rate setting arrangement. 8. Option B should operate in conjunction with Option A and provides eligible councils with

greater autonomy over rate setting, but with greater accountability - rate setting must be consistent with a community mandate.



The Local Government Cost Index 9. The regulated annual rate increase should be based on the annual movement in a local

government cost index (LGCI) and a local government productivity factor. 10. The LGCI should be developed and maintained and be published, along with the basis for its

calculation, by IPART, as an independent body. 11. IPART should calculate a local government productivity adjustment factor that can be used in

conjunction with the LGCI to encourage efficiency of local government. 12. The productivity adjustment factor should be estimated by IPART in 2009/10 for 2010/11 and

then in the first year of every four year electoral cycle of local government. 13. The Minister should retain discretion and flexibility to determine an increase in rates over or

under the cost index as proposed by IPART after giving a statement of reasons.

Providing a Mechanism for Recovering Foregone Rate Increases 14. A ‘catch-up’ mechanism should be introduced that allows councils that have not utilised the

full increases permitted under regulated annual rate rises to apply to catch-up rate income foregone. Councils should be allowed to increase their rates to catch up the total increase in the index over the 4 year term.

The specifics of Option A - A Multi-year Revenue Path 15. Option A should replace the current system, of councils seeking year to year variations of the

regulated rate increase, with a model that:

encourages a medium term focus by incorporating a four year rate-setting horizon; and is more closely linked to council’s strategic planning.

16. Minimum eligibility criteria should be introduced for requests to the Minister for rate

variations. These criteria should build on the requirements of the Government’s Integrated Planning and Reporting Framework.

17. The rigour and transparency of the process for assessing a medium term rate path (combined

annual rate increase and special variations) should be improved by establishing a set of criteria that will be used to assess applications, including: a demonstrated need for a special adjustment on the basis of: service requirements for the community including evidence of unmet demand and

evidence of community support for the provision of services; special or unique cost pressures faced by the council ; infrastructure backlogs and implications for amenity, safety and health of the

community; financial sustainability; a demonstrated adequate use of other sources of funds; impact on ratepayers.

18. The Minister should retain flexibility to approve, vary or reject a council’s request for a

special variation. Where a council’s application is rejected, a statement of reasons should be provided.



19. Where a council’s request for a special variation is rejected, the council would be subject to the regulated annual rate increase for the year, but may apply again for a one-off variation in special circumstances in a subsequent year of the four year cycle. However, these would be regarded as exceptional and rare.

The Specifics of Option B 20. Councils that have achieved high standards of financial performance, planning and reporting,

and have received a community mandate through consultation or a public vote can be granted full autonomy in rate setting over a four year electoral cycle.

21. The standards to be met by councils seeking greater rate setting autonomy under Option B, should include:

financial performance and asset management criteria, as outlined in Recommendation 22 planning and reporting requirements, as outlined in Recommendation 23 a community mandate received through a public consultation or a voting process, as

outlined in Recommendation 24. 22. The financial performance and asset management criteria should include

have a track record of having positive operating results over the economic cycle have a reasonable liquidity ratio; have sustainable debt levels; comply with the Local Government Code of Accounting Practice and Financial;

Reporting and report on the KPIs shown in Table 16.2; have a responsible funding policy; have a track record of asset management; have a comprehensive asset management plan.

23. The planning and reporting requirements should include:

compliance with the Government's Integrated Planning and Reporting Framework (that is, prepare a Community Strategic Plan and a four year Delivery Plan) and a fully costed list of major projects in consultation with the community;

the development of detailed revenue needs over the four year cycle consistent with the above plans.

24. The requirements for obtaining a community mandate would be satisfied through councils

developing a community engagement strategy, including undertaking agreed public consultation or a vote, regarding proposed services, capital works and revenues.

25. Councils that do not meet these standards would continue to be subject to the rate increases determined in accordance with Option A of the proposed rate framework

The Minister's Role 26. In relation to the rate cap, the Minister for Local Government’s role should involve:

considering IPART’s advice on its productivity adjusted cost index 3; determining the increase in rate cap, and providing a statement of reasons for any

increase over or under the increase in the productivity adjusted cost index announcing the increase.



27. In relation to variations under Option A, the Minister for Local Government’s role should involve approving, varying or rejecting, applications by councils for rate variations under Option A, whether for a multi-year or single year increase. The Minister’s decision should be accompanied by a statement of reasons.

In relation to variations under Option B, the Minister for Local Government’s role should

involve:

approving, or rejecting with a statement of reasons, councils’ satisfaction of eligibility criteria to move into Option B of the framework ;

approving, or rejecting (with a statement of reasons), councils’ satisfaction of community engagement criteria to implement rate revenue plans under Option B of the framework.

The Department's Role 28. The Department of Local Government’s role should involve:

Monitoring council rate increases; Advising the Minister on variation proposals under Option A; Administering and monitoring revenue requirements proposed by councils in Option A

and B; Monitoring and advising the Minister on compliance with eligibility, performance and

accountability criteria in Option A and B. IPART's Role 29. IPART’s role should involve:

Developing, maintaining and publishing the Local Government Cost Index which incorporates a productivity adjustment.

Recommending to the Minister the Local Government Cost Index to be used for the regulated annual rate increase.

Reviewing the criteria used to approve requirements for councils achieving autonomy under Option A and Option B.

Timing the Implementation of the Framework 30. The proposed methodology under Option A for the LGCI based regulated annual rate increase

should come into effect for the financial year 2010/11. 31. The proposed medium term (special variations) under Options A and B should come into

affect following the conclusion of the 2011/12 financial year, prior to council elections.

32. IPART should commence a survey of councils’ costs during 2009/10 to determine the weightings for the cost index model to apply from 2010/11.

33. Councils with existing special variation applications or approvals may continue to implement

these beyond the starting point for the new framework. 34. For the years 2010/11 and 2011/12, the cost index methodology will be used to inform the

rate capping process and will operate in conjunction with the current special variation system. Following the conclusion of the 2011/12 financial year, the current special variation system will be abolished and replaced by the medium term revenue path outlined under Options A and B of the proposed framework.



Calculating the LGCI 35. The cost items listed in Table 17.3 of IPART’s Report should form the basket of indicators

included in the local government cost index. 36. IPART should be responsible for weighting the cost items in the index on a 5 yearly basis. A

state-wide index would be adopted unless systematic differences in expenditure weights for specific council groupings are demonstrated.

37. The inflators listed in Table 17.5 of IPART’s Report should be used to escalate the

components of the cost index on an annual basis. 38. The LGCI and its calculations should be published on March 1st each year, using the most

recent available data from the Australian Bureau of Statistics. 39. A preliminary cost index, based on year to September quarter data, should be published in

December each year. Regulating Rate Revenue Only 40. The regulatory framework should impose controls on rate revenue only. Framework for Statutory Authorities 41. The NSW Government should enact legislation that provides for a dispute resolution process

to enable special development authorities and relevant councils to undertake negotiation, mediation and ultimately arbitration to reach a binding agreement on payment for local services provided by authorities.

42. The dispute resolution framework should initially require the parties to undertake

negotiations. Should negotiations not result in an agreement, then the process could require the parties to submit to mediation. Finally if no agreement can be reached, the framework should require the parties to submit to a binding adjudication process similar to arbitration.

43. The amount that the authorities can receive from councils should be limited to the amount that

councils save because the authorities, and not councils, are providing the service.

44. Prior to the implementation of any legislative scheme councils, SHFA and SOPA should consider whether some local services would be better managed by council and transferred, where parties agree.



Annexure 2 LIST OF FINDINGS 1. There is enormous diversity between councils in NSW in terms of their characteristics and the

services they provide. 2. The range of services reflects community demands and ultimately is a decision for each

council. However, there needs to be a balance between the demands and expectations of local communities and relatively limited resources.

3. While most councils have expanded into a number of activities that may be considered non-

traditional, smaller councils still tend to spend a greater proportion of their expenditure on traditional services.

4. The diverse and growing role of local government has occurred within the rate-pegging

framework, although it is not clear whether rate pegging may have limited these developments.

5. To improve transparency and promote long term financial sustainability, the minimum

changes to the rate pegging framework should include the use of an explicit and independently calculated price index to update council revenue requirements for movement in costs from year to year.

6. Even though rate pegging has constrained total rate revenues many councils have not been

constrained by the rate peg. While 49 per cent of councils increased rates revenue per assessment by the rate peg or less, just over half of councils, especially fringe and regional councils, have increased rates by much more than the rate peg as a result of the special variation process.

7. Diversity between councils leads to differences in rate levels and the rate of increases and

decreases over time. Any revenue framework must allow for this and under the current system it has led to extensive use of special variations by councils.

8. While some improvements have been noted, the special variation process could be further

improved if the issues the Minister takes into account were to be more clearly set out in the Department’s circular.

9. The utility of the rate pegging and variations system could be enhanced by moving away from

the current year by year focus towards one that encourages planning and budgeting process over a number of years.

10. The special variations process could be made more transparent if applications for special

variations were publicly available on the Department’s website. 11. The special variation process has not prevented councils from increasing rates revenue by

more than the rate peg amount. However, it may have provided an important check mechanism on increases of this type.

12. Councils should be required to circulate a short summary of the Draft Management Plan that

is designed to obtain community input on council decisions. 13. The Department of Local Government should publish best practice examples of Management

Plans and their summaries.



14. Councils’ accountability to their local community could be strengthened through stronger community input to decision making. To this end, they should be encouraged to enhance their community engagement so it moves (at a minimum) to the ‘involve’ level of the spectrum outlined in Box 5.2.

15. Under the current accountability arrangements, the timing horizon for councils’ principal

planning document (the management plan) is too short for effective planning and management of infrastructure with long lived assets.

16. While annual reports meet statutory functions, they are generally not an adequate

accountability mechanism for the community. 17. The proposed Integrated Planning and Reporting Framework significantly strengthens the

framework for accountability to the community. However, it could be enhanced through publication of best practice examples, guidelines and case studies.

18. For most of the period from 1976/77 growth in total revenue per capita in NSW has been

comparable to other states. This suggests that rate pegging did not greatly affect growth in total revenues for most of the period. However, growth in the 10 years to 2006/07 was significantly lower in NSW.

19. Rate pegging has constrained the growth of NSW councils’ rate revenue relative to the other

states. 20. Since rate pegging commenced, the sale of goods and services has been the largest source of

revenue growth in NSW. Revenue from this source increased by an average annual rate of 8.7 per cent in real terms from 1976/77 to 2006/07, compared with 6.4 per cent in the other states.

21. NSW councils’ revenue from the sale of goods and services grew faster than the other states

on a per capita basis. From 1976/77 to 2006/07, it grew by an average annual rate of 7.5 per cent in real terms compared with 4.9 per cent in the other states.

22. NSW councils have substituted rates income with other sources, particularly user charges and

fees, and this has enabled average growth in overall revenue to match that of the rest of Australia.

23. From 1976/77 to 2006/07, council revenue from grants and subsidies grew at a slower

average annual rate in NSW than in the other states (4.1 per cent real compared with 4.7 per cent real). On a per capita basis, this revenue has tended to be lower in NSW than in the other states, and the gap between NSW and the other states has widened in recent years.

24. There are significant differences in councils’ ability to raise revenue. The reduced capacity of

rural councils to raise revenue is reflected in a higher reliance on grants. 25. In the 30 years to 2006/07, councils in both NSW and the other states experienced significant

growth in ‘other revenues’ of 6.8 per and 6.5 per cent in real average annual terms respectively. However, NSW councils have one of the lowest levels of ‘other revenue’ per capita among the states.

26. Real average annual growth in NSW councils’ operating expenditure exceeded that of other

states from 1976/77 to 2006/07 (8.3 per cent compared with 6.4 per cent) indicating that rate pegging has not constrained expenditure growth over the period.



27. Excluding capital revenues (grants, subsidies and ‘other revenues’), NSW councils, in aggregate, have been generating operating deficits since 1998/99. However, the magnitude of the deficits on a per capita basis have been the lowest of all states.

28. Comparison of the operating results (operating surplus or deficit) both including and

excluding capital revenues between NSW and other states suggests that NSW councils may be using revenues for capital purposes to fund recurrent expenditure. However, this is to a lesser extent than other councils in Australia on an average, per capita basis.

29. The majority of councils (82.9 per cent) recorded operating results (excluding capital revenue)

above the benchmark. 30. The analysis on revenue trends, expenditure trends and operating result suggests that rate

pegging has not restricted expenditure growth. Revenue and expenditure trends have generally kept pace with the other states.

31. More than half of rural councils had a rates coverage ratio (rates as a proportion of operating

expenditure) below 40 per cent. This indicates that rural councils are at greater risk of being financially unsustainable due to their lack of ability to cover operating expenses with their rates revenue.

32. NSW councils’ capital expenditure ratios from 1999/2000 to 2006/07 suggest that local

governments, on average, may have been under-funding infrastructure. However, most councils have managed to reduce the level of under-funding in recent years.

33. Due to considerable variability in estimates of infrastructure renewals and maintenance it is

very difficult to accurately estimate the existence and size of an infrastructure backlog. 34. NSW councils have tended to accumulate much less debt than other Australian councils. In

fact, the NSW local government sector was in a net credit position from 1989/90 to 2006/07, which increased over these years. In 2006/07, net credits in NSW averaged around $23 million per council.

35. Trends for the debt service ratio shows that across all categories of councils capacity exists for

a greater utilisation of debt financing for infrastructure projects that deliver benefits to future generations of ratepayers.

36. From 1974/75 to 2006/07, NSW councils’ gross fixed capital formation increased by a real

average rate of 3.0 per cent per annum, lower than average annual growth of 5.0 per cent for the rest of Australia. However, from 1996/97, capital expenditure growth in NSW has outpaced average growth in the other states.

37. The case study analysis showed that councils tended to fund new capital expenditure with

operating revenues which is not always consistent with inter generational equity. As a general guideline, councils should have a combination of debt and revenue funding for capital purposes.

38. IPART has adopted a functional definition of cost shifting based on compulsory transfer of

assets and legislative mandates, resulting in a smaller number of activities being considered to be examples of cost shifting.



39. While there are a number of demands on councils’ resources arising from increasing costs of services (eg, street lighting) and expectations of the community, the impact of cost shifting using IPART’s definition on councils’ financial position is likely to be small for most councils.

40. Under the current framework the reporting requirements used to estimate efficiency tend to

provide information on a financial basis and do not address issues of service effectiveness. Qualitative information is collected by some councils, however, this is not widely available.

41. There are no standard measures for the productivity of local government service delivery.

Council reports on both expected and realised productivity improvements for individual services would inform a potentially wider review of the productivity of local government.

42. A State-wide community satisfaction survey would be an important tool to determine

effectiveness of council service and infrastructure provision. Previous research has indicated general satisfaction with council services and some dissatisfaction with council infrastructure provision.

43. The current rate pegging framework provides a non-transparent rate peg amount that is not

reflective of efficient increases (or decreases) in costs. 44. The current framework has not been effective in limiting overall expenditure nor placing

pressure on councils to achieve efficient and effective quality and composition of service delivery and may promote a short term focus.


POLITICAL DONATIONS DECISION MAKING FLOWCHART FOR THE INFORMATION OF COUNCILLORS

Matter before Committee or Council meeting

Did the applicant, owner (if not the applicant) or someone close to the applicant make a donation in

excess of $1,000 that directly benefited your election campaign? (Code of Conduct Cl 7.23)

ActionDeclare a significant non-

pecuniary conflict of interest, absent yourself from the meeting

and take no further part in the debate or vote on the matter(Code of Conduct Cl 7.17(b))

Did the applicant or someone close to the applicant make a donation less than $1,000 that

directly benefited your election campaign?(Code of Conduct Cl 7.23)

Do you believe the political contribution creates a significant non-pecuniary conflict of interest for you?

(Code of Conduct Cl 7.24)

ActionDeclare a significant non-

pecuniary conflict of interest, absent yourself from the meeting

and take no further part in the debate or vote on the matter(Code of Conduct Cl 7.17(b))

ActionParticipate in debate and vote on

the matter

Yes

No

YesYes

No

Is the matter before the meeting a Planning Matter?Yes

No

Staff to record decision process (motions/amendments) and Division

of votes for the determinative resolution or recommendation in the

meeting minutes

Staff to record decision process (motions/amendments) and determinative resolution or

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the discussion3. not participating in the discussion or decision

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or


sept 21-09 c&w agenda - woollahra.nsw.gov.au · the debate unless specifically called to do so...

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