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FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 85
IMPROVEMENT PROPOSAL BUSINESS CASE JUNE 2015
CHAPTER 1 - Scale and capacity
CHAPTER 2 – Financial criteria and measures
CHAPTER 3 - Social and community context
CHAPTER 4 - Community consultation
CHAPTER 5 - Other options
FIT FOR THE FUTURE Financial criteria and measures
CHAPTER 2
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 86
CONTENTSExecutive Summary 87
Fairfield City Council Key Performance Indicators 90
Financial Criteria and Benchmarks 91
Sustainability 91
Operating Performance Ratio 91
Own Source Revenue 97
Building and Infrastructure Asset Renewal Ratio 101
Infrastructure and Service Management 106
Infrastructure Backlog Ratio 106
Asset Maintenance Ratio 111
Debt Service Ratio 115
Efficiency 119
Real Operating Expenditure Per Capita 119
Improvement Action Plan 124
Amalgamation Costs 125
Toowoomba Analysis and Findings 125
Potential Savings from Amalgamation 128
Overall Result of Amalgamation 130
Limitations of Analysis 130
Appendices
Appendix 1: Fairfield City Council Long-Term Financial Plan 2015/16-2024/25 131
Appendix 2: Fairfield City Council Pitcher Partners
Depreciation Expense Report 176
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 87
EXECUTIVE SUMMARY
Fairfield City Council (FCC) will be stronger in the Fit for the Future (FFF) financial criteria and benchmarks when compared to the amalgamated entity over the next ten years. Five out of seven criteria achieve a higher performance or are met earlier than the amalgamated entity.
Fairfield City Council will meet all FFF performance benchmarks as a standalone council by 2016/17, except for the building and infrastructure renewal ratio which will be met in 2017/18. Financial consistency and efficiency improvements were initiated by Council as part of its Long Term Financial Plan (LTFP). Work on these initiatives commenced prior to the current local government reform process and was identified as part of an ongoing performance, audit and improvement process. The initiatives cover areas including:
• The development of new revenue centres in order to reduce the reliance on rates.
• New processes and formulas to improve asset renewal and classification.
• The application for and approval of a Special Rate Variation (SRV).
• Improved efficiency measures to improve service delivery.
Council developed the LTFP to outline the steps it will take to address the major financial challenges and opportunities which will impact on the way it does business over the next 10 years. The main objectives of the LTFP are to maintain and improve Council’s financial sustainability and to inform Council’s decisions about the services and new initiatives it will deliver. The LTFP is updated each year to provide a rolling 10 year outlook.
In summary, the LTFP demonstrates that Fairfield City Council is in a strong financial position over the next 10 years and this supports the conclusions of the TCorp assessment of financial sustainability and the NSW Government Local Government infrastructure audit. Council’s LTFP demonstrates that Council can:
• Deliver operating surpluses each year.
• Meet all ‘Fit for the Future’ benchmarks as set by the State Government.
• Achieve its own financial sustainability benchmarks.
This puts Council in a very good position to continue to deliver services that are important for its community and to introduce new initiatives that are identified as priorities in the Fairfield City Plan.
Presented below are extracts from the 10 year LTFP projections and the expected performance against various benchmarks across the 10 year horizon.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 88
The table above and additional detail later in this chapter, show that Council is forecast to achieve the stated goals. A positive net operating result is expected in each year of the LTFP as well as a better than breakeven net operating result before capital grants. Cash and cash equivalents decline in the 2015/16 year due to significant capital spend, but will then increase to sufficient levels. Continued growth in cash, cash equivalents and investments is projected across the entirety of the LTFP period, again the only exception being the 2015/16 year which is affected by the significant infrastructure capital spend. Council’s net asset base also continues to grow across the LTFP period.
Council had identified in the previous LTFP that a series of intervention initiatives would be required from 2018/19 so that Council could progress to achieving its long term financial sustainability. Significant structural reform has been undertaken in recent years which have achieved cost reductions across Council’s operating budget including a reduction of 4.5% in employee costs by the 2015/16 year. The impact of this structural reform has reduced the need for these additional financial intervention initiatives to find significant financial benefits in the short to medium term. However, continuous improvement in financial results remains a priority for Council.
Previous financial results and projections had been adversely affected by the introduction of new accounting standards regarding asset revaluations, the related impacts on depreciation expense and application of the previous conservative depreciation methodology. As a result, there has been an ongoing review of depreciation in line with the asset management plans over several years, culminating in a change of calculation method. This change has conditional external audit approval and thus has been worked into the 2015/16 budget and the subsequent years of the LTFP which improves projected financial outcomes.
Special Schedule 7 is a relatively new reporting requirement that has limitations caused by a lack of consistency of data and appropriate auditing standards. Historically, Council has been very conservative in preparing this Schedule which has adversely impacted results. This view is supported and recognised in the guidance provided in the description of the ratios where it was noted “It is acknowledged, that the reliability of infrastructure data within NSW Local Government is mixed. However, as asset management
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Net Operating Result 23,568 8,665 8,522 7,892 7,554 8,473 9,440 9,710 9,944 9,526
Net Operating Result (before capital grants) 3,194 3,579 3,334 2,574 2,103 2,886 3,714 3,840 3,927 3,358
Cash and Cash Equivalents (at end of financial year) 3,773 3,775 7,659 10,383 9,888 8,875 9,235 9,996 9,866 9,736
Cash, Cash Equivalents and Investments (at end of FY) 63,735 63,737 67,621 70,345 72,850 75,837 80,197 84,958 88,828 94,698
Net Assets (at end of FY) 1,794,209 1,802,874 1,811,397 1,819,288 1,991,423 1,999,896 2,009,336 2,019,046 2,028,990 2,235,646
Projected Years
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 89
practices within councils improve, it is anticipated that infrastructure reporting data reliability and quality will increase”. Fairfield Council as part of its Integrated Planning and Reporting improvements has reassessed some accounting treatments regarding assets and depreciation in partnership with its external auditors. Fairfield Council has previously prepared the Special Schedule 7 on the basis that all assets requiring renewal were restored to new condition (condition 1). The outcome for Fairfield with this more rigorous approach was still only 3.88% compared to the benchmark requirement of less than 2%. The changes in approach will improve this asset backlog percentage by:
• The new Special Rate Variation granted by IPART for Council commencing July 2014 included a recognition that Asset Management Plans addressing Asset backlog was a priority for Fairfield Council and this results in an additional $42.41M over 10 years to be spent on asset upgrades.
• Significant spend on asset renewal programmes included in the operational plans from strong Asset Management Planning.
• Measuring the cost to bring assets to a satisfactory condition as prescribed by the Office of Local Government as condition 2, as opposed to the current measure of condition 1 or new.
• The recommendation to consult with the community to determine the asset condition that is considered acceptable to deliver the required level of service. This may mean, for example, that an asset in condition 3 (average) may still deliver the required level of service and thus not form part of the asset backlog. This consultation is anticipated to deliver a significant reduction in the asset backlog.
Other initiatives have been pursued to further improve Council’s long term financial position. Council’s Sustainable Resource Centre currently returns approximately $900,000 to the annual budget from its recycling business. Additional property rental revenues to be delivered in 2016/17 due to the development of the Dutton Lane project in Cabramatta, currently under construction and an additional Property Development Fund investment in the 2018/19 year are examples of such initiatives.
Since 2009/10 Council has implemented an ongoing program of productivity improvements, cost containments and revenue opportunities. The savings that have been achieved combined with a new SRV have significantly improved Council’s financial sustainability as well as its ability to deliver priority services and initiatives for the community. The SRV which commenced in 2014/15, aims to achieve two outcomes - to enable Council to address its asset backlog and ensure the condition of its assets remain stable over the next 10 years, and to support a number of new capital initiatives which will deliver new and improved facilities to the community.
The Key Financial Indicators are displayed in the tables below. They confirm that the key objectives of balanced budgets/operational surpluses, continuous financial improvement, meeting financial sustainability benchmarks and FFF benchmarks will be achieved.
Council’s future position has been forecast on the basis of a continuance of “normal operations” as amended for SRV initiatives and underpinned by conservative assumptions and initiatives/efficiencies either already achieved or underway. This demonstrates a sound financial foundation and a readiness for future challenges. Hence Council could be expected to withstand adverse impacts or shocks outside of these assumptions. A focus on continuous improvement has the potential to deliver an upside to these projections.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 90
Fit for the Future Criteria 2021/22 2022/23 2023/24 2024/25
Operating Performance Ratio (greater or equal to break even
average over 3 years)
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
-1.43% 0.87% 2.09% 1.91% 1.58% 1.45% 1.62% 1.89% 2.03% 1.92%
85.19% 85.24% 85.25% 85.26%
Building & Infrastructure Renewals Ratio (greater than 100% average
over 3 years)
80.73% 81.02% 82.54% 85.13% 85.12% 85.15%
Own Source Operating Revenue Ratio (greater than 60% average
over 3 years)
80.94% 94.16% 102.55% 103.13% 102.11% 101.76% 101.42% 101.09% 100.77% 100.45%
1.84% 1.80% 1.78% 1.76%
Asset Maintenance Ratio (greater than or equal to 100% average over
3 years)
1.93% 1.92% 1.90% 1.88% 1.87% 1.85%
Infrastructure Backlog Ratio (less than 2%)
97.97% 101.25% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09%
Real Operating Expenditure per Capita over time (a decrease in real
operating expenditure per capita over time)
0.52% 0.27% 0.25% 0.43% 0.57%
Debt Service Ratio (> 0 and < or = to 20% average over 3 years)
$647.44 $648.21 $638.54 $634.46 $629.21
0.65% 0.61% 0.59% 0.58%0.70%
$625.56 $617.02 $611.04 $605.12 $601.43
Other Financial Ratios 2021/22 2022/23 2023/24 2024/252015/16 2016/17 2017/18 2018/19 2019/20 2020/21Unrestricted Current Ratio
3.12 3.37 3.56 3.49 3.47 3.46 3.59 3.68 3.80 3.98
Rates, Annual Charges, Interest & Extra Charges Outstanding Percentage 3.56% 3.55% 3.55% 3.55% 3.55% 3.55% 3.55% 3.55% 3.55% 3.55%
1.90% 1.21% 1.15% 1.53% 1.15%Capital Expenditure Ratio
1.14% 1.14% 1.17% 1.10%1.14%
62.81% 62.74% 62.68% 62.61%58.53% 63.26% 63.35% 63.39% 63.43% 62.88%Rates & Annual Charges Coverage Ratio
Net Financial Liabilities Ratio (Gearing Ratio) 0.09% 0.06% -0.06% 0.52% 0.42% 0.32% 0.18% 0.02% -0.09% -0.26%
-1.56% -1.67% -1.75% -1.86%-1.71% -1.70% -1.57% -1.32% -1.26% -1.46%Net Interest Coverage Ratio
Fairfield City Council Key Performance Indicators
FFF Criteria
Other Financial Ratios
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 91
FINANCIAL CRITERIA AND BENCHMARKS
SUSTAINABILITY
Operating Performance Ratio
Greater or equal to break even average over 3 years
Executive Summary
Fairfield Council is expected to meet this 3 year average benchmark in the 2016/17 year and then continue to meet it throughout the remainder of the LTFP period. Continued actions to further improve productivity, generate additional revenue and contain costs, are expected to result in operating surpluses for the foreseeable future.
Fairfield City Council consistently generates operating surpluses. This is despite the significant increase in depreciation expense caused by:
• The introduction of new accounting standards regarding asset revaluations.
• The related impacts on depreciation expense.
• The application of the current conservative depreciation methodology.
The SRV which took effect from 1 July 2014 and efficiency initiatives reducing costs (such as the previously implemented structural changes improving labour expenses by 4.5%) will return Council to surplus in 2015/16. These operating surpluses will be further improved by the application of the revised depreciation accounting treatment endorsed by our external auditors for application in 2014/15.
Note- The table above shows the result per year, the 3 year averages can be seen in the detailed graphs below.
Operating Performance Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield -1.70% 2.04% 2.21% 2.02% 1.52% 1.21% 1.61% 2.02% 2.04% 2.03% 1.69%Amalgamated -1.59% 0.91% 0.84% 1.05% 1.02% 0.68% 0.98% 1.56% 1.62% 1.58% 1.28%
Own source revenue ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 80.51% 77.59% 85.16% 85.13% 85.12% 85.10% 85.23% 85.24% 85.25% 85.26% 85.27%Amalgamated 76.70% 74.24% 77.44% 77.76% 79.08% 79.27% 81.21% 82.50% 83.92% 85.32% 84.17%
Building & Infrastructure Renewals Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 77.18% 100.30% 104.86% 102.47% 102.11% 101.77% 101.43% 101.09% 100.77% 100.45% 100.13%Amalgamated 79.27% 121.59% 92.06% 103.92% 108.75% 103.99% 102.70% 102.10% 103.82% 103.45% 101.90%
Infrastructure Backlog Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 1.95% 1.93% 1.92% 1.90% 1.88% 1.87% 1.85% 1.84% 1.80% 1.78% 1.76%Amalgamated 3.17% 2.55% 2.50% 2.14% 1.87% 1.49% 1.13% 1.11% 1.08% 1.06% 1.07%
Asset Maintenance Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 97.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09%Amalgamated 101.78% 106.45% 106.28% 106.52% 106.81% 107.09% 107.37% 108.05% 107.62% 108.31% 108.64%
Debt Service Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 0.29% 0.26% 0.26% 0.23% 0.78% 0.70% 0.64% 0.61% 0.59% 0.58% 0.57%Amalgamated 2.93% 3.12% 2.88% 2.45% 2.53% 2.29% 1.97% 2.14% 2.08% 1.81% 1.68%
Real Operating Expenditure per Capita
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield $682.74 $646.77 $647.54 $637.88 $633.81 $628.56 $624.92 $616.38 $610.41 $604.49 $600.81Amalgamated $683.93 $643.25 $637.78 $625.61 $617.30 $609.23 $600.50 $589.31 $580.59 $573.42 $567.63
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 92
What Fairfield City Council actions are or have been implemented to improve this ratio?
Council has a proud record of delivering productivity improvements, cost containment and improved revenue opportunities and a number of achievements in recent years continue to deliver benefits in the current year. These have been measured and monitored since 2008 and have resulted in approximately $5.7M per annum in improvements to the operating result. Such initiatives include:
• Withdrawal of management of the Fairfield City Farm (2009).
• Structural change for salaries and wages (2010) – 4.5% reduction from last projected LTFP.
• Christmas closure of non-essential services (2010).
• Energy and waste minimisation program (2010-2013).
• Review of operations of multi-deck car parks (2012).
Fairfield City Council remains committed to an ongoing program of initiatives to achieve further financial benefits for our community. These productivity improvements and cost containment initiatives enable Council to maximise the services it can deliver and the value for each rate dollar for ratepayers.
Initiatives in progress to further improve Operating Performance include:
• Continued focus on employee costs – including leave management.
• Purchase ongoing revenue generating properties including the new Library site at Hamilton Road. Dutton Lane commercial retail development currently under construction which is forecast to return $2.4M p.a. in rental from retail premises.
• Review of the appropriateness of user fees and charges.
• Changing the waste recycling delivery resourcing model - $600,000 p.a. cost reduction.
• Commercial Property Development Fund – Diamond Crescent residential development and various smaller subdivisions – one off capital return on investment through land sales to fund commercial projects such as Dutton Lane development mentioned above.
• Modifying the operation of goods storage to move to Just In Time delivery approach for the bulk of stock items.
• Analysis of purchasing to identify efficiencies from procurement.
• Cessation of the Enterprise Bargaining Agreement (EBA) finalised in June 2015.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 93
Initiatives under consideration include:
• Review service levels and core versus optional services.
• Fully cost subsidies for Council’s services so that future decisions can be made concerning the level of subsidy.
• Review resourcing models including use of contract services.
• Business case assessment of the subsidy level, utilisation and alternate delivery models for community halls, community office space and other services.
Forecast for ILGRP’s Preferred Option - Amalgamated Council
It is projected that the amalgamated entity will meet the benchmark in the 2016/17 financial year. Fairfield standalone meets the criteria in the 2016/17 year and continues to have a higher operating performance ratio over the following years indicating a more robust financial position than the amalgamated entity going forward.
Assumptions
• Expenditure and priorities continue as per respective LTFPs for the amalgamated entity.
• Ongoing productivity improvement, revenue opportunities and cost containment strategies for both councils continue to be achieved and not disrupted by amalgamation. If these are not achieved they are offset by any estimated savings or efficiencies from amalgamation - refer amalgamation costs analysis below.
• Amalgamation grants will be sufficient to meet the costs of amalgamation – refer amalgamation costs analysis below.
Definition of Criterion
The operating performance ratio measures Council’s achievement of containing operating expenditure within operating revenue. It is an important measure as it provides an indication of how a council generates revenue and allocates expenditure (e.g. asset maintenance, staffing costs). The OLG recommends that all councils should have at least a break even operating position or better as a key component of financial sustainability.
Calculation
Total continuing operating revenue (excl. Capital Grants & Contributions) – Operating Expenses
Total continuing operating revenue (excl. Capital Grants & Contributions)
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 94
Comments on Criterion
Fairfield Council would meet this benchmark earlier if the three following reasonable amendments were made to the measurement criteria:
• The measure excludes profit on sale of assets, including operational assets such as plant and equipment, vehicles and other items considered as part of the normal operating activities. Council would support the removal of one-off extraordinary profits/losses on sale, but normal operating asset disposals should be included.
• Fairfield Council participates as part of two self-insurance groups, WestPool and the United Independent Pools (UIP) and this is recorded in the accounts as net share of interests in joint ventures. This represents a reduced insurance cost for Council, but is excluded as part of the measure.
• The benchmark excludes Fair Value adjustments for investments, yet the income statement is significantly affected by other Fair Value adjustments such as depreciation and this treatment appears inconsistent.
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
95
STA
ND
ALO
NE
POSI
TIO
N
1. O
pera
ting
Perf
orm
ance
Rat
io
3 Ye
ar
Benc
hmar
k:av
erag
e
(gre
ater
or e
qual
to b
reak
eve
n av
erag
e ov
er 3
yea
rs)
Tota
l con
tinui
ng o
pera
ting
reve
nue
(exc
l. ca
pita
l gra
nts a
nd c
ontr
ibut
ions
) les
s ope
ratin
g ex
pens
esTo
tal c
ontin
uing
ope
ratin
g re
venu
e (e
xc. c
apita
l gra
nts a
nd c
ontr
ibut
ions
)
-2.1
9%-1
.43%
0.87
%2.
09%
1.91
%1.
58%
1.45
%1.
62%
1.89
%2.
03%
1.92
%
Com
men
ts re
Ope
ratin
g Pe
rfor
man
ce R
atio
Fina
ncia
l Yea
rFi
nanc
ial Y
ear
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2023
/24
2024
/25
Fairf
ield
Cou
ncil
cons
isten
tly g
ener
ates
ope
ratin
g su
rplu
ses.
Thi
s is d
espi
te th
e sig
nific
ant i
ncre
ase
in d
epre
ciat
ion
expe
nse
caus
ed
by:
• in
trod
uctio
n of
new
acc
ount
ing
stan
dard
s reg
ardi
ng a
sset
reva
luat
ions
•
the
rela
ted
impa
cts o
n de
prec
iatio
n ex
pens
e•
appl
icat
ion
of th
e cu
rren
t con
serv
ativ
e de
prec
iatio
n m
etho
dolo
gy.
Thes
e ite
ms h
ave
impa
cted
the
2013
/14
and
2014
/15
year
s res
ultin
g in
ope
ratin
g de
ficits
whi
ch ru
n ag
ains
t the
long
term
tren
d.
Th
e Sp
ecia
l Rat
e va
riatio
n ta
king
effe
ct fr
om 1
July
201
4 an
d ef
ficie
ncy
initi
ativ
es re
duci
ng c
osts
(suc
h as
the
stru
ctur
al c
hang
es
impr
ovin
g la
bour
exp
ense
s by
4.5%
) will
retu
rn C
ounc
il to
surp
lus f
or 2
015/
16. T
hese
ope
ratin
g su
rplu
ses w
ill b
e fu
rthe
r im
prov
ed
by th
e ap
plic
atio
n of
the
revi
sed
depr
ecia
tion
acco
untin
g tr
eatm
ent e
ndor
sed
by o
ur e
xter
nal a
udito
rs fo
r app
licat
ion
in F
Y15.
Th
is es
sent
ially
is re
cogn
ition
of a
sset
s res
idua
l val
ues a
nd a
sset
deg
rada
tion
curv
es b
ased
on
asse
t con
ditio
n in
spec
tions
ove
r the
us
eful
live
s.
Stru
ctur
al c
hang
es c
omm
ence
d in
ear
lier y
ears
, and
the
depr
ecia
tion
polic
y ch
ange
effe
cted
in 2
014/
15
will
yie
ld e
ndur
ing
bene
fits t
o op
erat
ing
resu
lts. C
ounc
il is
expe
cted
to re
ach
this
benc
hmar
k in
the
2016
/17
year
and
then
con
tinue
to m
eet i
n th
roug
hout
the
rem
aind
er o
f the
LTF
P pe
riod.
Con
tinue
d ac
tions
to fu
rthe
r im
prov
e pr
oduc
tivity
, gen
erat
e ad
ditio
nal r
even
ue a
nd c
onta
in c
osts
, as o
utlin
ed in
the
rele
vant
sect
ion
of th
e LT
FP d
ocum
ent,
is ex
pect
ed to
resu
lt in
ope
ratin
g su
rplu
ses f
or th
e fo
rese
eabl
e fu
ture
.
2022
/23
2.04
%
2017
/18
2.02
%
2018
/19
1.52
%
2019
/20
1.21
%
2020
/21
1.61
%
2021
/22
2.02
%
• An
impo
rtan
t mea
sure
as i
t pro
vide
s an
indi
catio
n of
how
a C
ounc
il ge
nera
tes
reve
nue
and
allo
cate
s exp
endi
ture
(e.g
. ass
et m
aint
enan
ce, s
taffi
ng c
osts
). It
is an
in
dica
tion
of c
ontin
ued
capa
city
to m
eet o
n-go
ing
expe
nditu
re re
quire
men
ts.
• TC
orp
reco
mm
ende
d th
at a
ll Co
unci
ls sh
ould
be
at le
ast b
reak
eve
n op
erat
ing
posit
ion
or b
ette
r, as
a k
ey c
ompo
nent
of f
inan
cial
sust
aina
bilit
y.
Proj
ecte
d
Mee
ts th
e FF
TF
Benc
hmar
k fr
om
2016
/17
Hist
oric
al
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
Rolli
ng 3
yea
r ave
rage
Mee
ts th
e FF
TF B
ench
mar
k
-1.7
0%2.
04%
2.21
%2.
03%
1.69
%3.
20%
0.03
%-4
.94%
-0.5
9%
-6.0
%
-4.0
%
-2.0
%
0.0%
2.0%
4.0%
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Ope
ratin
g Pe
rfor
man
ce R
atio
Ope
ratin
g Pe
rfor
man
ce R
atio
Benc
hmar
k
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
96
STA
ND
ALO
NE
(Eac
h C
ounc
il) v
AM
ALG
AM
ATED
PO
SITI
ON
1. O
pera
ting
Perf
orm
ance
Rat
io3
Year
Mee
ts th
e Be
nchm
ark:
aver
age
FFTF
(g
reat
er o
r equ
al to
bre
ak e
ven
aver
age
over
3 y
ears
)Be
nchm
ark
Fairf
ield
3.20
%0.
03%
-4.9
4%-0
.59%
-1
.70%
2.04
%2.
21%
2.02
%1.
52%
1.21
%1.
61%
2.02
%2.
04%
2.03
%1.
69%
Live
rpoo
l4.
18%
-1.6
9%-6
.53%
-1.3
5%
-1.4
8%-0
.22%
-0.5
6%0.
08%
0.53
%0.
15%
0.34
%1.
09%
1.21
%1.
13%
0.87
%Am
alga
mat
ed (F
CC &
LCC
)3.
70%
-0.8
3%-5
.74%
-0.9
7%
-1.5
9%0.
91%
0.84
%1.
05%
1.02
%0.
68%
0.98
%1.
56%
1.62
%1.
58%
1.28
%
-2.1
9%-1
.43%
0.87
%2.
09%
1.91
%1.
58%
1.45
%1.
62%
1.89
%2.
03%
1.92
%
-3.1
8%-2
.63%
-0.7
5%-0
.23%
0.03
%0.
25%
0.34
%0.
54%
0.89
%1.
14%
1.07
%
-2.6
8%-2
.03%
0.06
%0.
93%
0.97
%0.
92%
0.89
%1.
08%
1.39
%1.
59%
1.49
%
Com
men
ts re
Ope
ratin
g Pe
rfor
man
ce R
atio
Rolli
ng 3
yea
r ave
rage
Mee
ts th
e FF
TF B
ench
mar
k
Fina
ncia
l Yea
rHi
stor
ical
Proj
ecte
dFi
nanc
ial Y
ear
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2023
/24
2024
/25
The
amal
gam
ated
ent
ity w
ill m
eet t
he b
ench
mar
k in
the
2016
/17
finan
cial
yea
r, Fa
irfie
ld st
anda
lone
mee
ts th
e cr
iteria
in th
e 20
16/1
7 ye
ar a
nd c
ontin
ues t
o ha
ve a
hig
her o
pera
ting
perf
orm
ance
ratio
ove
r the
follo
win
g ye
ars i
ndic
atin
g a
soun
der
finan
cial
pos
ition
than
the
amal
gam
ated
ent
ity g
oing
forw
ard.
Con
tinue
d ac
tions
to im
prov
e pr
oduc
tivity
, gen
erat
e ad
ditia
l rev
enue
and
con
tain
cos
ts is
exp
ecte
d to
re
sult
in o
pera
ting
surp
luse
s for
the
fors
eeab
le fu
ture
. Fu
rthe
r opp
ortu
nitie
s in
the
amal
gam
ated
ent
ity
are
diffi
cult
to id
entif
y at
pre
sent
.
2022
/23
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
• An
impo
rtan
t mea
sure
as i
t pro
vide
s an
indi
catio
n of
how
a c
ounc
il ge
nera
tes
reve
nue
and
allo
cate
s exp
endi
ture
(e.g
. ass
et m
aint
enan
ce, s
taffi
ng c
osts
). It
is an
in
dica
tion
of c
ontin
ued
capa
city
to m
eet o
ngoi
ng e
xpen
ditu
re re
quire
men
ts.
• TC
orp
reco
mm
ende
d th
at a
ll co
unci
ls sh
ould
be
at le
ast b
reak
eve
n op
erat
ing
posit
ion
or b
ette
r, as
a k
ey c
ompo
nent
of f
inan
cial
sust
aina
bilit
y.
Rolli
ng 3
yea
r ave
rage
Mee
ts th
e FF
TF B
ench
mar
k
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
Rolli
ng 3
yea
r ave
rage
Mee
ts th
e FF
TF B
ench
mar
k
-8.0
%
-6.0
%
-4.0
%
-2.0
%
0.0%
2.0%
4.0%
6.0%
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Ope
ratin
g Pe
rfor
man
ce R
atio
Ope
ratin
g Pe
rfor
man
ce R
atio
Am
alga
mat
edO
pera
ting
Perf
orm
ance
Rat
io F
airf
ield
Ope
ratin
g Pe
rfor
man
ce R
atio
Liv
erpo
olBe
nchm
ark
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 97
SUSTAINABILITY
Own Source Revenue
Greater than 60% average over 3 years
Executive Summary
Fairfield City Council is currently significantly exceeding this benchmark with a 3 year average of 81.81% and is anticipated to continue to exceed this benchmark in the future.
Continuation of current plans and strategies to develop funding sources independent of grants and rates, such as the commercial Property Development Fund (PDF) activities, should ensure continued achievement of this benchmark. Fairfield City currently has a SEIFA index of 3rd most disadvantaged LGA in NSW and is the most disadvantaged in metropolitan Sydney. The need in the community requires Council to be able to reliably fund its service delivery while keeping rates, fees and charges at an affordable level.
Note- The table above shows the result per year, the 3 year averages can be seen in the detailed graphs below.
What Fairfield City Council actions are or have been implemented to improve this ratio?
Council’s PDF projects, including the development of a retail centre in Dutton Lane generating $2.4M net p.a and the commercial recycling business in the Sustainable Resource Centre (SRC) generating $900,000 return annually, reduce its reliance on both grants and rates. A further property development is planned to be commenced in 2018/19 which will generate $1.2M p.a. recurring income from the 2020/21 year.
Forecast for ILGRP’s Preferred Option - Amalgamated Council
The amalgamated entity meets the benchmark from the 2014/15 year and Fairfield standalone also meets the criteria from 2014/15. It is worthy to note that Fairfield’s own source revenue ratio is higher than the amalgamated entity by an average of 4.5% over the next 10 years.
Fairfield City currently has a SEIFA index of 3rd most disadvantaged LGA in NSW and the most disadvantaged in metropolitan Sydney. A merger may disguise this level of disadvantage and negatively influence funding allocations that support the priority needs of this community.
Operating Performance Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield -1.70% 2.04% 2.21% 2.02% 1.52% 1.21% 1.61% 2.02% 2.04% 2.03% 1.69%Amalgamated -1.59% 0.91% 0.84% 1.05% 1.02% 0.68% 0.98% 1.56% 1.62% 1.58% 1.28%
Own source revenue ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 80.51% 77.59% 85.16% 85.13% 85.12% 85.10% 85.23% 85.24% 85.25% 85.26% 85.27%Amalgamated 76.70% 74.24% 77.44% 77.76% 79.08% 79.27% 81.21% 82.50% 83.92% 85.32% 84.17%
Building & Infrastructure Renewals Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 77.18% 100.30% 104.86% 102.47% 102.11% 101.77% 101.43% 101.09% 100.77% 100.45% 100.13%Amalgamated 79.27% 121.59% 92.06% 103.92% 108.75% 103.99% 102.70% 102.10% 103.82% 103.45% 101.90%
Infrastructure Backlog Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 1.95% 1.93% 1.92% 1.90% 1.88% 1.87% 1.85% 1.84% 1.80% 1.78% 1.76%Amalgamated 3.17% 2.55% 2.50% 2.14% 1.87% 1.49% 1.13% 1.11% 1.08% 1.06% 1.07%
Asset Maintenance Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 97.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09%Amalgamated 101.78% 106.45% 106.28% 106.52% 106.81% 107.09% 107.37% 108.05% 107.62% 108.31% 108.64%
Debt Service Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 0.29% 0.26% 0.26% 0.23% 0.78% 0.70% 0.64% 0.61% 0.59% 0.58% 0.57%Amalgamated 2.93% 3.12% 2.88% 2.45% 2.53% 2.29% 1.97% 2.14% 2.08% 1.81% 1.68%
Real Operating Expenditure per Capita
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield $682.74 $646.77 $647.54 $637.88 $633.81 $628.56 $624.92 $616.38 $610.41 $604.49 $600.81Amalgamated $683.93 $643.25 $637.78 $625.61 $617.30 $609.23 $600.50 $589.31 $580.59 $573.42 $567.63
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 98
Assumptions
• Future significant changes do not occur to grants such as Federal Assistance Grants (FAGs) indexation freeze that reduced the grants and increased the ratio.
• Delivery of the PDF commercial project is accomplished and the Sustainable Resource Centre continues profitable operations.
Definition of Criterion
The own source revenue ratio measures fiscal flexibility as it indicates the extent of external funding sources such as operating and capital grants and contributions received by councils. Financial flexibility increases as the level of own source revenue increases. It also gives councils greater ability to manage external shocks or challenges. Councils with higher own source revenue have greater ability to control or manage their own operating performance and financial sustainability
Calculation
Total continuing operating revenue (less ALL Grants & Contributions)
Total continuing operating revenue
Comments on Criterion
The measure can see a natural improvement without Council taking any action, but simply as a result of decisions taken by Federal and State Governments deciding to reduce grants. An example of this was the Federal Government’s recent decision to not apply inflation for 3 years to FAGs. This was further compounded by the NSW State Government’s decision through its distribution model to reduce Fairfield Council’s share by a further 5%, resulting in a net impact to Fairfield Council in year 1 of $800,000 reduction in income. Ironically, both of these impacts improve our benchmark ratio, but deliver less revenue to service the community.
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
99
STA
ND
ALO
NE
POSI
TIO
N
2. O
wn
Sour
ce R
even
ue R
atio
3 Ye
ar
Benc
hmar
k:av
erag
e
(gre
ater
than
60%
ave
rage
ove
r 3 y
ears
)
Tota
l con
tinui
ng o
pera
ting
reve
nue
less
all
gran
ts a
nd c
ontr
ibut
ions
Tota
l con
tinui
ng o
pera
ting
reve
nue
incl
usiv
e of
cap
ital g
rant
s and
con
trib
utio
ns
82.1
%80
.7%
81.0
%82
.5%
85.1
%85
.1%
85.1
%85
.2%
85.2
%85
.2%
85.3
%
Com
men
ts re
Ow
n So
urce
Rev
enue
Rat
io
Proj
ecte
dHi
stor
ical
Fina
ncia
l Yea
rFi
nanc
ial Y
ear
2011
/12
2012
/13
2013
/14
2024
/25
2014
/15
2015
/16
2016
/17
2023
/24
Mee
ts th
e FF
TF
Benc
hmar
k fr
om
2014
/15
79.2
9%81
.38%
84.6
8%81
.81%
80
.51%
77.5
9%85
.16%
85.2
6%
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
Coun
cil i
s cur
rent
ly si
gnifi
cant
ly e
xcee
ding
thi
s ben
chm
ark
and
this
is an
ticip
ated
to c
ontin
ue in
the
futu
re.
Coun
cil h
as
take
n ac
tions
with
the
deve
lopm
ent o
f a re
tail
cent
re in
Dut
ton
Lane
as p
art o
f a c
omm
erci
al P
rope
rty
Deve
lopm
ent F
und
) pr
ojec
t gen
erat
ing
$2.4
M a
nd a
com
mer
cial
recy
clin
g bu
sines
s in
the
Sust
aina
ble
Reso
urce
Cen
tre
(SRC
) gen
erat
ing
$900
k re
turn
net
p.a
to re
duce
its r
elia
nce
on b
oth
gran
ts a
nd ra
tes.
A fu
rthe
r pro
pert
y de
velo
pmen
t is p
lann
ed to
be
com
men
ced
in 2
018/
19 w
hich
will
gen
erat
e $1
.2M
p.a
. rec
urrin
g in
com
e fr
om 2
020/
21 y
ear.
An a
dditi
onal
$10
.65M
in
capi
tal g
rant
s in
2015
/16
for r
oads
and
infr
astr
uctu
re fo
r the
new
airp
ort r
educ
es th
e ra
tio in
that
yea
r.
Cont
inua
tion
of c
urre
nt p
lans
and
stra
tegi
es sh
ould
ens
ure
cont
inue
d ac
hiev
emen
t of t
his b
ench
mar
k.
2022
/23
85.2
5%85
.27%
Mee
ts th
e FF
TF B
ench
mar
k
85.1
3%85
.12%
85.1
0%85
.23%
85.2
4%
• M
easu
res t
he d
egre
e of
relia
nce
on e
xter
nal f
undi
ng so
urce
s (e.
g. g
rant
s and
co
ntrib
utio
ns).
• Fi
nanc
ial f
lexi
bilit
y in
crea
ses a
s the
leve
l of o
wn
sour
ce re
venu
e in
crea
ses.
It a
lso g
ives
co
unci
ls gr
eate
r abi
lity
to m
anag
e ex
tern
al sh
ocks
or c
halle
nges
.•
Coun
cils
with
hig
her o
wn
sour
ce re
venu
e ha
ve g
reat
er a
bilit
y to
con
trol
or m
anag
e th
eir
own
oper
atin
g pe
rfor
man
ce a
nd fi
nanc
ial s
usta
inab
ility
.
• Th
e Fe
dera
l Gov
ernm
ent d
id n
ot a
pply
infla
tion
for 3
yea
rs to
Fed
eral
Ass
istan
ce G
rant
s (F
AG’s
). T
his,
with
Sta
te G
over
nmen
t's d
ecisi
on th
roug
h its
dist
ribut
ion
mod
el to
redu
ce
Coun
cil's
shar
e by
a fu
rthe
r 5%
resu
lted
in a
net
impa
ct in
yea
r 1 o
f $80
0k re
duct
ion
in
inco
me.
Iro
nica
lly, t
his i
mpr
oves
our
ben
chm
ark
ratio
, but
del
iver
s les
s rev
enue
to se
rvic
e th
e Co
mm
unity
.
Rolli
ng 3
yea
r ave
rage
0.0%
10.0
%
20.0
%
30.0
%
40.0
%
50.0
%
60.0
%
70.0
%
80.0
%
90.0
%
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Ow
n So
urce
Rev
enue
Rat
io
Ow
n So
urce
Rev
enue
Rat
io
Benc
hmar
k
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
100
STA
ND
ALO
NE
(Eac
h C
ounc
il) v
AM
ALG
AM
ATED
PO
SITI
ON
2. O
wn
Sour
ce R
even
ue R
atio
3 Ye
arM
eets
the
Benc
hmar
k:av
erag
eFF
TF
(gre
ater
than
60%
ave
rage
ove
r 3 y
ears
)Be
nchm
ark
Fairf
ield
79.2
9%81
.38%
84.6
8%81
.81%
80
.51%
77.5
9%85
.16%
85.1
3%85
.12%
85.1
0%85
.23%
85.2
4%85
.25%
85.2
6%85
.27%
Live
rpoo
l63
.23%
67.2
5%70
.61%
66.9
5%
73.3
9%71
.23%
71.0
5%71
.68%
73.9
9%74
.35%
77.6
9%80
.05%
82.6
9%85
.38%
83.1
7%Am
alga
mat
ed (F
CC &
LCC
)70
.07%
73.5
1%76
.92%
73.4
8%
76.7
0%74
.24%
77.4
4%77
.76%
79.0
8%79
.27%
81.2
1%82
.50%
83.9
2%85
.32%
84.1
7%
82.1
%80
.7%
81.0
%82
.5%
85.1
%85
.1%
85.1
%85
.2%
85.2
%85
.2%
85.3
%
70.4
3%71
.75%
71.8
7%71
.32%
72.2
5%73
.35%
75.3
5%77
.36%
80.1
5%82
.70%
83.7
3%
75.7
2%75
.91%
76.1
1%76
.48%
78.1
0%78
.71%
79.8
6%81
.01%
82.5
5%83
.92%
84.4
7%
Com
men
ts re
Ow
n So
urce
Rev
enue
Rat
io
Hist
oric
alPr
ojec
ted
Fina
ncia
l Yea
rFi
nanc
ial Y
ear
2011
/12
2012
/13
2013
/14
2024
/25
2014
/15
2015
/16
2016
/17
2023
/24
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
The
amal
gam
ated
ent
ity m
eets
the
benc
hmar
k fr
om th
e 20
14/1
5 ye
ar a
nd F
airf
ield
stan
d-al
one
also
mee
ts th
e cr
iterio
n fr
om 2
014/
15. i
t is w
orth
y to
not
e th
at F
airf
ield
's ow
n so
urce
reve
nue
ratio
is h
ighe
r tha
n th
e am
alga
mat
ed
entit
y by
an
aver
age
of 4
.5%
ove
r the
nex
t 10
year
s.
Oth
er in
itiat
ives
hav
e be
en p
ursu
ed to
furt
her i
mpr
ove
Fairf
ield
Cou
ncil’
s lon
g te
rm fi
nanc
ial p
ositi
on.
Addi
tiona
l pro
pert
y re
ntal
reve
nues
to b
e de
liver
ed in
201
6-17
due
to th
e de
velo
pmen
t of D
utto
n La
ne
in C
abra
mat
ta, c
urre
ntly
und
er c
onst
ruct
ion,
and
an
addi
tiona
l com
mer
cial
Pro
pert
y De
velo
pmen
t Fun
d in
vest
men
t in
the
2018
/19
year
are
exa
mpl
es o
f suc
h in
itiat
ives
.
2022
/23
Mee
ts th
e FF
TF B
ench
mar
k
• M
easu
res t
he d
egre
e of
relia
nce
on e
xter
nal f
undi
ng so
urce
s (e.
g. g
rant
s and
co
ntrib
utio
ns).
• Fi
nanc
ial f
lexi
bilit
y in
crea
ses a
s the
leve
l of o
wn
sour
ce re
venu
e in
crea
ses.
It a
lso
give
s cou
ncils
gre
ater
abi
lity
to m
anag
e ex
tern
al sh
ocks
or c
halle
nges
.•
Coun
cils
with
hig
her o
wn
sour
ce re
venu
e ha
ve g
reat
er a
bilit
y to
con
trol
or
man
age
thei
r ow
n op
erat
ing
perf
orm
ance
and
fina
ncia
l sus
tain
abili
ty.
Rolli
ng 3
yea
r ave
rage
Mee
ts th
e FF
TF B
ench
mar
kRo
lling
3 y
ear a
vera
geM
eets
the
FFTF
Ben
chm
ark
Rolli
ng 3
yea
r ave
rage
0.0%
20.0
%
40.0
%
60.0
%
80.0
%
100.
0%
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Ow
n So
urce
Rev
enue
Rat
io
Ow
n So
urce
Rev
enue
Rat
io A
mal
gam
ated
Ow
n So
urce
Rev
enue
Rat
io F
airf
ield
Ow
n So
urce
Rev
enue
Rat
io L
iver
pool
Benc
hmar
k
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 101
SUSTAINABILITY
Building and Infrastructure Asset Renewal Ratio
Greater than 100% average over 3 years
Executive Summary
The renewal ratio is expected to achieve greater than 100% from 2015/16 and meet the three year average in 2017/18. This improvement has occurred due to:
• Improved project identification between new and renewal components.
• The application of the new SRV expenditure from 2014/15 commits $42.41M for infrastructure renewals over 10 years, of which $1.7M p.a. ($15.3M for 10 years) is for buildings.
• A change in the depreciation measurement to better recognise the deterioration of assets will further improve the ratio. Council’s methodology will be introduced and audited as part of the 2014/15 financial year, for application from 2015/16 and subsequent years which will result in a significant impact (reduction) on depreciation expense.
The SRV which took effect from 1 July 2014 has committed significant expenditure for Building and Infrastructure Renewal - $42.41M for infrastructure renewals over 10 years, of which $1.7M p.a. ($15.3M for 10 years) is for buildings – as Council previously identified this as a concern. This increased expenditure will improve the ratio.
The current shortfall against the benchmark is also largely a result of understatement of asset renewals due to the classification of work performed as new projects. There is now a greater emphasis to separately identify renewal components from improvements or extensions. In the past, asset renewals were understated due to the classification of work performed as ‘new projects’. Improvements in the classification process presents a more accurate reflection of the actual renewal work and show that Council will reach the benchmark performance in the 2015/16 year (noting that the 3 year rolling average will take until 2017/18 to flow through).
Note- The table above shows the result per year, the 3 year averages can be seen in the detailed graphs below.
Operating Performance Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield -1.70% 2.04% 2.21% 2.02% 1.52% 1.21% 1.61% 2.02% 2.04% 2.03% 1.69%Amalgamated -1.59% 0.91% 0.84% 1.05% 1.02% 0.68% 0.98% 1.56% 1.62% 1.58% 1.28%
Own source revenue ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 80.51% 77.59% 85.16% 85.13% 85.12% 85.10% 85.23% 85.24% 85.25% 85.26% 85.27%Amalgamated 76.70% 74.24% 77.44% 77.76% 79.08% 79.27% 81.21% 82.50% 83.92% 85.32% 84.17%
Building & Infrastructure Renewals Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 77.18% 100.30% 104.86% 102.47% 102.11% 101.77% 101.43% 101.09% 100.77% 100.45% 100.13%Amalgamated 79.27% 121.59% 92.06% 103.92% 108.75% 103.99% 102.70% 102.10% 103.82% 103.45% 101.90%
Infrastructure Backlog Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 1.95% 1.93% 1.92% 1.90% 1.88% 1.87% 1.85% 1.84% 1.80% 1.78% 1.76%Amalgamated 3.17% 2.55% 2.50% 2.14% 1.87% 1.49% 1.13% 1.11% 1.08% 1.06% 1.07%
Asset Maintenance Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 97.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09%Amalgamated 101.78% 106.45% 106.28% 106.52% 106.81% 107.09% 107.37% 108.05% 107.62% 108.31% 108.64%
Debt Service Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 0.29% 0.26% 0.26% 0.23% 0.78% 0.70% 0.64% 0.61% 0.59% 0.58% 0.57%Amalgamated 2.93% 3.12% 2.88% 2.45% 2.53% 2.29% 1.97% 2.14% 2.08% 1.81% 1.68%
Real Operating Expenditure per Capita
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield $682.74 $646.77 $647.54 $637.88 $633.81 $628.56 $624.92 $616.38 $610.41 $604.49 $600.81Amalgamated $683.93 $643.25 $637.78 $625.61 $617.30 $609.23 $600.50 $589.31 $580.59 $573.42 $567.63
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 102
What Fairfield City Council actions are or have been implemented to improve this ratio?
The SRV which commenced on 1 July 2014 commits $42.41M for infrastructure renewals over 10 years, of which $1.7M p.a. ($15.3M for 10 years) is for buildings, which improves this ratio.
Council has strengthened internal classification processes for renewals of assets as part of its depreciation and asset review. This will result in separately identifying renewal components from improvements or extensions. In the past, asset renewals were understated due to the classification of work performed as new projects. This classification problem occurred because most renewal work also accommodates improvements that have been identified responding to community expectations.
Additionally, a change in depreciation measurement will further improve the ratio Council’s methodology will be introduced and audited as part of the 2014/2015 financial year, for application from 2015/2016 and subsequent years which will result in a significant impact (reduction) on depreciation expense (compared to previously forecasted depreciation expense). The reduction is essentially recognition of asset residual values and asset degradation curves based on condition inspections over the useful lives to better recognise the deterioration of assets.
Forecast for ILGRP’s Preferred Option - Amalgamated Council
The amalgamated entity will meet the benchmark as of the 2017/18 financial year, this is also the case with Fairfield standing alone. It should be noted that Fairfield Council currently has a more conservative average depreciation rate of 1.72% or 58.3 years average asset life compared to Liverpool’s of 1.15% or 86.6 years. This means the improved amalgamated entity result is generated from combining methodologies rather than improved results.
Assumptions
• Liverpool has identified funding sources to complete the Liverpool renewals. Fairfield has the Special Rate Variation approved for Fairfield’s renewals.
• Fairfield Council has the capacity to deliver the renewal programs.
• Fairfield’s Asset Management Plans (AMPs) identify the renewal programme effectively and without conflict.
Definition of Criterion
The building and infrastructure asset renewal ratio assesses the rate at which assets are being renewed against the rate at which they are depreciating.
Renewal is defined as the replacement of existing assets to equivalent capacity or performance capability, as opposed to the acquisition of new assets.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 103
A higher ratio is an indicator of strong performance, performance < 100% indicates that a council’s existing assets are deteriorating faster than they are being renewed and that potentially the backlog is worsening.
Calculation
Asset renewals (building and infrastructure)
Depreciation, amortisation and impairment (building and infrastructure).
Comments on Criterion
Special Schedule 7 is a relatively new reporting requirement that has limitations caused by a lack of consistency of data and appropriate auditing standards. Fairfield Council has been very conservative historically in preparing this Schedule which may have adversely impacted the result. This view is supported and recognised in the guidance provided in the description of the ratios where it was noted. “It is acknowledged, that the reliability of infrastructure data within NSW local government is mixed. However, as asset management practices within councils improve, it is anticipated that infrastructure reporting data reliability and quality will increase.” Council has, as part of its Integrated Planning and Reporting improvements, reassessed some accounting treatments regarding assets and depreciation in partnership with the external auditors Pitcher Partners.
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
104
STA
ND
ALO
NE
POSI
TIO
N
3. Bui
ldin
g an
d In
fras
truc
ture
Ass
et R
enew
al R
atio
3 Ye
ar
Benc
hmar
k:av
erag
e
(gre
ater
than
100
% a
vera
ge o
ver 3
yea
rs)
Asse
t ren
ewal
s (bu
ildin
g an
d in
fras
truc
ture
)De
prec
iatio
n, a
mor
tisat
ion
and
impa
irmen
t (b
uild
ing
and
infr
astr
uctu
re)
73.5
%80
.9%
94.2
%10
2.5%
103.
1%10
2.1%
101.
8%10
1.4%
101.
1%10
0.8%
100.
4%
Com
men
ts re
Bui
ldin
g an
d In
fras
truc
ture
Ass
et R
enew
al R
atio
Proj
ecte
dHi
stor
ical
Fina
ncia
l Yea
rFi
nanc
ial Y
ear
2011
/12
2012
/13
2013
/14
2024
/25
2014
/15
2015
/16
2016
/17
2023
/24
Mee
ts th
e FF
TF
Benc
hmar
k fr
om 2
017/
2018
76.7
4%79
.10%
64.8
1%73
.06%
77
.18%
100.
30%
104.
86%
100.
45%
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
The
rene
wal
ratio
is e
xpec
ted
to a
chie
ve g
reat
er th
an 1
00%
from
201
5/16
and
mee
t the
3 y
ear a
vera
ge in
201
7/18
. Th
is im
prov
emen
t has
occ
urre
d du
e to
:•
Impr
oved
pro
ject
iden
tific
atio
n be
twee
n ne
w a
nd re
new
al c
ompo
nent
s•
The
appl
icat
ion
of th
e ne
w S
RV e
xpen
ditu
re fr
om 2
014/
15 o
f $42
.41M
for i
nfra
stru
cutr
e re
new
als o
ver 1
0 ye
ars,
of w
hich
$1
.7M
per
ann
um ($
15.3
M fo
r 10
year
s fro
m 2
014/
15) i
s for
bui
ldin
gs•
A ch
ange
in th
e de
prec
iatio
n m
easu
rem
ent t
o be
tter
reco
gnise
the
dete
riora
tion
of a
sset
s will
furt
her i
mpr
ove
the
ratio
. Co
unci
l’s m
etho
dolo
gy to
be
intr
oduc
ed fo
r the
201
4/20
15 a
nd su
bseq
uent
yea
rs w
ill re
sult
in a
sign
ifica
nt im
pact
(r
educ
tion)
on
depr
ecia
tion
expe
nse.
Co
unci
l has
stre
ngth
ened
inte
rnal
cla
ssifi
catio
n pr
oces
ses f
or re
new
als o
f ass
ets a
s par
t of i
ts d
epre
ciat
ion
and
asse
t re
view
. Th
is w
ill re
sult
in se
para
tely
iden
tifyi
ng re
new
al c
ompo
nent
s fro
m im
prov
emen
ts o
r ext
ensio
ns.
In th
e pa
st, a
sset
re
new
als w
ere
unde
rsta
ted
due
to th
e cl
assif
icat
ion
of w
ork
perf
orm
ed a
s new
pro
ject
s. T
his c
lass
ifica
tion
prob
lem
oc
curr
ed b
ecau
se m
ost r
enew
al w
ork
also
acc
omm
odat
es im
prov
emen
ts th
at h
ave
been
iden
tifie
d re
spon
ding
to
com
mun
ity e
xpec
tatio
ns.
Addi
tiona
lly, t
he c
hang
e in
dep
reci
atio
n po
licy
will
furt
her i
mpr
ove
the
ratio
.
The
SRV
com
mits
$42
.41M
for i
nfra
stru
cutr
e re
new
als o
ver 1
0 ye
ars,
of w
hich
$1.
7M p
er a
nnum
($15
.3M
for
10 y
ears
from
201
4/15
) is f
or b
uild
ings
, thi
s im
prov
es th
is ra
tio.
2022
/23
100.
77%
100.
13%
Mee
ts th
e FF
TF B
ench
mar
k
102.
47%
102.
11%
101.
77%
101.
43%
101.
09%
• Re
pres
ents
the
repl
acem
ent o
r ref
urbi
shm
ent o
f exi
stin
g as
sets
to a
n eq
uiva
lent
ca
paci
ty o
r per
form
ance
, as o
ppos
ed to
the
acqu
isitio
n of
new
ass
ets o
r the
re
furb
ishm
ent o
f old
ass
ets t
hat i
ncre
ase
capa
city
or p
erfo
rman
ce.
• Co
mpa
res t
he p
ropo
rtio
n sp
ent o
n in
fras
truc
ture
ass
et re
new
als a
nd th
e as
set’s
de
terio
ratio
n.•
A co
nsist
ent m
easu
re th
at c
an b
e ap
plie
d ac
ross
cou
ncils
of d
iffer
ent s
izes a
nd
loca
tions
. •
A hi
gher
ratio
is a
n in
dica
tor o
f str
ong
perf
orm
ance
.•
Perf
orm
ance
< 1
00%
indi
cate
s tha
t a C
ounc
il’s e
xist
ing
asse
ts a
re d
eter
iora
ting
fast
er
than
they
are
bei
ng re
new
ed a
nd th
at p
oten
tially
the
back
log
is w
orse
ning
.
Rolli
ng 3
yea
r ave
rage
0.0%
20.0
%
40.0
%
60.0
%
80.0
%
100.
0%
120.
0%
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Build
ing
& A
sset
Ren
ewal
Rat
io
Build
ing
& A
sset
Rene
wal
Rat
io
Benc
hmar
k
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
105
STA
ND
ALO
NE
(Eac
h C
ounc
il) v
AM
ALG
AM
ATED
PO
SITI
ON
3. B
uild
ing
and
Infr
astr
uctu
re A
sset
Ren
ewal
Rat
io3
Year
Mee
ts th
e Be
nchm
ark:
aver
age
FFTF
(g
reat
er th
an 1
00%
ave
rage
ove
r 3 y
ears
)Be
nchm
ark
Fairf
ield
76.7
4%79
.10%
64.8
1%73
.06%
77
.18%
100.
30%
104.
86%
102.
47%
102.
11%
101.
77%
101.
43%
101.
09%
100.
77%
100.
45%
100.
13%
Live
rpoo
l78
.92%
90.4
1%70
.09%
79.5
6%
81.0
1%13
9.35
%81
.61%
105.
07%
114.
00%
105.
74%
103.
70%
102.
90%
106.
38%
106.
01%
103.
41%
Amal
gam
ated
(FCC
& L
CC)
78.0
5%85
.77%
67.8
2%76
.87%
79
.27%
121.
59%
92.0
6%10
3.92
%10
8.75
%10
3.99
%10
2.70
%10
2.10
%10
3.82
%10
3.45
%10
1.90
%
73.5
%80
.9%
94.2
%10
2.5%
103.
1%10
2.1%
101.
8%10
1.4%
101.
1%10
0.8%
100.
4%
80.2
5%96
.21%
100.
48%
108.
32%
100.
63%
108.
28%
107.
74%
104.
10%
104.
31%
105.
07%
105.
25%
77.3
2%89
.39%
97.6
2%10
5.73
%10
1.74
%10
5.56
%10
5.11
%10
2.92
%10
2.87
%10
3.12
%10
3.05
%
Com
men
ts re
Bui
ldin
g an
d In
fras
truc
ture
Ass
et R
enew
al R
atio
Hist
oric
alPr
ojec
ted
Fina
ncia
l Yea
rFi
nanc
ial Y
ear
2011
/12
2012
/13
2013
/14
2024
/25
2014
/15
2015
/16
2016
/17
2023
/24
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
The
amal
gam
ated
ent
ity w
ill m
eet t
he b
ench
mar
k as
of t
he 2
017/
18 fi
nanc
ial y
ear,
this
is al
so th
e ca
se w
ith F
airf
ield
st
andi
ng a
lone
. It
shou
ld b
e no
ted
that
Fai
rfie
ld C
ounc
il cu
rren
tly h
as a
mor
e co
nser
vativ
e av
erag
e de
prec
iatio
n ra
te
of 1
.72%
or 5
8.3
year
s ave
rage
ass
et li
fe c
ompa
red
to L
iver
pool
's of
1.1
5% o
r 86.
6 ye
ars.
Thi
s mea
ns th
e im
prov
ed
amal
gam
ated
ent
ity re
sult
may
be
gene
rate
d fr
om c
ombi
ning
met
hodo
logi
es ra
ther
than
impr
oved
resu
lts.
The
succ
es o
f Ass
et M
anag
emen
t Pla
ns, c
ondi
tion
insp
ectio
ns, l
ife-c
ycle
s, m
aint
enan
ce a
nd in
terv
entio
n po
ints
will
nee
d to
be
cons
ider
ed.
The
diffe
rent
LGA
's m
ay c
urre
ntly
ado
pt d
iffer
ent s
tand
ards
and
life
-cy
cles
.
2022
/23
Mee
ts th
e FF
TF B
ench
mar
k
• Re
pres
ents
the
repl
acem
ent o
r ref
urbi
shm
ent o
f exi
stin
g as
sets
to a
n eq
uiva
lent
ca
paci
ty o
r per
form
ance
, as o
ppos
ed to
the
acqu
isitio
n of
new
ass
ets o
r the
re
furb
ishm
ent o
f old
ass
ets t
hat i
ncre
ase
capa
city
or p
erfo
rman
ce.
• Co
mpa
res t
he p
ropo
rtio
n sp
ent o
n in
fras
truc
ture
ass
et re
new
als a
nd th
e as
set’s
de
terio
ratio
n.•
A co
nsist
ent m
easu
re th
at c
an b
e ap
plie
d ac
ross
cou
ncils
of d
iffer
ent s
izes a
nd
loca
tions
. •
A hi
gher
ratio
is a
n in
dica
tor o
f str
ong
perf
orm
ance
.•
Perf
orm
ance
< 1
00%
indi
cate
s tha
t a C
ounc
il’s e
xist
ing
asse
ts a
re d
eter
iora
ting
fast
er th
an th
ey a
re b
eing
rene
wed
and
that
pot
entia
lly th
e ba
cklo
g is
wor
seni
ng.
Rolli
ng 3
yea
r ave
rage
Mee
ts th
e FF
TF B
ench
mar
kRo
lling
3 y
ear a
vera
geM
eets
the
FFTF
Ben
chm
ark
Rolli
ng 3
yea
r ave
rage
0.0%
20.0
%
40.0
%
60.0
%
80.0
%
100.
0%
120.
0%
140.
0%
160.
0%
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Build
ing
& A
sset
Ren
ewal
Rat
ioBu
ildin
g &
Ass
et R
enew
alRa
tio A
mal
gam
ated
Build
ing
& A
sset
Ren
ewal
Ratio
Fai
rfie
ld
Build
ing
& A
sset
Ren
ewal
Ratio
Liv
erpo
ol
Benc
hmar
k
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 106
INFRASTRUCTURE AND SERVICE MANAGEMENT
Infrastructure Backlog Ratio
Less than 2%
Executive Summary
Fairfield City Council’s infrastructure backlog ratio will achieve the benchmark of less than 2% from 2014/15. Fairfield Council’s spend on infrastructure renewal has been significant for many years and further improvement will occur due to:
• A change in the measurement of the asset backlog to a satisfactory condition as prescribed by the Office of Local Government as condition 2, as opposed to the previous position of condition 1 or new.
• The Special Rate Variation included an additional $42.41m to be spent on asset upgrades and this will also reduce the asset backlog.
• The recommendation to consult with the community to determine the asset condition that is considered acceptable to deliver the required level of service.
Council’s assets are considered to be in a comparatively good condition with only 1.2% of all assets falling into the poor (condition 4) and 0% in the very poor (condition 5) categories as a percentage of written down value (per Special Schedule No. 7 2014 Published Financial Statements). The table below shows the comparative asset conditions for other comparable councils.
Fairfield Blacktown Holroyd Liverpool Parramatta Penrith Bankstown Sutherland City City City City City City City City Council Council Council Council Council Council Council Council
2014 2014 2014 2014 2014q 2014 2014 2014
1 (Excellent) 45.1% 25.8% 28.1% 41.1% 17.0% 25.0% 16.1% 15.3%
2 (Good) 44.4% 35.6% 39.9% 32.6% 31.7% 43.7% 34.1% 57.3%
3 (Average) 9.3% 30.9% 20.4% 20.7% 31.4% 21.0% 40.2% 21.1%
4 (Poor) 1.2% 5.7% 8.0% 3.3% 14.1% 7.8% 5.9% 4.2%
5 (Very Poor) 0.0% 2.0% 3.6% 2.3% 5.8% 2.5% 3.7% 2.1%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 107
Operating Performance Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield -1.70% 2.04% 2.21% 2.02% 1.52% 1.21% 1.61% 2.02% 2.04% 2.03% 1.69%Amalgamated -1.59% 0.91% 0.84% 1.05% 1.02% 0.68% 0.98% 1.56% 1.62% 1.58% 1.28%
Own source revenue ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 80.51% 77.59% 85.16% 85.13% 85.12% 85.10% 85.23% 85.24% 85.25% 85.26% 85.27%Amalgamated 76.70% 74.24% 77.44% 77.76% 79.08% 79.27% 81.21% 82.50% 83.92% 85.32% 84.17%
Building & Infrastructure Renewals Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 77.18% 100.30% 104.86% 102.47% 102.11% 101.77% 101.43% 101.09% 100.77% 100.45% 100.13%Amalgamated 79.27% 121.59% 92.06% 103.92% 108.75% 103.99% 102.70% 102.10% 103.82% 103.45% 101.90%
Infrastructure Backlog Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 1.95% 1.93% 1.92% 1.90% 1.88% 1.87% 1.85% 1.84% 1.80% 1.78% 1.76%Amalgamated 3.17% 2.55% 2.50% 2.14% 1.87% 1.49% 1.13% 1.11% 1.08% 1.06% 1.07%
Asset Maintenance Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 97.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09%Amalgamated 101.78% 106.45% 106.28% 106.52% 106.81% 107.09% 107.37% 108.05% 107.62% 108.31% 108.64%
Debt Service Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 0.29% 0.26% 0.26% 0.23% 0.78% 0.70% 0.64% 0.61% 0.59% 0.58% 0.57%Amalgamated 2.93% 3.12% 2.88% 2.45% 2.53% 2.29% 1.97% 2.14% 2.08% 1.81% 1.68%
Real Operating Expenditure per Capita
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield $682.74 $646.77 $647.54 $637.88 $633.81 $628.56 $624.92 $616.38 $610.41 $604.49 $600.81Amalgamated $683.93 $643.25 $637.78 $625.61 $617.30 $609.23 $600.50 $589.31 $580.59 $573.42 $567.63
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Note- The table above shows the result per year.
What Fairfield City Council actions are or have been implemented to improve this ratio?
Council has previously calculated this ratio on the basis that all assets requiring renewal were restored to new condition (condition 1) and not condition 2 (good) as prescribed by the Office of Local Government. The outcome for Fairfield with this more rigorous approach was still only 3.88% compared to the benchmark requirement of less than 2%. Changes in the measurement approach will improve this asset backlog percentage by:
• Measuring the cost to bring the asset to a satisfactory condition as prescribed by the Office of Local Government as condition 2, as opposed to the previous position of condition 1 or new.
• The recommendation to consult with the community to determine the asset condition that is considered acceptable to deliver the required level of service. This may mean, for example, that an asset in condition 3 (average) may still deliver the required level of service and thus not form part of the asset backlog. This consultation is anticipated to deliver a significant reduction in the asset backlog.
• The Special Rate Variation included recognition that Asset Management Plans addressing asset backlog was a priority for Council. This results in an additional $42.41M to be spent on asset upgrades and this will also reduce the asset backlog.
Forecast for ILGRP’s Preferred Option - Amalgamated Council
The amalgamated entity would meet this benchmark in the 2018/19 year. Fairfield Council meets the benchmark in 2014/15 year, which is considerably earlier than the amalgamated entity. This is consistent with Fairfield Council’s assets being in comparatively good condition with only 1.2% of all assets falling into the poor (condition 4) and 0% in the very poor (condition 5) categories as a percentage of written down value. The improvements noted for Fairfield Council have already been adopted by Liverpool Council and reduced its asset backlog in the 2013/14 financial statements by $144M.
Assumptions
• Backlog ratios are measured for councils in a consistent way
• Liverpool has consulted with its community to establish satisfactory asset conditions for service.
• Fairfield currently assumes OLG condition 2 as appropriate – community consultation would be required to change this assumption.
• Asset consumption or degradation are appropriate for each asset category and council based on local conditions and use.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 108
Definition of Criterion
The infrastructure backlog ratio shows the infrastructure backlog as a total value of a council’s infrastructure. It measures the extent to which asset renewal is required to maintain or improve service delivery in a sustainable way.
Councils with increasing infrastructure backlogs will experience added pressure in maintaining service delivery and financing current and future infrastructure demands. A low ratio is an indicator of strong performance.
Calculation
Estimated cost to bring assets to a satisfactory condition
Total (WDV) of infrastructure, buildings, other structures and depreciable land improvement assets.
Comments on Criterion
Fairfield Council has previously prepared the Special Schedule 7 on the basis that all assets requiring renewal were restored to new condition (condition 1). This refers to the inconsistency mentioned earlier (refer to comment on the Building and Infrastructure Asset Renewal Ratio criterion above) in the preparation and application of Special Schedule 7.
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
109
4. In
fras
truc
ture
Bac
klog
Rat
io
3 Ye
ar
Benc
hmar
k:av
erag
e
(less
than
2%
)
Estim
ated
cos
t to
brin
g as
sets
to a
satis
fact
ory
cond
ition
Tota
l (W
DV) o
f inf
rast
ruct
ure,
bui
ldin
gs, o
ther
st
ruct
ures
and
dep
reci
able
land
impr
ovem
ent a
sset
s
Com
men
ts re
Infr
astr
uctu
re B
ackl
og R
atio
Proj
ecte
dHi
stor
ical
Fina
ncia
l Yea
rFi
nanc
ial Y
ear
2011
/12
2012
/13
2013
/14
2024
/25
2014
/15
2015
/16
2016
/17
2023
/24
Mee
ts th
e FF
TF
Benc
hmar
k fr
om 2
014/
15
3.88
%
1.95
%1.
93%
1.92
%1.
78%
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
Coun
cil h
ave
prev
ious
ly c
alcu
late
d th
is ra
tio o
n th
e ba
sis th
at a
ll as
sets
requ
iring
rene
wal
wer
e re
stor
ed to
new
co
nditi
on (c
ondi
tion
/ cat
egor
y 1)
. Th
e ou
tcom
e fo
r Fai
rfie
ld w
ith th
is m
ore
rigor
ous a
ppro
ach
was
still
onl
y 3.
88%
co
mpa
red
to th
e be
nchm
ark
requ
irem
ent o
f les
s tha
n 2%
. Ch
ange
s in
the
mea
sure
men
t app
roac
h w
ill im
prov
e th
is as
set b
ackl
og p
erce
ntag
e by
:•
Mea
surin
g th
e co
st to
brin
g th
e as
set t
o a
satis
fact
ory
cond
ition
as p
resc
ribed
by
the
Offi
ce o
f Loc
al G
over
nmen
t as
cond
ition
2, a
s opp
osed
to th
e cu
rren
t pos
ition
of c
ondi
tion
1 or
new
.•
The
reco
mm
enda
tion
to c
onsu
lt w
ith th
e co
mm
unity
to d
eter
min
e th
e as
set c
ondi
tion
that
is c
onsid
ered
acc
epta
ble
to d
eliv
er th
e re
quire
d le
vel o
f ser
vice
. Th
is m
ay m
ean,
for e
xam
ple,
that
an
asse
t in
cond
ition
3 (a
vera
ge) m
ay st
ill
deliv
er th
e re
quire
d le
vel o
f ser
vice
and
thus
not
form
par
t of t
he a
sset
bac
klog
. Th
is co
nsul
tatio
n is
antic
ipat
ed to
de
liver
a si
gnifi
cant
redu
ctio
n in
the
asse
t bac
klog
.
The
Spec
ial R
ate
Varia
tion
(SRV
) inc
lude
d a
reco
gniti
on th
at A
sset
Man
agem
ent P
lans
add
ress
ing
Asse
t ba
cklo
g w
as a
prio
rity
for C
ounc
il. T
his r
esul
ts in
an
addi
tiona
l $42
.41m
to b
e sp
ent o
n as
set u
pgra
des.
De
spite
the
curr
ent r
esul
t for
this
mea
sure
indi
catin
g a
failu
re to
mee
t the
requ
ired
min
imum
be
nchm
ark,
Cou
ncil’
s ass
ets a
re c
onsid
ered
to b
e in
a c
ompa
rativ
ely
good
con
ditio
n w
ith o
nly
1.2%
of
all a
sset
s fal
ling
into
the
poor
(con
ditio
n 4)
and
0%
in th
e ve
ry p
oor (
cond
ition
5) c
ateg
orie
s . T
he
refe
rred
cha
nges
are
exp
ecte
d to
bet
ter r
efle
ct th
e tr
ue p
erfo
rman
ce o
f Cou
ncil
agai
nst t
his
benc
hmar
k. T
he ta
ble
in th
e As
set M
anag
emen
t, Ca
pita
l Exp
endi
ture
and
Dep
reci
atio
n se
ctio
n of
this
docu
men
t sho
ws t
he c
ompa
rativ
e as
set c
ondi
tions
with
nei
ghbo
urin
g Co
unci
ls.
2022
/23
1.80
%1.
76%
1.90
%1.
88%
1.87
%1.
85%
1.84
%
• In
dica
tes t
he p
ropo
rtio
n of
bac
klog
aga
inst
the
tota
l val
ue o
f the
Cou
ncil’
s in
fras
truc
ture
ass
ets.
•
A m
easu
re o
f the
ext
ent t
o w
hich
ass
et re
new
al is
requ
ired
to m
aint
ain
or
impr
ove
serv
ice
deliv
ery
in a
sust
aina
ble
way
. •
Mea
sure
s how
cou
ncils
are
man
agin
g th
eir i
nfra
stru
ctur
e w
hich
is so
crit
ical
to
effe
ctiv
e co
mm
unity
sust
aina
bilit
y.•
Coun
cils
with
incr
easin
g in
fras
truc
ture
bac
klog
s will
exp
erie
nce
adde
d pr
essu
re
in m
aint
aini
ng se
rvic
e de
liver
y an
d fin
anci
ng c
urre
nt a
nd fu
ture
infr
astr
uctu
re
dem
ands
.•
A lo
w ra
tio is
an
indi
cato
r of s
tron
g pe
rfor
man
ce.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Infr
astr
uctu
re B
ackl
og R
atio
Infr
astr
uctu
re B
ackl
ogRa
tioBe
nchm
ark
STA
ND
ALO
NE
POSI
TIO
N
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
110
4. In
fras
truc
ture
Bac
klog
Rat
io3
Year
Mee
ts th
e Be
nchm
ark:
aver
age
FFTF
(le
ss th
an 2
%)
Benc
hmar
kFa
irfie
ld3.
88%
2014
/15
1.95
%1.
93%
1.92
%1.
90%
1.88
%1.
87%
1.85
%1.
84%
1.80
%1.
78%
1.76
%Li
verp
ool
5.23
%20
18/1
93.
94%
2.93
%2.
86%
2.28
%1.
86%
1.26
%0.
68%
0.67
%0.
65%
0.64
%0.
63%
Amal
gam
ated
(FCC
& L
CC)
4.63
%20
18/1
93.
17%
2.55
%2.
50%
2.14
%1.
87%
1.49
%1.
13%
1.11
%1.
08%
1.06
%1.
07%
Com
men
ts re
Infr
astr
uctu
re B
ackl
og R
atio
Hist
oric
alPr
ojec
ted
Fina
ncia
l Yea
rFi
nanc
ial Y
ear
2011
/12
2012
/13
2013
/14
2024
/25
2014
/15
2015
/16
2016
/17
2023
/24
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
The
amal
gam
ated
ent
ity w
ould
mee
t thi
s ben
chm
ark
in th
e 20
18/1
9 ye
ar. F
airf
ield
Cou
ncil
mee
ts th
e be
nchm
ark
in 2
014/
15
year
, thi
s is c
onsid
erab
ly e
arlie
r tha
n th
e am
alga
mat
ed e
ntity
. Th
is is
cons
isten
t with
Fai
rfie
ld C
ounc
il's a
sset
s bei
ng in
co
mpa
rativ
ely
good
con
ditio
n w
ith o
nly
1.2%
of a
ll as
sets
falli
ng in
to th
e po
or (c
ondi
tion
4) a
nd 0
% in
the
very
poo
r (co
nditi
on
5) c
ateg
orie
s as a
per
cent
age
of w
ritte
n do
wn
valu
e. T
he im
prov
emen
ts n
oted
in "H
ow c
ould
Cou
ncil
mee
t thi
s bec
hmar
k in
th
e fu
ture
?" h
ave
alre
ady
been
ado
pted
by
Live
rpoo
l Cou
ncil
and
redu
ced
thei
r ass
et b
ackl
og in
the
2013
/14
finan
cial
st
atem
ents
by
$144
M.
The
infr
astr
uctu
re b
ackl
og ra
tio fo
r Fai
rfie
ld C
ounc
il is
expe
cted
to a
chie
ve th
e be
nchm
ark
of le
ss th
an
2% fr
om 2
014/
15.
This
impr
ovem
ent h
as o
ccur
red
due
to:
• Ch
ange
in th
e m
easu
rem
ent o
f the
ass
et b
ackl
og to
a sa
tisfa
ctor
y co
nditi
on a
s pre
scrib
ed b
y th
e O
ffice
of
Loc
al G
over
nmen
t as c
ondi
tion
2, a
s opp
osed
to th
e cu
rren
t pos
ition
of c
ondi
tion
1 or
new
.•
The
Spec
ial R
ate
Varia
tion
(SRV
) inc
lude
d an
add
ition
al $
42.4
1m to
be
spen
t on
asse
t upg
rade
s and
th
is w
ill a
lso re
duce
the
asse
t bac
klog
. •
The
reco
mm
enda
tion
to c
onsu
lt w
ith th
e co
mm
unity
to d
eter
min
e th
e as
set c
ondi
tion
that
is
cons
ider
ed a
ccep
tabl
e to
del
iver
the
requ
ired
leve
l of s
ervi
ce.
2022
/23
• In
dica
tes t
he p
ropo
rtio
n of
bac
klog
aga
inst
the
tota
l val
ue o
f the
cou
ncil’
s in
fras
truc
ture
ass
ets.
•
A m
easu
re o
f the
ext
ent t
o w
hich
ass
et re
new
al is
requ
ired
to m
aint
ain
or
impr
ove
serv
ice
deliv
ery
in a
sust
aina
ble
way
. •
Mea
sure
s how
cou
ncils
are
man
agin
g th
eir i
nfra
stru
ctur
e w
hich
is so
crit
ical
to
effe
ctiv
e co
mm
unity
sust
aina
bilit
y.•
Coun
cils
with
incr
easin
g in
fras
truc
ture
bac
klog
s will
exp
erie
nce
adde
d pr
essu
re in
m
aint
aini
ng se
rvic
e de
liver
y an
d fin
anci
ng c
urre
nt a
nd fu
ture
infr
astr
uctu
re
dem
ands
.•
A lo
w ra
tio is
an
indi
cato
r of s
tron
g pe
rfor
man
ce.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Infr
astr
uctu
re B
ackl
og R
atio
Infr
astr
uctu
re B
ackl
ogRa
tio A
mal
gam
ated
Infr
astr
uctu
re B
ackl
ogRa
tio F
airf
ield
Infr
astr
uctu
re B
ackl
ogRa
tio L
iver
pool
STA
ND
ALO
NE
(Eac
h C
ounc
il) v
AM
ALG
AM
ATED
PO
SITI
ON
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 111
Operating Performance Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield -1.70% 2.04% 2.21% 2.02% 1.52% 1.21% 1.61% 2.02% 2.04% 2.03% 1.69%Amalgamated -1.59% 0.91% 0.84% 1.05% 1.02% 0.68% 0.98% 1.56% 1.62% 1.58% 1.28%
Own source revenue ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 80.51% 77.59% 85.16% 85.13% 85.12% 85.10% 85.23% 85.24% 85.25% 85.26% 85.27%Amalgamated 76.70% 74.24% 77.44% 77.76% 79.08% 79.27% 81.21% 82.50% 83.92% 85.32% 84.17%
Building & Infrastructure Renewals Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 77.18% 100.30% 104.86% 102.47% 102.11% 101.77% 101.43% 101.09% 100.77% 100.45% 100.13%Amalgamated 79.27% 121.59% 92.06% 103.92% 108.75% 103.99% 102.70% 102.10% 103.82% 103.45% 101.90%
Infrastructure Backlog Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 1.95% 1.93% 1.92% 1.90% 1.88% 1.87% 1.85% 1.84% 1.80% 1.78% 1.76%Amalgamated 3.17% 2.55% 2.50% 2.14% 1.87% 1.49% 1.13% 1.11% 1.08% 1.06% 1.07%
Asset Maintenance Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 97.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09%Amalgamated 101.78% 106.45% 106.28% 106.52% 106.81% 107.09% 107.37% 108.05% 107.62% 108.31% 108.64%
Debt Service Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 0.29% 0.26% 0.26% 0.23% 0.78% 0.70% 0.64% 0.61% 0.59% 0.58% 0.57%Amalgamated 2.93% 3.12% 2.88% 2.45% 2.53% 2.29% 1.97% 2.14% 2.08% 1.81% 1.68%
Real Operating Expenditure per Capita
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield $682.74 $646.77 $647.54 $637.88 $633.81 $628.56 $624.92 $616.38 $610.41 $604.49 $600.81Amalgamated $683.93 $643.25 $637.78 $625.61 $617.30 $609.23 $600.50 $589.31 $580.59 $573.42 $567.63
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
INFRASTRUCTURE AND SERVICE MANAGEMENT
Asset Maintenance Ratio
Greater than or equal to 100% average over 3 years
Executive Summary
Council will achieve a 97.09% Asset Maintenance Ratio in the 2014/15 financial year and will exceed 100% in 2015/16. In relation to the rolling 3 year average, Fairfield will meet the benchmark in the 2016/17 year.
The SRV which commenced in 2014/15 results in an additional $4.71M per annum being spent on asset maintenance and improves this ratio.
The target of 103.09% from the 2015/16 forward represents recognition that actual maintenance sometimes exceeds the Asset Management Plan maintenance costs, due to scope creep or unforeseen problems. It also allows for some tolerance for additional maintenance caused by significant weather or other events.
Note- The table above shows the result per year, the 3 year averages can be seen in the detailed graphs below
What Fairfield City Council actions are or have been implemented to improve this ratio?
The Special Rate Variation commencing July 2014 included recognition that Asset Management Plans addressing Asset maintenance was a priority for Council. This results in an additional $4.71M p.a. to be spent on asset maintenance.
Additional SRV funds addressing asset backlog improves the condition of assets and will reduce the demand for maintenance actions, further improving this ratio.
Forecast for ILGRP’s Preferred Option - Amalgamated Council
The amalgamated entity will achieve the benchmark in the 2015/16 year, Fairfield standalone achieves this in 2016/17. Fairfield’s SRV results in an additional $4.71M p.a. being spent on asset maintenance and improves this ratio. Fairfield Council has strong asset management planning practices to determine appropriate intervention strategies and renewal programs and this best practice reduces the burden on maintenance costs.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 112
Assumptions
• The Asset Management Plans accurately predict the required repairs and maintenance.
• The calculation includes the recognition that declining asset backlogs are reducing pressure on repairs and maintenance costs.
Definition of Criterion
The asset maintenance ratio compares council’s actual asset maintenance against the estimated required annual asset maintenance.
It indicates if a council is investing enough funds within the year to stop the infrastructure backlog from growing.
It provides a measure of the rate of asset degradation (or renewal) and therefore has a role in informing asset renewal and capital works planning.
A ratio of less than 100% indicates that there may be a worsening infrastructure backlog.
Calculation
Actual Asset Maintenance
Required Asset Maintenance
Comments on Criterion
The previously referred to limitations of Special Schedule 7 reporting caused by a lack of consistency with data are equally applicable in respect of this measure.
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
113
5. A
sset
Mai
nten
ance
Rat
io
3 Ye
ar
Benc
hmar
k:av
erag
e
(gre
ater
than
or e
qual
to 1
00%
ave
rage
ove
r 3 y
ears
)
Actu
al a
sset
mai
nten
ance
Re
quire
d as
set m
aint
enan
ce
95.8
7%97
.97%
101.
25%
103.
09%
103.
09%
103.
09%
103.
09%
103.
09%
103.
09%
103.
09%
103.
09%
Com
men
ts re
Ass
et M
aint
enan
ce R
atio
Proj
ecte
dHi
stor
ical
Fina
ncia
l Yea
rFi
nanc
ial Y
ear
2011
/12
2012
/13
2013
/14
2024
/25
2014
/15
2015
/16
2016
/17
2023
/24
Mee
ts th
e FF
TF
Benc
hmar
k fr
om
2016
/17
83.9
0%98
.43%
93.1
6%91
.12%
97
.09%
103.
09%
103.
09%
103.
09%
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
Coun
cil w
ill a
chie
ve a
97.
09%
Ass
et M
aint
enan
ce R
atio
in th
e 20
14/1
5 fin
anci
al y
ear,
agai
nst a
ben
chm
ark
of 1
00%
. In
rela
tion
to th
e ro
lling
3 y
ear a
vera
ge, F
airf
ield
will
mee
t the
ben
chm
ark
in th
e 20
16/1
7 ye
ar.
The
SRV
whi
ch c
omm
ence
d in
201
4/15
resu
lts in
an
addi
tiona
l $4.
71m
per
ann
um b
eing
spen
t on
asse
t mai
nten
ance
and
im
prov
es th
is ra
tio.
The
targ
et o
f 103
.09%
from
the
2015
/16
forw
ard
repr
esen
ts re
cogn
ition
that
act
ual m
aint
enan
ce so
met
imes
exc
eeds
the
Asse
t Man
agem
ent P
lan
mai
nten
ance
cos
ts, d
ue to
scop
e cr
eep
or u
nfor
esee
n pr
oble
ms.
It a
lso a
llow
s for
som
e to
lera
nce
for a
dditi
onal
mai
nten
ance
cau
sed
by si
gnifi
cant
wea
ther
or o
ther
eve
nts.
The
Spec
ial R
ate
Varia
tion
(SRV
) com
men
cing
July
201
4 in
clud
ed re
cogn
ition
that
Ass
et M
anag
emen
t Pl
ans a
ddre
ssin
g As
set m
aint
enan
ce w
as a
prio
rity
for C
ounc
il. T
his r
esul
ts in
an
addi
tiona
l $4.
71m
per
an
num
to b
e sp
ent o
n as
set m
aint
enan
ce. R
equi
red
mai
nten
ance
may
be
redu
ced
in th
e fu
ture
due
to
this
addi
tiona
l SRV
add
ress
ing
asse
t bac
klog
impr
ovin
g th
e co
nditi
on o
f ass
ets a
nd re
duci
ng th
e de
man
d fo
r mai
nten
ance
act
ions
.
2022
/23
103.
09%
103.
09%
Mee
ts th
e FF
TF B
ench
mar
k
103.
09%
103.
09%
103.
09%
103.
09%
103.
09%
• Re
flect
s the
act
ual a
sset
mai
nten
ance
exp
endi
ture
rela
tive
to th
e re
quire
d as
set
mai
nten
ance
as m
easu
red
by a
n in
divi
dual
cou
ncil.
• Pr
ovid
es a
mea
sure
of t
he ra
te o
f ass
et d
egra
datio
n (o
r ren
ewal
) and
ther
efor
e ha
s a ro
le in
info
rmin
g as
set r
enew
al a
nd c
apita
l wor
ks p
lann
ing.
• A
ratio
of l
ess t
han
100%
indi
cate
s tha
t the
re m
ay b
e a
wor
seni
ng in
fras
truc
ture
ba
cklo
g.
Rolli
ng 3
yea
r ave
rage
0.0%
20.0
%40
.0%
60.0
%80
.0%
100.
0%12
0.0%
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Asse
t Mai
nten
ance
Rat
io
Asse
t Mai
nten
ance
Rat
io
Benc
hmar
k
STA
ND
ALO
NE
POSI
TIO
N
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
114
5. A
sset
Mai
nten
ance
Rat
io3
Year
Mee
ts th
e Be
nchm
ark:
aver
age
FFTF
(g
reat
er th
an o
r equ
al to
100
% a
vera
ge o
ver 3
yea
rs)
Benc
hmar
kFa
irfie
ld83
.90%
98.4
3%93
.16%
91.1
2%
97.0
9%10
3.09
%10
3.09
%10
3.09
%10
3.09
%10
3.09
%10
3.09
%10
3.09
%10
3.09
%10
3.09
%10
3.09
%Li
verp
ool
93.8
3%82
.64%
108.
89%
90.9
6%
111.
85%
113.
91%
113.
48%
114.
16%
115.
10%
116.
02%
116.
95%
119.
14%
117.
79%
120.
06%
121.
18%
Amal
gam
ated
(FCC
& L
CC)
89.0
9%87
.39%
98.1
9%91
.03%
10
1.78
%10
6.45
%10
6.28
%10
6.52
%10
6.81
%10
7.09
%10
7.37
%10
8.05
%10
7.62
%10
8.31
%10
8.64
%
95.8
7%97
.97%
101.
25%
103.
09%
103.
09%
103.
09%
103.
09%
103.
09%
103.
09%
103.
09%
103.
09%
94.0
8%11
1.60
%11
3.11
%11
3.85
%11
4.26
%11
5.10
%11
6.03
%11
7.39
%11
7.97
%11
9.00
%11
9.69
%
95.0
3%10
2.28
%10
4.94
%10
6.42
%10
6.54
%10
6.81
%10
7.09
%10
7.51
%10
7.68
%10
7.99
%10
8.20
%
Com
men
ts re
Ass
et M
aint
enan
ce R
atio
Hist
oric
alPr
ojec
ted
Fina
ncia
l Yea
rFi
nanc
ial Y
ear
2011
/12
2012
/13
2013
/14
2024
/25
2014
/15
2015
/16
2016
/17
2023
/24
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
The
amal
gam
ated
ent
ity w
ill a
chie
ve th
e be
nchm
ark
in th
e 20
15/1
6 ye
ar, F
airf
ield
stan
dalo
ne a
chie
ves t
his i
n 20
16/1
7. F
airf
ield
's Sp
ecia
l Rat
e Va
riatio
n (S
RV) c
omm
enci
ng Ju
ly 2
014
resu
lts in
an
addi
tiona
l $4.
71M
per
ann
um to
be
spen
t on
asse
t mai
nten
ance
and
impr
oves
this
ratio
. Fa
irfie
ld C
ounc
il ha
s str
ong
Asse
t Man
agem
ent P
lan
prac
tices
to d
eter
min
e ap
prop
riate
inte
rven
tion
stra
tegi
es, r
enew
al p
rogr
ams s
uppo
rted
by
an S
RV a
nd th
is be
st
prac
tice
redu
ces t
he b
urde
n on
mai
nten
ance
cos
ts.
The
targ
et fo
r the
am
alga
mat
ed C
ounc
il fr
om 2
015/
16 fo
rwar
d re
pres
ents
reco
gniti
on th
at a
ctua
l m
aint
enan
ce so
met
imes
exc
eeds
the
Asse
t Man
agem
ent P
lan
mai
nten
ance
cos
ts, d
ue to
scop
e cr
eep
or u
nfor
esee
n pr
oble
ms.
It a
lso a
llow
s for
som
e to
lera
nce
for a
dditi
onal
mai
nten
ance
cau
sed
by
signi
fican
t wea
ther
or o
ther
eve
nts.
2022
/23
Mee
ts th
e FF
TF B
ench
mar
k
• Re
flect
s the
act
ual a
sset
mai
nten
ance
exp
endi
ture
rela
tive
to th
e re
quire
d as
set
mai
nten
ance
as m
easu
red
by a
n in
divi
dual
cou
ncil.
• Pr
ovid
es a
mea
sure
of t
he ra
te o
f ass
et d
egra
datio
n (o
r ren
ewal
) and
ther
efor
e ha
s a ro
le in
info
rmin
g as
set r
enew
al a
nd c
apita
l wor
ks p
lann
ing.
• A
ratio
of l
ess t
han
100%
indi
cate
s tha
t the
re m
ay b
e a
wor
seni
ng in
fras
truc
ture
ba
cklo
g.
Rolli
ng 3
yea
r ave
rage
Mee
ts th
e FF
TF B
ench
mar
kRo
lling
3 y
ear a
vera
geM
eets
the
FFTF
Ben
chm
ark
Rolli
ng 3
yea
r ave
rage
0.0%
20.0
%
40.0
%
60.0
%
80.0
%
100.
0%
120.
0%
140.
0%
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Asse
t Mai
nten
ance
Rat
io
Asse
t Mai
nten
ance
Rat
io A
mal
gam
ated
Asse
t Mai
nten
ance
Rat
io F
airf
ield
Asse
t Mai
nten
ance
Rat
io L
iver
pool
Benc
hmar
k
STA
ND
ALO
NE
(Eac
h C
ounc
il) v
AM
ALG
AM
ATED
PO
SITI
ON
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 115
Operating Performance Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield -1.70% 2.04% 2.21% 2.02% 1.52% 1.21% 1.61% 2.02% 2.04% 2.03% 1.69%Amalgamated -1.59% 0.91% 0.84% 1.05% 1.02% 0.68% 0.98% 1.56% 1.62% 1.58% 1.28%
Own source revenue ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 80.51% 77.59% 85.16% 85.13% 85.12% 85.10% 85.23% 85.24% 85.25% 85.26% 85.27%Amalgamated 76.70% 74.24% 77.44% 77.76% 79.08% 79.27% 81.21% 82.50% 83.92% 85.32% 84.17%
Building & Infrastructure Renewals Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 77.18% 100.30% 104.86% 102.47% 102.11% 101.77% 101.43% 101.09% 100.77% 100.45% 100.13%Amalgamated 79.27% 121.59% 92.06% 103.92% 108.75% 103.99% 102.70% 102.10% 103.82% 103.45% 101.90%
Infrastructure Backlog Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 1.95% 1.93% 1.92% 1.90% 1.88% 1.87% 1.85% 1.84% 1.80% 1.78% 1.76%Amalgamated 3.17% 2.55% 2.50% 2.14% 1.87% 1.49% 1.13% 1.11% 1.08% 1.06% 1.07%
Asset Maintenance Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 97.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09%Amalgamated 101.78% 106.45% 106.28% 106.52% 106.81% 107.09% 107.37% 108.05% 107.62% 108.31% 108.64%
Debt Service Ratio
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield 0.29% 0.26% 0.26% 0.23% 0.78% 0.70% 0.64% 0.61% 0.59% 0.58% 0.57%Amalgamated 2.93% 3.12% 2.88% 2.45% 2.53% 2.29% 1.97% 2.14% 2.08% 1.81% 1.68%
Real Operating Expenditure per Capita
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield $682.74 $646.77 $647.54 $637.88 $633.81 $628.56 $624.92 $616.38 $610.41 $604.49 $600.81Amalgamated $683.93 $643.25 $637.78 $625.61 $617.30 $609.23 $600.50 $589.31 $580.59 $573.42 $567.63
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
Financial Year
INFRASTRUCTURE AND SERVICE MANAGEMENT
Debt Service Ratio
Greater than zero and less than or equal to 20% average over 3 year
Executive Summary
Fairfield City Council meets this benchmark. It has minimal debt and additional debt will only be taken where the evidence supports its use after considering the whole of life costs of the project and servicing interest. In this regard, Fairfield Council’s preference is also to utilise loan funds for revenue generating projects.
Council is currently at the lower end of the recommended range for this benchmark. This gives Council the potential to use debt in the future to cope with unexpected change including natural disasters as well as new facilities required by the community.
Whilst still remaining at a very low level, the ratio increases in the 2018/19 year, as a new property development initiative has been earmarked with borrowings of $12M to be sourced to finance a commercial project to generate additional revenue for Council.
Continuation of the current policy of minimal debt, with external borrowings sought only when the use of debt proves beneficial, will ensure continued achievement of this benchmark.
Note- The table above shows the result per year, the 3 year averages can be seen in the detailed graphs below.
What Fairfield City Council actions are or have been implemented to improve this ratio?
Council currently uses debt where commercial opportunities are available to deliver an acceptable rate of return including funding costs. Continuation of the current practice of minimal debt, with external borrowings sought only when the use of debt proves beneficial, will ensure continued achievement of this benchmark.
Forecast for ILGRP’s Preferred Option - Amalgamated Council
As a growth council, Liverpool will have a higher growth demand for their services and infrastructure that may lag the revenue generated from the additional rates. Currently the amalgamated entity will meet the benchmark but have a higher debt level than Fairfield as a standalone council, due to Liverpool’s higher existing debt levels. Fairfield Council has minimal debt and additional debt will only be taken where the evidence supports the use of debt.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 116
Assumptions
• Fairfield Council has forecast a loan in 2018/19 for $12M for a property development initiative that will generate a $1.2M p.a return from 2020/21.
• Loans will only be considered where the Net Present Value (NPV) of the project is positive including the costs to service the loan.
• There is no future cash flow pressures that require additional loans.
• Relatively low rates of interest.
Definition of Criterion
The debt service ratio indicates the proportion of revenue from ordinary activities utilised for debt repayment.
It is generally higher for councils which have acquired funding for infrastructure development, especially relating to urban release areas.
Prudent and active debt management is a key part of Council’s approach to both funding and managing infrastructure and services over the long term.
Prudent debt usage can also assist in smoothing funding costs and promoting intergenerational equity.
Inadequate use of debt may mean that councils are forced to raise rates. The ratio is also a strong proxy indicator of a council’s strategic capacity.
Calculation
Cost of debt service (interest expense & principal repayments)
Total continuing operating revenue (exc. capital grants and contributions).
Comments on Criterion
The use of debt for asset renewal has benefit where the whole of life costs, including servicing debts, is reduced by earlier intervention. The Asset Management Plans should recommend the optimum asset intervention and renewal cycles.
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
117
6. D
ebt S
ervi
ce R
atio
3 Ye
ar
Benc
hmar
k:av
erag
e
(> 0
and
< o
r = to
20%
ave
rage
ove
r 3 y
ears
)
Cost
of d
ebt s
ervi
ce
(inte
rest
exp
ense
& p
rinci
pal r
epay
men
ts)
Tota
l con
tinui
ng o
pera
ting
reve
nue
(exc
. cap
ital g
rant
s and
con
trib
utio
ns)
0.83
%0.
52%
0.27
%0.
25%
0.43
%0.
57%
0.70
%0.
65%
0.61
%0.
59%
0.58
%
Com
men
ts re
Deb
t Ser
vice
Rat
io
Proj
ecte
dHi
stor
ical
Fina
ncia
l Yea
rFi
nanc
ial Y
ear
2011
/12
2012
/13
2013
/14
2024
/25
2014
/15
2015
/16
2016
/17
2023
/24
Mee
ts th
e FF
TF
Benc
hmar
k fr
om
2014
/15
1.70
%1.
20%
1.05
%1.
32%
0.
29%
0.26
%0.
26%
0.58
%
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
Coun
cil h
as m
inim
al d
ebt a
nd a
dditi
onal
deb
t will
onl
y be
take
n w
here
the
evid
ence
supp
orts
the
use
of d
ebt a
nd th
e w
hole
of l
ife c
osts
, inc
ludi
ng se
rvic
ing
inte
rest
, is b
enef
icia
l. C
ounc
il is
curr
ently
at t
he lo
wer
end
of t
he re
com
men
ded
rang
e fo
r thi
s ben
chm
ark.
Whi
lst st
ill re
mai
ning
at a
ver
y lo
w le
vel,
the
ratio
incr
ease
s in
the
2018
/19
year
, as a
new
re
venu
e ge
nera
ting
proj
ect h
as b
een
earm
arke
d w
ith b
orro
win
gs o
f $12
m to
be
sour
ced
to fi
nanc
e th
e pr
ojec
t.
Cont
inua
tion
of c
urre
nt p
olic
y of
min
imal
deb
t, w
ith e
xter
nal b
orro
win
gs so
ught
onl
y w
hen
the
use
of
debt
pro
ves b
enef
icia
l, w
ill e
nsur
e co
ntin
ued
achi
evem
ent o
f thi
s ben
chm
ark.
2022
/23
0.59
%0.
57%
Mee
ts th
e FF
TF B
ench
mar
k
0.23
%0.
78%
0.70
%0.
64%
0.61
%
• Pr
uden
t and
act
ive
debt
man
agem
ent i
s a k
ey p
art o
f Cou
ncil'
s app
roac
h to
bot
h fu
ndin
g an
d m
anag
ing
infr
astr
uctu
re a
nd se
rvic
es o
ver t
he lo
ng te
rm.
• Pr
uden
t deb
t usa
ge c
an a
lso a
ssist
in sm
ooth
ing
fund
ing
cost
s and
pro
mot
ing
inte
rgen
erat
iona
l equ
ity.
• In
adeq
uate
use
of d
ebt m
ay m
ean
that
cou
ncils
are
forc
ed to
raise
rate
s •
It is
also
a st
rong
pro
xy in
dica
tor o
f a c
ounc
il’s s
trat
egic
cap
acity
.
Rolli
ng 3
yea
r ave
rage
0.00
%
5.00
%
10.0
0%
15.0
0%
20.0
0%
25.0
0%
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
Debt
Ser
vice
Rat
io
Debt
Ser
vice
Rat
io
Benc
hmar
k
Benc
hmar
k
STA
ND
ALO
NE
POSI
TIO
N
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
118
6. D
ebt S
ervi
ce R
atio
3 Ye
arM
eets
the
Benc
hmar
k:av
erag
eFF
TF
(> 0
and
< o
r = to
20%
ave
rage
ove
r 3 y
ears
)Be
nchm
ark
Fairf
ield
1.70
%1.
20%
1.05
%1.
32%
0.
29%
0.26
%0.
26%
0.23
%0.
78%
0.70
%0.
64%
0.61
%0.
59%
0.58
%0.
57%
Live
rpoo
l6.
93%
6.58
%6.
25%
6.59
%
5.49
%5.
99%
5.55
%4.
69%
4.28
%3.
88%
3.30
%3.
66%
3.55
%3.
03%
2.77
%Am
alga
mat
ed (F
CC &
LCC
)4.
34%
3.88
%3.
65%
3.95
%
2.93
%3.
12%
2.88
%2.
45%
2.53
%2.
29%
1.97
%2.
14%
2.08
%1.
81%
1.68
%
0.83
%0.
52%
0.27
%0.
25%
0.43
%0.
57%
0.70
%0.
65%
0.61
%0.
59%
0.58
%
6.08
%5.
90%
5.68
%5.
40%
4.83
%4.
28%
3.81
%3.
61%
3.50
%3.
41%
3.11
%
3.47
%3.
22%
2.97
%2.
81%
2.62
%2.
42%
2.26
%2.
13%
2.07
%2.
01%
1.85
%
Com
men
ts re
Deb
t Ser
vice
Rat
io
Hist
oric
alPr
ojec
ted
Fina
ncia
l Yea
rFi
nanc
ial Y
ear
2011
/12
2012
/13
2013
/14
2024
/25
2014
/15
2015
/16
2016
/17
2023
/24
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
As a
gro
wth
Cou
ncil,
Liv
erpo
ol w
ill h
ave
a hi
gher
gro
wth
dem
and
for t
heir
serv
ices
and
infr
astr
uctu
re th
at m
ay la
g th
e re
venu
e ge
nera
ted
from
the
addi
tiona
l rat
es. C
urre
ntly
the
amal
gam
ated
ent
ity w
ill m
eet t
he b
ench
mar
k bu
t ha
ve a
hig
her d
ebt l
evel
than
Fai
rfie
ld st
and-
alon
e du
e to
Liv
erpo
ol's
high
er d
ebt l
evel
s. F
airf
ield
Cou
ncil
has
min
imal
deb
t and
add
ition
al d
ebt w
ill o
nly
be ta
ken
whe
re th
e ev
iden
ce su
ppor
ts th
e us
e of
deb
t and
the
who
le o
f lif
e co
sts,
incl
udin
g se
rvic
ing
inte
rest
, is b
enef
icia
l.
Cont
inua
tion
of c
urre
nt p
olic
y of
min
imal
deb
t, w
ith e
xter
nal b
orro
win
gs so
ught
onl
y w
hen
the
use
of
debt
pro
ves b
enef
icia
l, w
ill e
nsur
e co
ntin
ued
achi
evem
ent o
f thi
s ben
chm
ark.
Liv
erpo
ol C
ounc
il's
loan
s are
redu
cing
, Fai
rfie
ld C
ounc
il ra
tio in
crea
ses m
arke
dly
in th
e 20
18/1
9 ye
ar, a
s a n
ew p
rope
rty
deve
lopm
ent i
nitia
tive
has b
een
earm
arke
d w
ith b
orro
win
gs o
f $12
m to
be
sour
ced
to fi
nanc
e th
e pr
ojec
t.
2022
/23
Mee
ts th
e FF
TF B
ench
mar
k
• Pr
uden
t and
act
ive
debt
man
agem
ent i
s a k
ey p
art o
f Cou
ncil'
s app
roac
h to
bot
h fu
ndin
g an
d m
anag
ing
infr
astr
uctu
re a
nd se
rvic
es o
ver t
he lo
ng te
rm.
• Pr
uden
t deb
t usa
ge c
an a
lso a
ssist
in sm
ooth
ing
fund
ing
cost
s and
pro
mot
ing
inte
rgen
erat
iona
l equ
ity.
• In
adeq
uate
use
of d
ebt m
ay m
ean
that
cou
ncils
are
forc
ed to
raise
rate
s •
It is
also
a st
rong
pro
xy in
dica
tor o
f a c
ounc
il’s s
trat
egic
cap
acity
.
Rolli
ng 3
yea
r ave
rage
Mee
ts th
e FF
TF B
ench
mar
kRo
lling
3 y
ear a
vera
geM
eets
the
FFTF
Ben
chm
ark
Rolli
ng 3
yea
r ave
rage
0.00
%
5.00
%
10.0
0%
15.0
0%
20.0
0%
25.0
0%
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Debt
Ser
vice
Rat
io
Debt
Ser
vice
Rat
io A
mal
gam
ated
Debt
Ser
vice
Rat
io F
airf
ield
Debt
Ser
vice
Rat
io L
iver
pool
Benc
hmar
k
Benc
hmar
k
STA
ND
ALO
NE
(Eac
h C
ounc
il) v
AM
ALG
AM
ATED
PO
SITI
ON
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 119
Real Operating Expenditure per Capita
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25Fairfield $683.45 $647.44 $648.21 $638.54 $634.46 $629.21 $625.56 $617.02 $611.04 $605.12 $601.43Amalgamated $684.64 $643.92 $638.44 $626.25 $617.94 $609.86 $601.12 $589.92 $581.19 $574.01 $568.22
Financial Year
EFFICIENCY
Real Operating Expenditure Per Capita
A decrease in real operating expenditure per capita over time
Executive Summary
Fairfield Council is currently meeting the recommended reduction for this benchmark reflecting efficiency improvements. Fairfield’s community and their comparative level of disadvantage places more pressure on Council to provide a broader range of services.
Real operating expenditure per capita increases in the 2014/15 and 2016/17 years as a result of increases in new services to the community, most of which is tied to the Special Rate Variation which took effect from 1 July 2014. The calculation did not remove the impact of these new services, but it still shows a downwards trend.
Projections indicate a consistent reduction in real operating expenditure per capita throughout the LTFP period.
Note- The table above shows the result per year.
What Fairfield City Council actions are or have been implemented to improve this ratio?
Many of the initiatives highlighted when discussing the Operating Performance ratio earlier in this chapter deliver benefits that improve this ratio. Past productivity improvements and cost containment strategies deliver ongoing benefits. These have been measured and monitored since 2008 and have resulted in approximately $5.7M p.a. in improvements to the operating result. These initiatives include:
• Withdrawal of management of the Fairfield City Farm (2009).
• Structural change for salaries and wages (2010).
• Christmas closure of non-essential services (2010).
• Energy and waste minimisation program (2010-2013).
• Review of operations of multi-deck car parks (2012).
• Organisational restructure (2013).
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 120
Council has identified a range of productivity initiatives to be explored and developed to deliver increased efficiencies, revenue increases and cost reductions over the life of the LTFP. These initiatives will be assessed through a business case methodology. Identified strategies include:
• Continued focus on employee costs – particularly leave management.
• Changing the waste recycling delivery model - $600,000 p.a cost reduction.
• Modifying the operation of goods storage to move to Just In Time delivery approach for the bulk of stock items.
• Analysis of purchasing to identify efficiencies from procurement.
• Opportunities for shared services or resource sharing.
• Review service levels and core versus optional services.
• Review resourcing models including the use of contract services.
• Cessation of the long term Enterprise Bargaining Agreement finalised in June 2015.
Forecast for ILGRP’s Preferred Option - Amalgamated Council
Fairfield Council’s structural changes resulted in a 4.5% salary reduction. In addition the long term Enterprise Bargaining Agreement has been agreed to cease in June 2015. Other efficiency programs have generated savings over $5.7M p.a. Future initiatives will deliver Fairfield Council’s projected 7.6% efficiency cost decrease over the 10 year term (adjusted for inflation), compared to Liverpool Council’s assumption of a 19.7% efficiency cost decrease. Fairfield is an infill council with a higher population density to service, meaning the additional service requirements can be provided with the current infrastructure in place. Liverpool is a growth council with new areas and new services to provide additional infrastructure requirements, making the Liverpool projection aggressive. Liverpool’s approach makes the projections for the amalgamated entity challenging to achieve.
Assumptions
• Consistent levels of service delivery.
• Minimal cost shocks in expenses projected.
• Inflation is consistent with financial projections.
• Population estimates are reliable.
Definition of Criterion
Assuming that service levels remain constant, decline in real expenditure per capita indicates efficiency improvements (i.e. the same level of output per capita is achieved with reduced expenditure).
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 121
Calculation
Real Operating Expenditure (deflated by CPI)
Population
Comments on Criterion
The concern with this benchmark is that comparisons between councils can be difficult as the service offerings are not consistent. Fairfield’s community and their comparative level of disadvantage places more pressure on Council to provide a broader range of services. The comparisons also take no account of the differences in service levels that respond to different community priorities.
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
122
STA
ND
ALO
NE
POSI
TIO
N
7. R
eal O
pera
ting
Expe
nditu
re p
er C
apita
ove
r tim
e
Benc
hmar
k:
(a d
ecre
ase
in re
al o
pera
ting
expe
nditu
re p
er c
apita
ove
r tim
e)
Real
Ope
ratin
g Ex
pend
iture
(def
late
d by
CPI
)
Popu
latio
n
Com
men
ts re
Rea
l Ope
ratin
g Ex
pend
iture
ove
r tim
e
Proj
ecte
dHi
stor
ical
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
• As
sess
ed o
n a
join
t con
sider
atio
n of
the
dire
ctio
n an
d m
agni
tude
of t
heir
impr
ovem
ent o
r det
erio
ratio
n in
real
exp
endi
ture
per
cap
ita.
Give
n th
at e
ffici
ency
im
prov
emen
ts re
quire
som
e tim
e fo
r the
resu
lts to
be
fully
ach
ieve
d an
d as
a
resu
lt, th
is an
alys
is w
ill b
e ba
sed
on a
5-y
ear t
rend
.•
Assu
min
g th
at se
rvic
e le
vels
rem
ain
cons
tant
, dec
line
in re
al e
xpen
ditu
re p
er
capi
ta in
dica
tes e
ffici
ency
impr
ovem
ents
(i.e
. the
sam
e le
vel o
f out
put p
er c
apita
is
achi
eved
with
redu
ced
expe
nditu
re).
2022
/23
611.
04$
2020
/21
625.
56$
2021
/22
617.
02$
Mee
ts th
e FF
TF B
ench
mar
k
Fairf
ield
City
Cou
ncil
is co
mm
itted
to a
n on
goin
g pr
ogra
m o
n in
itiat
ives
to a
chie
ve fi
nanc
ial s
avin
gs,
cont
inuo
us im
prov
emen
t and
effi
cien
t/ef
fect
ive
serv
ice
deliv
ery
for o
ur c
omm
unity
. Pro
duct
ivity
im
prov
emen
ts a
nd c
ost c
onta
inm
ent e
nabl
e Co
unci
l to
max
imise
the
serv
ices
it c
an d
eliv
er a
nd th
e va
lue
for e
ach
rate
dol
lar f
or ra
tepa
yers
. The
Pro
duct
ivity
Impr
ovem
ents
, Rev
enue
Opp
ortu
nitie
s, C
ost
Cont
ainm
ent S
trat
egie
s sec
tion
of th
is do
cum
ent p
rovi
des m
ore
deta
ils in
this
resp
ect.
Coun
cil i
s cur
rent
ly m
eetin
g th
e re
com
men
ded
redu
ctio
n fo
r thi
s ben
chm
ark
refle
ctin
g ef
ficie
ncy
impr
ovem
ents
. Ho
wev
er, r
eal o
pera
ting
expe
nditu
re p
er c
apita
incr
ease
s in
the
2014
/15
and
2016
/17
year
s as
a re
sult
of in
crea
ses i
n se
rvic
es to
the
com
mun
ity, m
ost o
f whi
ch is
tied
to th
e Sp
ecia
l Rat
e Va
riatio
n gr
ante
d la
st y
ear f
or e
ffect
from
1 Ju
ly 2
014.
Pro
ject
ions
indi
cate
a c
onsis
tent
redu
ctio
n in
real
ope
ratin
g ex
pend
iture
pe
r cap
ita th
roug
hout
the
LTFP
per
iod.
683.
45$
64
7.44
$
648.
21$
60
5.12
$
601.
43$
63
8.54
$
634.
46$
62
9.21
$
660.
84$
66
7.35
$
671.
31$
Fina
ncia
l Yea
r
2011
/12
2012
/13
Fina
ncia
l Yea
r
2013
/14
2024
/25
2014
/15
2015
/16
2016
/17
2023
/24
2017
/18
2018
/19
2019
/20
Mee
ts th
e FF
TF
Benc
hmar
k fr
om
2015
-202
5
$56
0.00
$58
0.00
$60
0.00
$62
0.00
$64
0.00
$66
0.00
$68
0.00
$70
0.00
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Real
Ope
ratin
g Ex
pend
iture
per
Cap
ita
Real
Ope
ratin
g Ex
pend
iture
per
cap
ita
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
123
7. R
eal O
pera
ting
Expe
nditu
re p
er C
apita
ove
r tim
eM
eets
the
Benc
hmar
k:FF
TF
(a d
ecre
ase
in re
al o
pera
ting
expe
nditu
re p
er c
apita
ove
r tim
e)Be
nchm
ark
Fairf
ield
660.
84$
66
7.35
$
671.
31$
683.
45$
64
7.44
$
648.
21$
63
8.54
$
634.
46$
62
9.21
$
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56$
61
7.02
$
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04$
60
5.12
$
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43$
Li
verp
ool
683.
31$
68
4.90
$
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79$
685.
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0.49
$
629.
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$
602.
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1.87
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90$
56
5.55
$
554.
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54
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$
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33$
Am
alga
mat
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CC &
LCC
)67
1.92
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92$
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25$
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$
Com
men
ts re
Rea
l Ope
ratin
g Ex
pend
iture
ove
r tim
e•
Asse
ssed
on
a jo
int c
onsid
erat
ion
of th
e di
rect
ion
and
mag
nitu
de o
f the
ir im
prov
emen
t or d
eter
iora
tion
in re
al e
xpen
ditu
re p
er c
apita
. Gi
ven
that
effi
cien
cy
impr
ovem
ents
requ
ire so
me
time
for t
he re
sults
to b
e fu
lly a
chie
ved
and
as a
re
sult,
this
anal
ysis
will
be
base
d on
a 5
-yea
r tre
nd.
• As
sum
ing
that
serv
ice
leve
ls re
mai
n co
nsta
nt, d
eclin
e in
real
exp
endi
ture
per
ca
pita
indi
cate
s effi
cien
cy im
prov
emen
ts (i
.e. t
he sa
me
leve
l of o
utpu
t per
cap
ita
is ac
hiev
ed w
ith re
duce
d ex
pend
iture
).
Mee
ts th
e FF
TF B
ench
mar
k
The
leve
ls of
serv
ice
expe
cted
by
resid
ents
will
nee
d to
be
nego
tiate
d an
d th
e de
liver
y m
odel
s cos
ted.
Th
e am
alga
mat
ed C
ounc
il w
ill n
eed
to id
entif
y a
rang
e of
pro
duct
ivity
initi
ativ
es to
be
expl
ored
and
de
velo
ped
to d
eliv
er in
crea
sed
effic
ienc
ies,
reve
nue
incr
ease
s and
cos
t red
uctio
ns o
ver t
he li
fe o
f the
LT
FP. T
hese
will
form
initi
ativ
es to
be
expl
ored
with
spec
ific
prop
osal
s bei
ng a
sses
sed
thro
ugh
a bu
sines
s cas
e m
etho
dolo
gy.
Fairf
ield
Cou
ncil'
s str
uctu
ral c
hang
es re
sulte
d in
a 4
.5%
sala
ry re
duct
ion
and
othe
r effi
cien
cy p
rogr
amm
es
have
gen
erat
ed sa
ving
s ove
r $5m
p.a
with
futu
re in
itiat
ives
com
men
cing
, del
iver
ing
Fairf
ield
Cou
ncil'
s pr
ojec
ted
7.6%
effi
cien
cy in
crea
se o
ver t
he 1
0 ye
ar te
rm (a
djus
ted
for i
nfla
tion)
com
pare
d to
Liv
erpo
ol
Coun
cil’s
ass
umpt
ion
of a
19.
7% e
ffici
ency
incr
ease
. Fai
rfie
ld is
an
infil
l Cou
ncil
with
a h
ighe
r pop
ulat
ion
dens
ity to
serv
ice,
mea
ning
the
addi
tiona
l ser
vice
requ
irem
ents
can
be
prov
ided
with
the
curr
ent
infr
astr
uctu
re in
pla
ce. L
iver
pool
is a
gro
wth
Cou
ncil
with
new
are
as a
nd n
ew se
rvic
es to
pro
vide
via
ad
ditio
nal i
nfra
stru
ctur
e re
quire
men
ts, m
akin
g th
e Li
verp
ool p
roje
ctio
n ag
gres
sive
to a
chie
ve th
at
tran
slate
s int
o th
e am
alga
mat
ed e
ntity
pro
ject
ion.
2011
/12
2012
/13
2013
/14
Mee
ts th
e FF
TF B
ench
mar
kM
eets
the
FFTF
Ben
chm
ark
2020
/21
How
Cou
ld C
ounc
il M
eet T
his B
ench
mar
k In
The
Fut
ure?
Com
men
tary
on
resu
lt:
Hist
oric
al
2022
/23
Proj
ecte
dFi
nanc
ial Y
ear
2024
/25
2014
/15
2015
/16
2016
/17
2023
/24
2017
/18
2018
/19
2019
/20
2021
/22
Fina
ncia
l Yea
r
$40
0.00
$45
0.00
$50
0.00
$55
0.00
$60
0.00
$65
0.00
$70
0.00
$75
0.00
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
Real
Ope
ratin
g Ex
pend
iture
per
Cap
ita
Real
Ope
ratin
g Ex
pend
iture
per c
apita
Am
alga
mat
ed
Real
Ope
ratin
g Ex
pend
iture
per c
apita
Fai
rfie
ld
Real
Ope
ratin
g Ex
pend
iture
per c
apita
Liv
erpo
ol
STA
ND
ALO
NE
(Eac
h C
ounc
il) v
AM
ALG
AM
ATED
PO
SITI
ON
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 124
IMPROVEMENT ACTION PLAN
Council’s LTFP identifies the work previously undertaken, the work under the Improvement Action Plan 2015/16 and activities planned for beyond 2015/16 (Section 5 of the Improvement Proposal - Template 2). The key Improvement Actions for 2015/16 (Section 3.4 of the Improvement Proposal - Template 2) are:
1. Implement SRV initiatives
2. Implement new depreciation policy – ($3.6M reduction p.a.)
3. Complete Dutton Lane Commercial and Retail Development
4. Complete Diamond Crescent subdivision and sale (41 lots)
5. Change the condition measurement approach of assets (condition 2)
6. Structural change delivering Salary and Wages improvement – meet 2015/16 budget which includes the 4.5% improvement
7. Changing the waste recycling delivery resourcing model – savings of $600,000 p.a.
8. Annual Review of Service Levels – SIMALTO grid
9. Annual Review of Fees and Charges
10. New productivity improvements and cost containment initiatives – 7.6% savings identified over 10 years in the LTFP (per the real operating expenditure per capita benchmark) including e-business transactions
11. Asset Maintenance – increased spend from SRV
12. Expand the current procurement sharing arrangement with Liverpool City Council and other councils
13. Explore the creation of a joint organisation for the south west region for shared services and other regional issues
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 125
AMALGAMATION COSTS
There is limited experience in modelling the true costs of amalgamation. This analysis relied on the Australian experiences that have occurred to date. It is recognised that the comparability of the recent Queensland amalgamations, which involved regional and metropolitan councils, has some limitations. However, Toowoomba was chosen on the basis of a budget with comparable operational spend. The knowledge, challenges, costs, timelines and opportunities were used to inform the amalgamation modelling used for an amalgamation of Fairfield and Liverpool Councils.
Analysis by Queensland Treasury Corporation (2012) found that the costs of the 2008 amalgamations in that state averaged $8.1M per new council ($2M net costs i.e. after amalgamation savings), with Central Highlands Regional Council claiming the highest gross cost of $21.5M. Almost half of costs related to one-off information and communication technology costs (43.8%) and a further 28% related to senior staff redundancies, recruitment and councillor allowances. Toowoomba Regional Council reported their amalgamation costs over a four year period to be $19M.
Findings from the Toowoomba amalgamation in Queensland (2008) have been used in this report, as they are the most recent, relevant and comparable Australian example to the ILGRP’s preferred option of an amalgamation.
Toowoomba had an operating expense of $357M in the 2013/14 financial year and its current population is 161,970 (2014). The amalgamated Fairfield Liverpool Council would have a combined operating expense total of $310M in the 2015/16 year. Fairfield/Liverpool operating expenses amount to 86.9% of Toowoomba’s operating expenses for 2014/15. Toowoomba’s amalgamation costs over four years were approximately $19M. Therefore 86.9% of $19M equates to an estimated equivalent of $16.51M of costs relating to systems, processes and redundancies for the Fairfield Liverpool amalgamated council.
Toowoomba Analysis and Findings
• 8 Councils amalgamated (1 metropolitan and 7 regional).
• Savings recognised in the seventh year. There were no dollar savings, but an increased service level over the LGA.
• 6.65% salary equalisation adjustment in salaries and wages. In addition staff members were promoted which contributed to the 6.65% increase as positions were filled internally.
• The newly elected political members and General Manager had the majority of influence on the organisational structure and appointments.
• Systems go live on the 29 June 2015, approximately 7 years from amalgamation in 2008.
• The first few years saw no real changes except preliminary organisational structures (due to preservation of staff requirements) and planning.
• Approximately $10M to replace corporate systems ($4M of that is internal staff secondment to work on the project). Technology One was the system chosen. $2M-$3M was spent on data validation, cleansing and integration.
• 20 senior staff redundancies in year 4 costing approximately $3.5M.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 126
Base Year
3 Year Award Guarantee
EndSavings
start HERE$'000 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 Totals ($'000)
Grant $19,500 $19,500Systems (43.8%) -$1,000 -$2,321 -$1,910 -$2,000 -$7,231Salary Equalisation (3.325%) -$3,959 -$3,959 -$3,959 -$3,959 -$15,836Redundencies (28%) -$4,623 -$4,623Branding -$500 -$500 -$500 -$500 -$500 -$500 -$500 -$500 -$500 -$4,500Temporary Admin Building (Lease fee) -$1,750 -$1,750 -$1,750 -$1,750 -$1,750 -$1,750 -$10,500Building & renovation (Capital) DA & Design Construct Construct Occupy $0Totals $19,500 -$6,209 -$6,209 -$7,209 -$13,153 -$4,160 -$4,250 -$500 -$500 -$500 -$23,190
Costs of Amalgamation
• Leased building to centralise additional staff costing $2M per annum.
• Constructing a new administration building to accommodate 1,200 employees with capital of $68M for 10,000 square metres (sq.m) with half being utilised commercially for a return and the other half for Council. Approximately $300-$350 per sq.m long term contract. Usually commercial rental income would be higher at $410-$480 per sq.m.
• $500,000 p.a. allocated to re-branding of Council which is completed in line with normal maintenance schedules.
• The rating system was the most difficult to align post amalgamation. Approximately 300 different categories that initially transitioned down to 170 categories and since down to 40 categories after a 4 year transition period. The rates system mirrored the higher cost structure with the rates being stabilised on the higher council rates base. The community expectation was that higher rates equated to more or improved service delivery.
• $19M costs over 4 years were exclusive of leasing costs, salaries and wages increases, branding costs and new building construction.
• Operating expenditure post-amalgamation is equal to combined operating expenditure pre-amalgamation. This means that service delivery of services to regional areas, in particular, are now much higher than pre-amalgamation in line with community expectations for the payment of higher rates.
• Councillor structure stayed the same with 11 Councillors and an increase in support staff that was required. This was internally recruited and increased governance costs in comparison to pre-amalgamation.
• Toowoomba defined the “benefits of amalgamation as a conscious investment in the Council’s inherent delivery structure to deliver future outcomes for the community”. The way Toowoomba communicated the amalgamation process to the community was by describing that “this is a capital and operational investment in your Council’s infrastructure and the community has a say in the nature of these investments for the future to better your community.”
The table below summarises the estimated amalgamation costs:
The base year is estimated to be after the September 2016 Election.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 127
• Systems and Processes The costs related to systems have been calculated using the analysis by Queensland Treasury Corporation (2012) indicating that 43.8% of total amalgamation costs (estimated at $16.51M) are related to systems and processes. The assumption is that it will take some time before a decision is made in relation to the corporate systems to be used. 2018/19 is assumed as the initiation of the scoping and planning of the new systems, followed by a 3 year implementation period costing approximately $7.23M.
• RedundanciesThe costs related to redundancies have been calculated using the analysis by Queensland Treasury Corporation (2012) indicating that 28% of total amalgamation costs (estimated at $16.51M) are related to redundancies. This will equate to $4.6M in the fourth year of amalgamation due to the award guarantee of no redundancies in the first 3 years of amalgamation. It is anticipated that the redundancies will mainly apply to more senior members of staff.
• Branding This is in reference to the visual identity of the amalgamated entity. Considerations of branding include: logo, signage, uniforms, letter heads, etc. With the exception of uniforms, gateway signs, suburb markers and building signage, other signs would be replaced as needed via maintenance schedule. It is assumed that $500,000 p.a. over the LTFP would be required.
• Salary Equalisation and Industrial AgreementsFindings identified from the Toowoomba Regional Council example indicated that a 6.65% increase in salaries and wages occurred due to salary equalisation for staff of the amalgamated Council. In this report, it is assumed that half that cost (3.325%) will be required in an amalgamation of Fairfield and Liverpool. This is due to the close proximity of Fairfield and Liverpool, and the fact that they are both metropolitan councils which should not have the same salary discrepancies. This equated to a $3.96M increase in salaries and wages over the first 4 years from 2016/17 to 2019/20. This is assumed to end when the formalised organisational structure is completed and redundancies have been finalised.
• Buildings and Renovations Including RelocationsThe relocation costs have been calculated assuming that the amalgamated entity will need to accommodate the employees in a central location via a building lease until more permanent accommodation is established. This figure was calculated using an estimated requirement of 5,000 square metres of commercial space in the Liverpool regional centre at $350 per square metre, resulting in a lease cost of $1.75M p.a. from the 2016/17 until assumed completion of a new building in 2022/23.
It is assumed that the construction of a new building for the amalgamated Council will be required. Estimated figures have not been forecasted as it is capital related and subject to design. Commencement of this building is assumed to be in the 2019/20 year with completion estimated in the 2022/23 year.
• Standardisation of RatesThe standardisation of rates is an important factor in the amalgamation process and the rating system is difficult to estimate and align post amalgamation. In the Queensland examples, it is highlighted that their rates system mirrored the higher cost structure, with the Council with the higher rates being capped and the Council with the lower rates rising. This resulted in community expectation of higher rates equating to new or improved service delivery. In this case, Fairfield residents would expect any rate increases would be reflected in additional service delivery. That said, Fairfield Council currently has a SEIFA index of 3rd in NSW and the most disadvantaged metropolitan council which would mean rate increases may not be affordable. A merger may also disguise this level of disadvantage and concerns about affordability.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 128
Potential Savings From Amalgamation
The NSW State Government has offered an untied grant of $10.5M to each newly amalgamated council with a further $3M for each additional 50,000 in population above 250,000, capped at $22.5M. Based on the merged entity population of 403,037 (calculated on 2014 projections) the NSW State Government would provide a grant of $19.5M to the amalgamated council.
Additional assumptions applied to the scenario in this report are:
• Transition period: it is assumed that cost savings only commence seven years from the base year identified, in the 2022/23 year. This encompasses a transition period where council cost structures gradually move to merged structures where economies of scale will apply.
• Operating expenditure projections: Expenditure savings are assumed to grow in line with projected Long Term Financial Plan (LTFP) expenditure growth rates for each council.
For the purposes of analysing potential cost savings from amalgamation, Council has used a model where pre-merger operating expenditure for each option is compared with post-merger expenditure. The average operating efficiency per capita is forecast to derive a percentage change in total expenditure, which is then applied to the base case expenditure of that option to derive financial costs or savings.
As noted earlier, the merger costs will occur over 7 years (2022/23) and savings commence in 2023/24.
Base YearSavings
start HERE$'000 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25
Total Expenses from Continuing Operations - Fairfield
$153,704 $158,572 $161,787 $166,498 $171,021 $176,105 $179,908 $184,530 $189,273 $194,842
Total Expenses from Continuing Operations - Liverpool
$156,569 $160,205 $163,906 $168,239 $173,094 $179,274 $183,401 $188,350 $194,393 $200,839
Total Expenditure (Amalgamated) $310,273 $318,777 $325,693 $334,737 $344,115 $355,379 $363,309 $372,880 $383,666 $395,681
Fairfield Operating Expenditure Per Capita
$749 $766 $773 $788 $802 $818 $827 $840 $853 $870
Liverpool Operating Expenditure Per Capita
$741 $743 $744 $748 $754 $757 $758 $763 $771 $780
Average Operating Expenditure Per Capita
$745 $754 $759 $768 $778 $787 $793 $801 $812 $825
Population Fairfield 205,108 207,126 209,164 211,222 213,301 215,400 217,520 219,661 221,823 224,006 Population Liverpool 211,200 215,635 220,164 224,787 229,507 236,950 241,926 247,006 252,194 257,490 Total Population (Amalgamated) 416,308 422,761 429,328 436,009 442,808 452,350 459,446 466,667 474,017 481,496
Total expenditure (using lower per capita cost) $310,297 $318,874 $325,852 $335,007 $344,501 $356,036 $364,151 $373,940 $384,919 $397,184
Total Savings from amalgamation -$24 -$97 -$159 -$270 -$386 -$657 -$842 -$1,060 -$1,253 -$1,503
Note: Average Expenditure per Capita and Population are stated as whole numbers, not $'000's
Potential Amalgamation Savings
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 129
The above figures indicate that with amalgamation the entity will incur a loss of $3.82M over the term of the LTFP. What is highlighted is that Fairfield Council assumes a 7.6% efficiency increase over the 10 year term (adjusted for inflation) compared to Liverpool Council’s assumption of a 19.7% efficiency increase. Fairfield is an infill council with a higher population density to service, meaning the additional service requirements can largely be provided by the current infrastructure. Liverpool is a growth council with new areas and new services to provide via additional infrastructure requirements, making the Liverpool projection very aggressive to achieve. The statistics in the table below demonstrate the different growth outlooks and land area that supports these assumptions.
Statistics Fairfield Liverpool Combined
Land Area 102km2 306km2 408km2
Population Density (persons per hectare) 19.99 6.54 9.90
Urban Growth Status Stable Growth Growth
Current Financial Position (Tcorp Assessment) Sound Sound Sound
Financial Outlook (Tcorp Assessment) Neutral Negative Negative
Business
Gross Regional Product $7.5 billion $7.9 billion $15.4 billion
Number of Businesses 14,610 13,680 28,290
Number of Jobs 46,823 53,805 100,628
Number of Development Applications 2013/14 772 1,204 1,924
Unemployment rate 11.60% 7.5% No change
The analysis is consistent with Toowoomba Regional Council’s findings indicating that operating expenditure post-amalgamation is equal to combined operating expenditure pre-amalgamation. However, the service delivery to regional areas in particular has increased to higher than pre-amalgamation levels meaning that efficiencies have been gained via service delivery that are not reflected in actual dollar impacts to the bottom line. It also reflects the finding that with higher rates, an expectation of increased service delivery is anticipated by the community.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 130
Limitations of Analysis
The structure and model of service delivery by the amalgamated council is unknown. For example, the use of internal day labour to provide services compared to the practice of outsourcing. Also, the amalgamated entity’s service offerings and levels of service will need to be agreed through review of the community’s priorities and Council’s strategic planning and direction.
The potential savings from amalgamation have been calculated by undertaking a limited financial analysis which uses assumptions. These analyses examine expenditure per capita and assume that the processes, services and service levels of one council will be adopted within an amalgamation. It also recalculates the per capita spend for one council to another and then generates a “cost saving” after including an assumed value for transitional costs. Council believes that projected amalgamated cost savings through reductions to services in this way are not efficiencies but direct service level decreases. In order to implement this type of ‘cost saving’ there is no need to amalgamate councils, all that is required is that service levels be reduced.
A critique of this approach is that it does not address the needs and priorities identified by the community which is a direct requirement of the Integrated Planning and Reporting Framework. To make a sound assessment of any cost savings through changes to services, the philosophies of both councils and the results of community consultation need to be extensively examined. The change to the service levels needed by this larger population should then be used to calculate an alternate per capita spend.
Base Year
3 Year Award Guarantee
EndSavings
start HERE$'000 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 Totals ($'000)
Grant $19,500 $19,500Systems (43.8%) -$1,000 -$2,321 -$1,910 -$2,000 -$7,231
119076000 Salary Equalisation (3.325%) -$3,959 -$3,959 -$3,959 -$3,959 -$15,836Redundencies (28%) -$4,623 -$4,623Branding -$500 -$500 -$500 -$500 -$500 -$500 -$500 -$500 -$500 -$4,500Temporary Admin Building (Lease fee) -$1,750 -$1,750 -$1,750 -$1,750 -$1,750 -$1,750 -$10,500
Building & renovation (Capital) DA & Design Construct Construct Occupy $0Savings -$1,060 -$1,252 -$1,504 -$3,816Totals $19,500 -$6,209 -$6,209 -$7,209 -$13,153 -$4,160 -$4,250 -$1,560 -$1,752 -$2,004 -$27,006
Costs & Savings via Amalgamation
Overall Result of Amalgamation
The table below indicates that the overall net financial result of an amalgamated entity will have additional costs of $27M over the 10 year LTFP period. This is approximately 8.7% of the current combined operating expenditure, and equates to a $2.7M loss per annum over the 10 year LTFP period. However, there may be potential savings beyond the 10 year projection of this analysis that would be dependent on the strategic decisions and structure of the new amalgamated entity.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 131
FIT FOR THE FUTURE Fairfield City Council Long Term Financial Plan 2015/16-2024/25
APPENDIX 1
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 132
LONG TERMFINANCIAL PLAN
2015/16 – 2024/25
FAIRFIELDCITYCOUNCIL
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 133
LONGTERMFINANCIALPLAN 2
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 134
3LONGTERMFINANCIALPLAN
CONTENTS
EXECUTIVE SUMMARY 4
FIT FOR THE FUTURE ANALYSIS 10
INTRODUCTION 16
PLANNING ASSUMPTIONS 20
ASSET MANAGEMENT, CAPITAL EXPENDITURE AND DEPRECIATION 22
PRODUCTIVITY IMPROVEMENTS, REVENUE OPPORTUNITIES, COST CONTAINMENT STRATEGIES 28
REVENUE FORECASTS 30
RATES AND ANNUAL CHARGES 30
USER CHARGES AND FEES 32
INTEREST AND INVESTMENT REVENUE 32
OTHER REVENUES 32
GRANTS AND CONTRIBUTIONS PROVIDED FOR OPERATING PURPOSES 32
GRANTS AND CONTRIBUTIONS PROVIDED FOR CAPITAL PURPOSES 33
NET GAIN FROM DISPOSAL OF ASSETS 33
INCOME FROM JOINT VENTURES AND ASSOCIATED ENTITIES 33
EXPENDITURE FORECASTS 34
EMPLOYEE BENEFITS AND ON-COSTS 34
BORROWING COSTS 35
MATERIALS AND CONTRACTS 35
DEPRECIATION AND AMORTISATION 36
OTHER EXPENSES 36
2015-16 PROJECTION – CHANGES FROM PREVIOUS LTFP 37
SENSITIVITY ANALYSIS 38
PROJECTIONS 40
INCOME STATEMENT 40
BALANCE SHEET 41
CASH FLOW STATEMENT 42
APPENDIX 43
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 135
4 LONGTERMFINANCIALPLAN
Council has developed this Long Term Financial Plan (LTFP) to outline the steps it will take to address the major financial challenges and opportunities which will impact on the way it does business over the next 10 years. The main objectives of the LTFP are to achieve Council’s financial sustainability and to inform Council’s decisions about the services and new initiatives it will deliver. The LTFP is updated each year to provide a rolling 10 year outlook.
In summary, this LTFP demonstrates that Fairfield City Council is in a strong financial position over the next 10 years. It is projected to
deliver operating surpluses each year, to meet all “Fit for the Future’ benchmarks as set by the
State Government, and to achieve its own nancial sustainability benchmarks.
This puts Council in a very good position to continue to deliver services that are important for its community and to introduce new initiatives that are identified as priorities in the Fairfield City Plan.
Since 2009-10 Council has implemented an ongoing program of productivity improvements, cost containments and revenue opportunities. The savings that have been achieved combined with a new special rate variation (SRV) have significantly improved Council’s financial sustainability as well as its ability to deliver priority services and initiatives for the community. The new SRV to commenced in 2014-15, to achieve two outcomes - to enable Council to address its asset backlog and ensure the condition of its assets remain stable over the next 10 years, and to support a number of new capital initiatives which will deliver new and improved facilities to the community.
The preparation of the LTFP commenced with a detailed (internal) analysis of the 2015/16 budget. Next, a review of external influences such as population growth, inflation, interest rates and economic growth were considered when assessing the future years.
The outcomes from the internal analysis and review of external influences have been combined to project the future.
EXECUTIVE SUMMARY
An exception to this is with respect to a change in depreciation policy. This has conditional external audit approval and as a result, has been incorporated into the 2015/16 budget and the subsequent years of the LTFP. Detail of this policy change is included in the Asset Management, Capital Expenditure and Depreciation section of this document.
The key objectives when developing this LTFP are:
• Balanced Budgets / Operational Surpluses
• Continuous Financial Improvement
• Achievement of Financial Sustainability Benchmarks
• Achievement of Fit For The Future Benchmarks prescribed by the State Government.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 136
5LONGTERMFINANCIALPLAN
SUMMARY OF FINANCIAL RESULTS
Presented below are extracts from the 10 year LTFP projections and the expected performance against various benchmarks across the 10 year horizon should Council results align to that presented in this LTFP.
The table above shows that Council is forecast to achieve the stated goals. A positive net operating result is expected in each year of the LTFP as well as a better than breakeven net operating result before capital grants. Cash and cash equivalents decline in the 2015/16 year due to significant capital spend, but will then increase to sufficient levels. Continued growth in cash, cash equivalents and investments is projected across the entirety of the LTFP period, again the only exception being the 2015/16 year which is affected by the significant infrastructure capital spend. Council’s net asset base also continues to grow across the LTFP period.
Since the adoption of Council’s last LTFP, the State Government has released new financial benchmarks as part of its ‘Fit for the Future’ package for all NSW Councils. These benchmarks have now been incorporated into this document and into Council’s ongoing monitoring of its financial performance and outlook.
The Key Financial Indicators are displayed in the tables below. They confirm that the key objectives of balanced budgets/operational surpluses, continuous financial improvement, achievement of financial sustainability benchmarks and achievement of Fit For The Future (FFTF) benchmarks will be achieved.
PROJECTED YEARS
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25
$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000
Net Operating Result 23,568 8,665 8,522 7,892 7,554 8,473 9,440 9,710 9,944 9,526
Net Operating Result (before capital grants) 3,194 3,579 3,334 2,574 2,103 2,886 3,714 3,840 3,927 3,358
Cash and Cash Equivalents (at end of nancial year) 3,773 3,775 7,659 10,383 9,888 8,875 9,235 9,996 9,866 9,736
Cash, Cash Equivalents and Investments (at end of FY ) 63,735 63,737 67,621 70,345 72,850 75,837 80,197 84,958 88,828 94,698
Net Assets(at end of FY) 1,794,209 1,802,874 1,811,397 1,819,288 1,991,423 1,999,896 2,009,336 2,019,046 2,028,990 2,235,646
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 137
6 LONGTERMFINANCIALPLAN
KEY PERFORMANCE INDICATORS
New Special Schedule 7 Ratios
Old Note 13 Ratios (not incl. in new Note 13 or Special Schedule 7)
Fit for the Future Criteria
0.26% 0.26% 0.23% 0.78% 0.70% 0.64% 0.61% 0.59% 0.58% 0.57%Debt Service Ratio
103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09% 103.09%Asset Maintenance Ratio
1.93% 1.92% 1.90% 1.88% 1.87% 1.85% 1.84% 1.80% 1.78% 1.76%Infrastructure Backlog Ratio
100.30% 104.86% 102.47% 102.11% 101.77% 101.43% 101.09% 100.77% 100.45% 100.13%Building & Infrastructure Renewals Ratio
77.59% 85.16% 85.13% 85.12% 85.10% 85.23% 85.24% 85.25% 85.26% 85.27%Own Source Operating Revenue Ratio
Operating Performance Ratio2.04% 2.21% 2.02% 1.52% 1.21% 1.61% 2.02% 2.04% 2.03% 1.69%
2021/22 2022/23 2023/24 2024/25Operating Performance Ratio
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
2.04% 2.21% 2.02% 1.52% 1.21% 1.61% 2.02% 2.04% 2.03% 1.69%
85.24% 85.25% 85.26% 85.27%
Unrestricted Current Ratio
77.59% 85.16% 85.13% 85.12% 85.10% 85.23%Own Source Operating Revenue Ratio
3.12 3.37 3.56 3.49 3.47 3.46 3.59 3.68 3.80 3.98
Rates, Annual Charges, Interest & Extra Charges Outstanding Percentage
Debt Service Cover Ratio
3.56% 3.55% 3.55% 3.55% 3.55% 3.55% 3.55% 3.55% 3.55% 3.55%
Building & Infrastructure Renewals Ratio 100.30% 104.86% 102.47% 102.11% 101.77% 101.43% 101.09% 100.77% 100.45% 100.13%
1.84% 1.80% 1.78% 1.76%
Asset Maintenance Ratio
1.93% 1.92% 1.90% 1.88% 1.87% 1.85%Infrastructure Backlog Ratio
103.09% 103.09% 103.09% 103.09% 103.09%
Debt Service Ratio
Capital Expenditure Ratio
0.26% 0.26% 0.23% 0.78% 0.70%
1.90% 1.21% 1.15%
0.64% 0.61% 0.59% 0.58% 0.57%
62.81% 62.74% 62.68% 62.61%58.53% 63.26% 63.35% 63.39% 63.43% 62.88%Rates & Annual Charges Coverage Ratio
3.46 3.59 3.68 3.80 3.98
TCorp RatiosUnrestricted Current Ratio
3.12 3.37 3.56 3.49 3.47
101.09% 100.77% 100.45% 100.13%100.30% 104.86% 102.47% 102.11% 101.77% 101.43%Building & Infrastructure Renewals Ratio
Net Financial Liabilities Ratio (Gearing Ratio) 0.09% 0.06% -0.06% 0.52% 0.42% 0.32% 0.18% 0.02% -0.09% -0.26%
-1.56% -1.67% -1.75% -1.86%-1.71% -1.70% -1.57% -1.32% -1.26% -1.46%Net Interest Coverage Ratio
35.25% 35.37%83.78% 80.93% 91.60% 26.33% 28.97% 31.83%
1.53% 1.15%
33.84% 34.55%
1.14% 1.14% 1.17% 1.10%1.14%
103.09% 103.09% 103.09% 103.09% 103.09%
Within benchmark Not within benchmark
Real Operating Expenditure Per Capita over Time
See page 10 LTFP
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 138
7LONGTERMFINANCIALPLAN
The financial trends over the 10 years of the LTFP are represented in the Graphs below further indicate achievement of the stated objectives.
0
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25
Total Income vs Total Expenditure(per P&L) - General Fund
Total Income Total Expenditure
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
Net Operating Result (per P&L) after Capital Grants & Contributions - General Fund
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 139
8 LONGTERMFINANCIALPLAN
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
Net Operating Result (per P&L) before Capital Grants & Contributions - General Fund
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
100,000,000
Net Cash & Investments (incl. bank Overdraft) - General Fund
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 140
9LONGTERMFINANCIALPLAN
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Available Working Capital - General Fund
Given that Council’s future position has then been forecast on the basis of a continuance of “normal operations” as amended for SRV initiatives and underpinned by conservative assumptions and initiatives/efficiencies either already achieved or underway. This demonstrates a sound financial foundation and a readiness for future challenges. Hence Council could be expected to withstand adverse impacts or shocks outside of these assumptions. A focus on continuous improvement has the potential to deliver an upside to these projections, these initiatives are detailed in the Productivity Improvement, Revenue Opportunities, Cost Containment Strategies section of this document.
05,000,000
10,000,00015,000,000
20,000,00025,000,00030,000,00035,000,00040,000,00045,000,00050,000,000
Externally Restricted Cash & Investments (Incl. Bank Overdraft) - General Fund
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 141
10 LONGTERMFINANCIALPLAN
The NSW State Government recommended a self-assessment tool that measured retrospectively over a period of three years from audited published financial statements and generated a series of benchmarks or ratios. These benchmarks provided a recommended or ‘hurdle’ result that generated a ‘Yes’ or ‘No’ outcome whether the Council met the Fit for the Future Benchmarks.
Council had previously identified in the previous LTFP that a series of intervention initiatives would be required from 2018/19 so that Council could progress to achieving its long term financial sustainability. Significant structural reform has been undertaken in recent years which have achieved a reduction of 4.5% in employee costs in the 2015/16 year. The impact of this structural reform has reduced the pressure to find significant financial benefits in the short to medium term (i.e. said intervention initiatives). However, continuous improvement in financial results remains a goal for Council.
Previous financial results and projections had been adversely affected by the introduction of new accounting standards regarding asset revaluations, the related impacts on depreciation expense and application of the current conservative depreciation methodology. As a result, there has been an ongoing review of depreciation in line with the asset management plans over several years, culminating in a change of policy. This change in depreciation policy has conditional external audit approval and thus has been worked into the 2015/16 budget and the subsequent years of the LTFP. Detail of this policy change is included in the Asset Management, Capital Expenditure and Depreciation section of this document. The application of this policy improves projected financial outcomes.
Special Schedule 7 is a relatively new reporting requirement that has limitations caused by a lack of consistency of data and appropriate auditing standards. Fairfield Council has been very conservative historically in preparing this schedule which has adversely impacted results. This view is supported and recognized in the guidance provided in the description of the ratios where it was noted “It is acknowledged, that the reliability of infrastructure data within NSW local government is mixed. However, as asset management practices within councils improve, it is anticipated that infrastructure reporting data reliability and quality will increase”. Fairfield Council as part of its Integrated Planning and Reporting improvements has reassessed some accounting treatments regarding assets and depreciation in partnership with their external auditors. Fairfield Council have previously prepared the Special Schedule 7 on the basis that all assets requiring renewal were restored to new condition (condition / category 1). The outcome for Fairfield with this more rigorous approach was still only 3.88% compared to the benchmark requirement of less than 2%. The changes in the approach will improve this asset backlog percentage by:
• Measuring the cost to bring the asset to a satisfactory condition as prescribed by the Office of Local Government as condition 2, as opposed to the current measure of condition 1 or new.
• The recommendation to consult with the community to determine the asset condition that is considered acceptable to deliver the required level of service. This may mean, for example, that an asset in condition 4 (poor) may still deliver the required level of service and thus not form part of the asset backlog. This consultation is anticipated to deliver a significant reduction in the asset backlog.
• The new Special Rate Variation (SRV) granted by IPART for Council commencing July 2014 included a recognition that Asset Management Plans addressing Asset backlog was a priority for Fairfield Council and this results in an additional $42.41m over 10 years to be spent on asset upgrades.
Other initiatives have been pursued to further improve Council’s long term financial position. Additional property rental revenues to be delivered in 2016-17 due to the development of Dutton Lane in Cabramatta, currently under construction, and an additional Property Development Fund investment in the 2018/19 year are examples of such initiatives. A series of interventions and cost containment actions are continuing to deliver efficiencies, these are detailed in the Productivity Improvement, Revenue Opportunities, Cost Containment Strategies section of this document. The projected outcomes for each of the Fit For The Future measures follows:t Strategies section of this document.
The projected outcomes for each of the Fit For The Future measures follows:
FIT FOR THE FUTURE ANALYSIS
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
142
11LONGTERMFINANCIALPLAN
1. Ope
rating
Perfo
rman
ce Ra
tio
3 Yea
r
Benc
hmark
:av
erage
(grea
ter or
equa
l to b
reak e
ven a
verag
e ove
r 3 ye
ars)
Total
conti
nuing
opera
ting r
even
ue
(excl.
capit
al gra
nts an
d con
tribu
tions
) less
opera
ting e
xpen
sesTo
tal co
ntinu
ing op
eratin
g rev
enue
(ex
c. ca
pital
grants
and c
ontri
butio
ns)
-2.19%
-1.43
%0.8
7%2.0
9%1.9
1%1.5
8%1.4
5%1.6
2%1.8
9%2.0
3%1.9
2%x
x
Comm
ents
re Op
eratin
g Perf
orma
nce R
atio
Comm
entar
y on r
esult
: Ho
w Co
uld Co
uncil
Mee
t This
Benc
hmark
In Th
e Fut
ure?
Fairf
ield C
ounc
il con
sisten
tly ge
nerat
es op
eratin
g surp
luses.
This
is de
spite
the s
ignific
ant in
crease
in de
precia
tion e
xpen
se ca
used
by:
• intro
ducti
on of
new
acco
untin
g stan
dards
rega
rding
asset
reva
luatio
ns
• the
relat
ed im
pacts
on de
precia
tion e
xpen
se• a
pplic
ation
of th
e curr
ent c
onser
vativ
e dep
reciat
ion m
ethod
ology
.
These
items
have
impa
cted t
he 20
13/14
and 2
014/1
5 yea
rs res
ulting
in op
eratin
g defi
cits w
hich r
un ag
ainst
the lo
ng te
rm tr
end.
Th
e Spe
cial R
ate va
riatio
n tak
ing ef
fect f
rom
1 July
2014
and e
fficie
ncy i
nitiat
ives r
educ
ing co
sts (su
ch as
the s
tructu
ral ch
ange
s impro
ving l
abou
r exp
enses
by 4.
5%)
will r
eturn
Coun
cil to
surpl
us fo
r 2015
/16.
These
opera
ting s
urplus
es wi
ll be f
urthe
r impro
ved b
y the
appli
catio
n of t
he re
vised
depre
ciatio
n acc
ounti
ng tr
eatm
ent
endo
rsed b
y our
exter
nal a
udito
rs fo
r app
licati
on in
FY15.
This
essen
tially
is rec
ognit
ion of
asset
s resi
dual
value
s and
asset
degra
datio
n curv
es ba
sed on
asset
co
nditio
n ins
pecti
ons o
ver t
he us
eful li
ves.
Struc
tural
chan
ges c
omme
nced
in ea
rlier y
ears,
and t
he de
precia
tion p
olicy
chan
ge ef
fected
in 20
14/15
will y
ield e
nduri
ng be
nefit
s to
opera
ting r
esults
. Cou
ncil i
s exp
ected
to re
ach t
his be
nchm
ark in
the 2
016/1
7 yea
r and
then
conti
nue t
o mee
t in th
roug
hout
the
remain
der o
f the
LTPF
perio
d. Co
ntinu
ed ac
tions
to fu
rther
impro
ve pr
oduc
tivity
, gen
erate
addit
ional
reven
ue an
d con
tain c
osts,
as
outlin
ed in
the r
eleva
nt sec
tion o
f this
LTFP
docu
ment,
is ex
pecte
d to r
esult i
n ope
rating
surpl
uses
for t
he fo
resee
able
future
.
2.04%
2.03%
1.69%
Rollin
g 3 ye
ar av
erage
Meets
the F
FTF B
ench
mark
• An i
mpor
tant m
easu
re as
it pro
vides
an in
dicati
on of
how
a Cou
ncil g
enera
tes re
venu
e and
alloc
ates
expe
nditu
re (e.
g. ass
et ma
inten
ance
, staff
ing co
sts). I
t is an
indic
ation
of co
ntinu
ed ca
pacit
y to m
eet o
n-go
ing ex
pend
iture
requir
emen
ts.• T
Corp
recom
mend
ed th
at all
Coun
cils s
hould
be at
least
brea
k eve
n ope
rating
posit
ion or
bette
r, as a
key
comp
onen
t of f
inanc
ial su
staina
bility
.
2.21%
2.02%
1.52%
1.21%
1.61%
2.02%
2022
/23
2023
/24
2024
/25
3.20%
0.03%
-4.94
%-0.
59%
-1.70
%2.0
4%
2016/
1720
17/18
2018/
1920
19/20
2020
/21
2021/
22
Histo
rical
Proje
cted
Finan
cial Y
ear
Meets
the F
FTF
Benc
hmark
from
20
15-20
25
Finan
cial Y
ear
2011/
1220
12/13
2013/
1420
14/15
2015/
16
-0.06
-0.04-0.020
0.02
0.04
2011/
1220
12/13
2013/
1420
14/15
2015/
1620
16/17
2017/
1820
18/19
2019/
2020
20/2
120
21/22
2022
/23
2023/
2420
24/2
5
Opera
ting P
erfor
manc
e Rati
o
Opera
ting P
erform
ance
Ratio
Benc
hmark
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
143
12 LONGTERMFINANCIALPLAN
2. Ow
n Sou
rce Re
venu
e Rati
o
3 Yea
r
Benc
hmark
:av
erage
(grea
ter th
an 60
% av
erage
over
3 yea
rs)
Total
conti
nuing
opera
ting r
even
ue
less a
ll gran
ts an
d con
tributi
ons
Total
conti
nuing
opera
ting r
even
ue
inclus
ive of
capit
al gra
nts an
d con
tributi
ons
82.1%
80.7%
81.0%
82.5%
85.1%
85.1%
85.1%
85.2%
85.2%
85.2%
85.3%
ü
Comm
ents
re Ow
n Sou
rce Re
venu
e Rati
o
Comm
entar
y on r
esult:
How
Could
Coun
cil M
eet T
his Be
nchm
ark In
The F
uture?
Coun
cil is
curre
ntly s
ignific
antly
exce
eding
this b
ench
mark
and t
his is
antic
ipated
to co
ntinu
e in t
he fu
ture.
Coun
cil ha
s take
n acti
ons w
ith th
e dev
elopm
ent o
f a r
etail c
entre
in Du
tton L
ane a
s part
of a
Prope
rty De
velop
ment
Fund
) and
a co
mmerc
ial re
cycli
ng bu
siness
in th
e Sust
ainab
le Re
sourc
e Cen
tre (S
RC) to
red
uce i
ts rel
iance
on bo
th gra
nts an
d rate
s. A fu
rther
prope
rty de
velop
ment
is plan
ned t
o be c
omme
nced
in 20
18/19
which
will
gene
rate $
1.2M
p.a. re
currin
g inc
ome f
rom 20
20/2
1 yea
r. An a
dditio
nal $
10.65
M in
capita
l gran
ts in
2015/
16 for
road
s and
infra
struc
ture f
or the
new
airpo
rt red
uces
the ra
tio in
that
year.
Conti
nuati
on of
curre
nt pla
ns an
d stra
tegies
shou
ld en
sure c
ontin
ued a
chiev
emen
t of t
his be
nchm
ark.
85.25
%85
.26%
85.27
%
Rollin
g 3 ye
ar av
erage
Meets
the F
FTF B
ench
mark
• Mea
sures
the de
gree o
f relia
nce o
n exte
rnal fu
nding
sourc
es (e.
g. gran
ts an
d con
tributi
ons).
• Fina
ncial
flexib
ility i
ncrea
ses as
the l
evel
of ow
n sou
rce re
venu
e inc
reases
. It al
so gi
ves c
ounc
ils gre
ater a
bility
to m
anage
ex
terna
l shoc
ks or
chall
enge
s.• C
ounc
ils wi
th hig
her o
wn so
urce r
even
ue ha
ve gr
eater
abilit
y to c
ontro
l or m
anage
their
own o
perat
ing pe
rform
ance
an
d fina
ncial
susta
inabil
ity.
•
Th
e Fed
eral G
overn
ments
did n
ot ap
ply in
flatio
n for
3 yea
rs to
Fede
ral As
sistan
ce G
rants
(FAG’s
). Th
is, wi
th Sta
te Go
vernm
ents
decis
ion th
rough
its di
stribu
tion m
odel
to red
uce C
ounc
ils sha
re by
a fur
ther 5
% res
ulted
in a
net im
pact
in ye
ar 1 o
f $80
0k re
ducti
on in
inco
me. Ir
onica
lly, th
is imp
roves
our b
ench
mark
ratio,
but d
elive
rs les
s rev
enue
to se
rvice
the
Comm
unity
.
85.16
%85
.13%
85.12
%85
.10%
85.23
%85
.24%
2022
/23
2023/
2420
24/2
5
79.29
%81.
38%
84.68
%81.
81%80
.51%
77.59
%
2016/
1720
17/18
2018/
1920
19/20
2020
/21
2021/
22
Histo
rical
Projec
ted
Finan
cial Y
ear
Meets
the F
FTF
Benc
hmark
from
20
15-20
25
Finan
cial Y
ear
2011/
1220
12/13
2013/
1420
14/15
2015/
16
00.10.20.30.40.50.60.70.80.9
2011/
1220
12/13
2013/
1420
14/15
2015/
1620
16/17
2017/
1820
18/19
2019/
2020
20/2
120
21/22
2022
/23
2023/
2420
24/2
5
Own S
ource
Reve
nue R
atio
Own S
ource
Reven
ue Ra
tio
Bench
mark
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
144
13LONGTERMFINANCIALPLAN
3. Bu
ildin
g and
Infra
stru
ctur
e Ass
et R
enew
al R
atio
3 Yea
r
Benc
hmar
k:av
erag
e
(gre
ater
than
100%
aver
age o
ver 3
year
s)
Asse
t ren
ewals
(buil
ding
and
infra
struc
ture
)De
prec
iatio
n, am
ortis
atio
n and
impa
irmen
t (b
uildi
ng an
d inf
rastr
uctu
re)
73.5%
80.9%
94.2%
102.5
%10
3.1%
102.1
%10
1.8%
101.4
%10
1.1%
100.
8%10
0.4%
Com
men
ts re
Bui
ldin
g and
Infra
stru
ctur
e Ass
et R
enew
al R
atio
2021
/22
Hist
orica
lProje
cted
Finan
cial Y
ear
Mee
ts th
e FFT
F Be
nchm
ark
from
2015
-202
5
Finan
cial Y
ear
2011/
1220
12/1
320
13/1
420
14/1
520
15/1
6
101.0
9%
2022
/23
2023
/24
2024
/25
76.74
%79
.10%
64.81
%73
.06%
77.18
%10
0.30
%
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
Com
men
tary
on r
esul
t: Ho
w Co
uld
Coun
cil M
eet T
his B
ench
mar
k In T
he Fu
ture
?Th
e ren
ewal
ratio
is ex
pect
ed to
achie
ve gr
eate
r tha
n 100
% fro
m 20
15/16
and
mee
t the
3 ye
ar av
erag
e in 2
017/
18. T
his im
prov
emen
t has
occ
urre
d du
e to:
• Im
prov
ed p
rojec
t ide
ntifi
catio
n bet
ween
new
and
rene
wal c
ompo
nent
s• T
he ap
plica
tion o
f the
new
SRV
expe
nditu
re fr
om 20
14/1
5 of $
42.41
M fo
r inf
rastr
ucut
re re
newa
ls ov
er 10
year
s, of
whic
h $1.7
M p
er an
num
($15.
3M fo
r 10
year
s fro
m 20
14/1
5) is
for b
uildi
ngs
• A ch
ange
in th
e dep
recia
tion m
easu
rem
ent t
o be
tter r
ecog
nise t
he d
eter
iora
tion o
f asse
ts wi
ll fur
ther
impr
ove t
he ra
tio. C
ounc
il’s m
etho
dolo
gy to
be
intro
duce
d fo
r the
2014
/201
5 and
subs
eque
nt ye
ars w
ill re
sult
in a s
ignifi
cant
impa
ct (r
educ
tion)
on d
epre
ciatio
n exp
ense
.
Coun
cil ha
s stre
ngth
ened
inte
rnal
classi
ficat
ion p
roce
sses f
or re
newa
ls of
asse
ts as
par
t of i
ts de
prec
iatio
n and
asse
t rev
iew. T
his w
ill re
sult
in se
para
tely
iden
tifyin
g ren
ewal
com
pone
nts f
rom
impr
ovem
ents
or ex
tens
ions
. In t
he p
ast,
asse
t ren
ewals
wer
e und
ersta
ted
due t
o th
e clas
sifica
tion o
f wor
k pe
rform
ed as
new
proj
ects.
This
clas
sifica
tion p
robl
em o
ccur
red
beca
use m
ost r
enew
al wo
rk al
so ac
com
mod
ates
impr
ovem
ents
that
have
bee
n ide
ntifi
ed
resp
ondi
ng to
com
mun
ity ex
pect
atio
ns. A
dditi
onall
y, th
e cha
nge i
n dep
recia
tion p
olicy
will
furth
er im
prov
e the
ratio
.
The S
RV co
mm
its $4
2.41M
for i
nfra
struc
utre
rene
wals
over
10 ye
ars,
of w
hich $
1.7M
per
annu
m ($
15.3M
for 1
0 ye
ars f
rom
2014
/15)
is fo
r bu
ilding
s, th
is im
prov
es th
is ra
tio.
100.
77%
100.
45%
100.
13%
Rolli
ng 3
year
aver
age
Mee
ts th
e FFT
F Ben
chm
ark
• Rep
rese
nts t
he re
plac
emen
t or r
efur
bishm
ent o
f exis
ting a
ssets
to an
equiv
alent
capa
city o
r per
form
ance
, as
oppo
sed
to th
e acq
uisiti
on o
f new
asse
ts or
the r
efur
bishm
ent o
f old
asse
ts th
at in
crea
se ca
pacit
y or
perfo
rman
ce.
• Com
pare
s the
pro
porti
on sp
ent o
n inf
rastr
uctu
re as
set r
enew
als an
d th
e asse
t’s d
eter
iora
tion.
• A co
nsist
ent m
easu
re th
at ca
n be a
pplie
d ac
ross
coun
cils o
f diff
eren
t size
s and
loca
tions
. • A
high
er ra
tio is
an in
dica
tor o
f stro
ng p
erfo
rman
ce.
• Per
form
ance
< 10
0% in
dica
tes t
hat a
Cou
ncil’s
exist
ing as
sets
are d
eter
iora
ting f
aste
r tha
n the
y are
bein
g re
newe
d an
d th
at p
oten
tially
the b
acklo
g is w
orse
ning.
104.8
6%10
2.47%
102.1
1%10
1.77%
101.4
3%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0
%
120.0%
2011/
1220
12/13
2013/
1420
14/1
520
15/16
2016
/17
2017/
1820
18/1
920
19/2
020
20/2
120
21/22
2022
/23
2023
/24
2024
/25
Build
ing &
Ass
et R
enew
al R
atio
Build
ing &
Asse
tRe
newa
l Rat
io
Benc
hmar
k
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
145
14 LONGTERMFINANCIALPLAN
4. Inf
rastru
cture
Back
log Ra
tio
3 Yea
r
Benc
hmark
:av
erage
(less
than
2%)
Estim
ated c
ost t
o brin
g asse
ts to
a sat
isfac
tory
cond
ition
Total
(WDV
) of in
frastr
uctur
e, bu
ilding
s, othe
r st
ructur
es an
d dep
reciab
le lan
d imp
rovem
ent a
ssets
Comm
ents
re Inf
rastru
cture
Back
log Ra
tio
2021/
22
Histo
rical
Projec
ted
Finan
cial Y
ear
Meets
the F
FTF
Bench
mark
from
2015
-2025
Finan
cial Y
ear
2011/
1220
12/13
2013/
1420
14/15
2015/
16
1.84%
2022
/23
2023
/24
2024
/25
3.88%
1.95%
1.93%
2016/
1720
17/18
2018/
1920
19/20
2020
/21
Comm
entar
y on r
esult:
How
Could
Coun
cil M
eet T
his Be
nchm
ark In
The F
utur
e?Co
uncil
have
prev
iously
calcu
lated
this r
atio o
n the
basis
that
all as
sets r
equir
ing re
newa
l were
resto
red to
new
cond
ition (
cond
ition /
categ
ory 1).
The
ou
tcome
for F
airfie
ld wi
th thi
s more
rigoro
us ap
proac
h was
still o
nly 3.8
8% co
mpare
d to t
he be
nchm
ark re
quire
ment
of le
ss tha
n 2%.
Cha
nges
in the
me
asurem
ent a
pproa
ch w
ill im
prove
this a
sset b
acklo
g perc
entag
e by:
• Mea
surin
g the
cost
to br
ing th
e asse
t to a
satis
facto
ry co
nditio
n as p
rescri
bed b
y the
Offic
e of L
ocal
Gove
rnmen
t as c
ondit
ion 2,
as op
posed
to th
e curr
ent
posit
ion of
cond
ition 1
or ne
w.• T
he re
comm
enda
tion t
o con
sult w
ith th
e com
munit
y to d
eterm
ine th
e asse
t con
dition
that
is con
sidere
d acc
eptab
le to
deliv
er the
requ
ired l
evel
of se
rvice
. Th
is may
mea
n, fo
r exa
mple,
that
an as
set in
cond
ition 4
(poo
r) may
still
deliv
er the
requ
ired l
evel
of se
rvice
and t
hus n
ot fo
rm pa
rt of
the a
sset b
acklo
g. Th
is co
nsult
ation
is an
ticipa
ted to
deliv
er a s
ignific
ant r
educ
tion i
n the
asset
back
log.
The S
pecia
l Rate
Varia
tion (
SRV)
includ
ed a
recog
nition
that
Asset
Man
agem
ent P
lans a
ddres
sing A
sset b
acklo
g was
a prio
rity f
or Co
uncil
. This
resu
lts in
an ad
dition
al $4
2.41m
to be
spen
t on a
sset u
pgrad
es.
Desp
ite th
e curr
ent r
esult f
or thi
s mea
sure
indica
ting a
failu
re to
mee
t the
requ
ired m
inimu
m be
nchm
ark, C
ounc
il’s as
sets a
re co
nside
red to
be in
a co
mpara
tively
good
cond
ition w
ith on
ly 1.2
% of
all a
ssets
fallin
g into
the p
oor (c
ondit
ion 4)
and 0
% in
the ve
ry po
or (co
nditio
n 5) c
atego
ries .
The r
eferre
d cha
nges
are ex
pecte
d to b
etter
reflec
t the
true
perfo
rman
ce of
Coun
cil ag
ainst
this
benc
hmark
. The
table
in th
e Asse
t Man
agem
ent, C
apita
l Exp
endit
ure an
d Dep
reciat
ion se
ction
of th
is doc
umen
t sho
ws th
e co
mpara
tive a
sset c
ondit
ions w
ith ne
ighbo
uring
Coun
cils.
1.80%
1.78%
1.76%
• Indic
ates t
he pr
oport
ion of
back
log ag
ainst
the to
tal va
lue of
the C
ounc
il’s in
frastr
uctur
e asse
ts.
• A m
easu
re of
the e
xtent
to w
hich a
sset r
enew
al is r
equir
ed to
main
tain o
r impro
ve se
rvice
deliv
ery in
a su
staina
ble w
ay.
• Mea
sures
how
coun
cils a
re ma
nagin
g the
ir infr
astruc
ture w
hich i
s so c
ritica
l to ef
fectiv
e com
munit
y su
staina
bility
.• C
ounc
ils wi
th inc
reasin
g infr
astruc
ture b
acklo
gs wi
ll exp
erien
ce ad
ded p
ressu
re in
maint
aining
servi
ce
deliv
ery an
d fina
ncing
curre
nt an
d futu
re inf
rastru
cture
dema
nds.
• A lo
w rat
io is a
n ind
icato
r of s
trong
perfo
rman
ce.
1.92%
1.90%
1.88%
1.87%
1.85%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
2011/
1220
12/13
2013/
1420
14/15
2015/
1620
16/17
2017/
1820
18/19
2019/
2020
20/2
120
21/22
2022
/23
2023
/24
2024
/25
Infras
tructu
re Ba
cklog
Ratio
Infras
tructu
re Ba
cklog
Ratio
Benc
hmark
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
146
15LONGTERMFINANCIALPLAN
5. Asse
t Main
tenan
ce Ra
tio
3 Year
Bench
mark:
averag
e
(great
er tha
n or e
qual t
o 100
% aver
age ov
er 3 y
ears)
Actua
l asset
main
tenanc
e
Requ
ired a
sset m
ainten
ance
95.87
%97
.97%
101.25
%103
.09%
103.09
%103
.09%
103.09
%103
.09%
103.09
%103
.09%
103.09
%
xx
Comm
ents
re As
set M
ainten
ance
Ratio
Comm
entar
y on r
esult:
How C
ould
Coun
cil Me
et Th
is Ben
chmark
In Th
e Futu
re?Co
uncil
achiev
ed a 9
1% As
set M
ainten
ance R
atio a
gainst
a ben
chmark
of 10
0%. T
he ta
rget o
f 103.0
9% re
presen
ts a re
cogni
tion t
hat ac
tual m
ainten
ance
someti
mes e
xceed
s the A
sset M
anagem
ent P
lan m
ainten
ance c
osts, d
ue to
scop
e cree
p or u
nfores
een pr
oblem
s. For
examp
le, rep
airing
a roa
d may
highli
ght
the ne
ed fo
r add
itional
sewe
r work
s. It a
lso all
ows fo
r some
toler
ance f
or add
itional
main
tenanc
e caus
e by s
ignific
ant we
ather
or oth
er eve
nts.
The S
pecia
l Rate
Varia
tion (
SRV)
comm
encin
g July 2
014 inc
luded
reco
gnitio
n that
Asset
Mana
gemen
t Plan
s add
ressin
g Asse
t ma
inten
ance w
as a p
riority
for C
ounci
l. This
resul
ts in a
n add
itional
$4.71m
per a
nnum
to be
spen
t on a
sset m
ainten
ance. R
equir
ed
maint
enanc
e may
be re
duced
in the
futur
e due
to th
is add
itional
SRV a
ddres
sing a
sset b
acklog
impro
ving t
he co
nditio
n of a
ssets a
nd
reduci
ng the
dema
nd fo
r main
tenanc
e acti
ons.
103.09
%103
.09%
103.09
%
Rollin
g 3 ye
ar ave
rage
Meets
the F
FTF B
enchm
ark
• Refl
ects th
e actu
al asse
t main
tenanc
e expe
nditu
re rel
ative
to the
requ
ired a
sset m
ainten
ance a
s meas
ured
by an
individ
ual co
uncil.
• Prov
ides a
meas
ure of
the r
ate of
asset
degra
dation
(or re
newa
l) and
there
fore h
as a r
ole in
inform
ing as
set
renew
al and
capit
al work
s plan
ning.
• A ra
tio of
less th
an 100
% ind
icates
that
there
may b
e a wo
rsenin
g infra
struct
ure ba
cklog
.
103.09
%103
.09%
103.09
%103
.09%
103.09
%103
.09%
2022/
2320
23/24
2024/
25
83.90
%98
.43%
93.16%
91.12%
97.09
%103
.09%
2016/
1720
17/18
2018/
1920
19/20
2020
/21
2021/
22
Histor
ical
Projec
ted
Finan
cial Y
earMe
ets th
e FFT
F Be
nchma
rk fro
m 20
15-20
25
Finan
cial Y
ear
2011/
1220
12/13
2013/
1420
14/15
2015/
16
00.20.40.60.811.2
2011/
1220
12/13
2013/
1420
14/15
2015/
1620
16/17
2017/
1820
18/19
2019/
2020
20/2
120
21/22
2022/
2320
23/24
2024/
25
Asset
Main
tenan
ce Ra
tio
Asset M
ainten
ance R
atio
Benchm
ark
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
147
16 LONGTERMFINANCIALPLAN
6. Debt
Servic
e Ratio
3 Year
Bench
mark:
averag
e
(> 0 an
d < or
= to 2
0% av
erage
over
3 year
s)
Cost o
f deb
t servi
ce
(intere
st expe
nse &
princi
pal re
payme
nts)
Total
conti
nuing
opera
ting r
evenu
e (ex
c. capi
tal gr
ants a
nd co
ntribu
tions)
0.83%
0.52%
0.27%
0.25%
0.43%
0.57%
0.70%
0.65%
0.61%
0.59%
0.58%
Comm
ents r
e Deb
t Serv
ice Ra
tio
Comm
entar
y on r
esult:
How C
ould
Coun
cil Me
et Th
is Ben
chmark
In Th
e Futu
re?Co
uncil
has m
inimal d
ebt a
nd ad
dition
al deb
t will o
nly be
taken
where
the e
viden
ce sup
ports
the u
se of
debt
and th
e who
le of li
fe co
sts, in
cludin
g serv
icing
intere
st, is b
enefi
cial. C
ounci
l is cu
rrentl
y at th
e lowe
r end
of th
e reco
mmen
ded r
ange f
or thi
s ben
chmark
. Whil
st still
rema
ining a
t a ve
ry low
level,
the ra
tio
increa
ses m
arked
ly in t
he 20
18/19
year, a
s a ne
w prop
erty d
evelop
ment
initiat
ive ha
s been
earm
arked
with
borro
wings
of $12
m to
be so
urced
to fin
ance t
he
projec
t.
Conti
nuati
on of
curre
nt po
licy of
minim
al deb
t, with
exter
nal bo
rrowin
gs sou
ght on
ly whe
n the
use o
f deb
t prov
es be
nefic
ial, wi
ll ensu
re co
ntinu
ed ac
hievem
ent o
f this b
enchm
ark.
0.59%
0.58%
0.57%
Rollin
g 3 ye
ar ave
rage
Meets
the F
FTF B
enchm
ark
• Prud
ent a
nd ac
tive d
ebt m
anagem
ent is
a key
part o
f Cou
ncils’
approa
ch to
both
fundin
g and
mana
ging
infras
tructu
re and
servi
ces ov
er the
long
term.
• Prud
ent d
ebt u
sage c
an als
o assis
t in sm
oothi
ng fun
ding c
osts a
nd pr
omoti
ng int
ergen
eratio
nal eq
uity.
• Inade
quate
use o
f deb
t may
mean
that c
ounci
ls are
forced
to ra
ise ra
tes
• It is
also a
stron
g prox
y indic
ator o
f a co
uncil’
s stra
tegic c
apacit
y.
0.26%
0.23%
0.78%
0.70%
0.64%
0.61%
2022/
2320
23/24
2024/
25
1.70%
1.20%
1.05%
1.32%
0.29%
0.26%
2016/
1720
17/18
2018/
1920
19/20
2020
/21
2021/
22
Histor
ical
Projec
ted
Finan
cial Y
earMe
ets th
e FFT
F Be
nchma
rk fro
m 20
15-20
25
Finan
cial Y
ear
2011/
1220
12/13
2013/
1420
14/15
2015/
16
0
0.050.10.150.20.25
2011/
1220
12/13
2013/
1420
14/15
2015/
1620
16/17
2017/
1820
18/19
2019/
2020
20/21
Debt
Servic
e Rati
o
Debt
Servic
e Rati
o
Benchm
ark
Benchm
ark
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
148
17LONGTERMFINANCIALPLAN
7. Real
Opera
ting E
xpend
iture
per C
apita
over
time
Benc
hmark
:
(a de
crease
in re
al op
eratin
g exp
endit
ure pe
r cap
ita ov
er tim
e)
Real O
perat
ing Ex
pend
iture
(defla
ted by
CPI)
Po
pulat
ion
Comm
ents
re Re
al Op
eratin
g Exp
endit
ure ov
er tim
e
Coun
cil is
curre
ntly m
eetin
g the
reco
mmen
ded r
educ
tion f
or thi
s ben
chma
rk ref
lectin
g effic
iency
impro
veme
nts. H
owev
er, re
al op
eratin
g ex
pend
iture
per c
apita
incre
ases m
arked
ly in
the 20
14/15
and 2
016/1
7 yea
rs as
a resu
lt of in
crease
s in se
rvice
s to t
he co
mmun
ity, m
ost o
f wh
ich is
tied t
o the
Spec
ial Ra
te Va
riatio
n gran
ted la
st ye
ar for
effec
t from
1 July
2014.
Proje
ction
s indic
ate a
consi
stent
reduc
tion i
n rea
l op
eratin
g exp
endit
ure pe
r cap
ita th
rough
out t
he LT
FP pe
riod.
Fairfie
ld Cit
y Cou
ncil i
s com
mitte
d to a
n ong
oing p
rogram
on in
itiativ
es to
achiev
e fina
ncial
savin
gs, co
ntinu
ous im
prove
ment
and
effici
ent/
effec
tive s
ervice
deliv
ery fo
r our
comm
unity
. Prod
uctiv
ity im
prove
ments
and c
ost c
ontai
nmen
t ena
ble Co
uncil
to m
aximi
se the
servi
ces it
can d
elive
r and
the v
alue f
or ea
ch ra
te do
llar fo
r ratep
ayers
. The
Prod
uctiv
ity Im
prove
ments
, Rev
enue
Opp
ortun
ities,
Cost
Conta
inmen
t Stra
tegies
secti
on of
this d
ocum
ent p
rovide
s more
detai
ls in t
his re
spect.
Meets
the F
FTF B
ench
mark
• Asse
ssed o
n a jo
int co
nside
ration
of th
e dire
ction
and m
agnitu
de of
their
impro
veme
nt or
deter
iorati
on
in rea
l exp
endit
ure pe
r cap
ita. G
iven t
hat e
fficien
cy im
prove
ments
requ
ire so
me tim
e for
the re
sults
to be
ful
ly ach
ieved
and a
s a re
sult, t
his an
alysis
will
be ba
sed on
a 5-y
ear tr
end.
• Assu
ming
that
servic
e lev
els re
main
const
ant, d
eclin
e in r
eal e
xpen
diture
per c
apita
indic
ates e
fficien
cy
impro
veme
nts (i.e
. the s
ame l
evel
of ou
tput p
er cap
ita is
achiev
ed w
ith re
duce
d exp
endit
ure).
Comm
entar
y on r
esult:
How
Could
Coun
cil M
eet T
his Be
nchm
ark In
The F
uture?
637.8
8$
633.8
1$
628.5
6$
624.9
2$
616.3
8$
610.4
1$
604.4
9$
600.8
1$
646.7
7$
647.5
4$ 20
16/17
2017/
1820
18/19
663.5
8$
672.2
0$
669.9
3$
682.7
4$
Histor
ical
Projec
ted
Finan
cial Y
ear
Meets
the F
FTF
Benc
hmark
fro
m 20
15-20
25
Finan
cial Ye
ar
2011/
1220
12/13
2013/
1420
14/15
2015/
1620
22/2
320
23/24
2024
/25
2019/
2020
20/2
120
21/22
$540
.00
$560
.00
$580
.00
$600
.00
$620
.00
$640
.00
$660
.00
$680
.00
$700
.00
2011/
1220
12/13
2013/
1420
14/15
2015/
1620
16/17
2017/
1820
18/19
2019/
2020
20/2
1202
1/22
2022
/232
023/
2420
24/2
5
Real
Opera
ting E
xpen
diture
per C
apita
Real
Opera
ting E
xpen
diture
per c
apita
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 149
18 LONGTERMFINANCIALPLAN
INTRODUCTION
The increasing demands for services, growth in the cost of labour and materials, combined with a legislated cap in revenue generated from rates, has created a challenging financial environment for Fairfield City Council.
At the centre of Council’s future financial sustainability will be the ability to adapt and respond to the challenges faced in delivering services more efficiently, reducing expenditure, and delivering opportunities to generate additional revenue sources.
Council’s LTFP is a requirement under the Integrated Planning and Reporting Framework for NSW Local Government and form part of the Resourcing Strategy for the Community Strategic Plan, along with the Strategic Asset Management Plan and the Workforce Plan.
The LTFP provides a framework by which Council can assess its revenue building capacity to meet the activities and level of services outlined in the Community Strategic Plan and ultimately achieving the community vision. It also:
• Establishes transparency and accountability of Council to the community;
• Provides an opportunity for early identification of financial issues and any likely impacts in the longer term;
• Provides a mechanism to solve financial problems as a whole, see how various plans fit together, and understand the impact of certain decisions on other plans or strategies;
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 150
19LONGTERMFINANCIALPLAN
• ensure actions and plans contained in other Council internal and published documents – such as Asset Management Plans, Workforce Management Plans, Service Statements, Operational Plan, Community Strategic Plan, Delivery Program and Resourcing Strategy – had been appropriately included in future projections.
Next, a review of external influences such as population growth, inflation, interest rates and economic growth were considered when assessing the future years of the LTFP.
The outcomes from the internal analysis and review of external influences have then been combined to project the future. Council’s future position has then been forecast on the basis of a continuance of “normal operations” as amended for SRV initiatives and as affected by the external influences. “Normal operations” is difficult to define but can be regarded as the provision of services to stakeholders at levels of service that they have come to expect on a regular basis. Levels of service however may not remain the same given changes in community expectations in future years of the Plan.
• Provides a means of measuring Council’s success in implementing strategies; and
• Confirms that Council can remain sustainable in the longer term.
The LTFP is a decision making and problem solving tool. It is not intended that the LTFP is set in concrete – it is a guide for future action. Financial planning over a ten year horizon is difficult and obviously relies on a variety of assumptions that may be subject to change during this period. Changes in these assumptions, external influences on operations such as economic impacts and decisions made by Council across the last 12 months are all reasons why revised projections for future years may differ from previous projections. To assist in understanding the influences affecting those previous projections, this document includes a comparison of the 2015/16 income statement from last year’s LTFP and the 2015/16 income statement in this LTFP projection.
The 10 year LTFP will inform decision making during the finalisation of the Community Strategic Plan and the development of the Delivery Program (4 year horizon). It is updated annually as part of the development of the Operational Plan (one year budget). It is also reassessed in detail as part of the four-yearly review of the Community Strategic Plan.
The first year of each LTFP mirrors the annual budget for that current year and this flow on effect streamlines the annual budget process.
The preparation of the LTFP commenced with a detailed analysis of the 2015/16 budget. An internal analysis was conducted to:
• remove the impacts of income and expenditure items considered unique to the 2015/16 year and not of a recurring nature;
• consider efficiencies already achieved or beginning to be achieved from structural reviews and projects recently undertaken by Council or in progress;
• review items outlined in the SRV application to ensure all had been incorporated into both the 2015/16 budget and the subsequent years of the LTFP; and
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 151
20 LONGTERMFINANCIALPLAN
expected until at least the medium term (2020/21 year) at the earliest
No global shocks are currently expected to impact upon Australia’s current fiscal outlook.
AustraliaThe growth in the Australian economy has remained below trend and expectations over the past year. Economic growth of 3% is expected for 2016 and remain in the 2.8% to 3.2% range over the life of the LTFP. There is enough excess capacity within the domestic economy to keep this stability for some time.
EMPLOYMENT FORECASTS
Unemployment of 6.5% is anticipated for 2016, rising to 7% in the medium term. As economic growth improves in the longer term, the unemployment rate is then expected to reduce to 6%. It is worthy to note, that past results indicate Fairfield City Council’s unemployment rates are higher than Sydney’s overall unemployment rate average.
Fairfield Local Government AreaThe economic characteristics that present challenges to Fairfield City are;
• high unemployment,
• low labour market participation,
• low English language, literacy and numeracy skills,
• low levels of education, skills and qualifications,
• a nationally declining manufacturing industry which is the largest employing industry in Fairfield City,
• a fragmented tourism industry,
• a changing retail sector,
• competing regional business parks and industrial areas,
• ageing infrastructure,
• limited internal public transport options
• industry impacted from an unskilled labour market
• high Australian dollar impacting export industries
ECONOMIC OUTLOOK
Global conditions were reviewed to consider potential impacts of Australia’s economy, given Australia is not immune to global impacts and trends. Global growth remains modest with prolonged stagnation in Europe and Japan.
US / UKThese areas are expected to continue with stability in their fiscal and monetary policy, have stable employment, stable business confidence and investment, and continued stability with respect to consumer confidence and investment.
Euro zoneStructural issues continue to be a restraint on growth with uncertainty over Greek performance and debt repayment remaining a concern. Easy monetary policy and a tight fiscal policy, weak business confidence and investment, weak consumer confidence and investment, weak demand and a lack of fiscal and structural stimulus are expected to continue in this part of the world.
JapanStructural issues continue to be a restraint on growth. The initial response to consumption tax will be a deferral of investment goods for households and businesses. Moderate domestic reinvestment of capital will be released through the bond purchasing scheme in the medium term.
ChinaA managed slowdown in growth is expected.
RussiaTensions in the Ukraine will continue in the short to medium term, increasing political pressures and subduing business confidence. Falling output and employment, along with falling investment and consumption are expected. Easing of monetary policy is expected.
Developing EconomiesSlow growth and development is projected, with moderate external demand, domestic policy tightening, political uncertainties and supply side constraints expected to continue.
No significant changes in this global outlook are
PLANNING ASSUMPTIONS
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 152
21LONGTERMFINANCIALPLAN
BRIEF STATISTICS FAIRFIELD CITY
Forecast population 2014 203,109
Change between 2014 and 2031 36,791
Average annual percentage change between 2014 and 2031 (17 years):
0.52% per annum
Total percentage change between 2014 and 2031 (17 years):
18.1%
INFLATION FORECASTSIn ation is expected to remain well contained over the life of the plan, remaining at the lower end of the RBA’s 2% to 3% desired range in the short term and rising to the mid to upper end medium to longer term.
In ation forecasts used over the term of the LTFP have been based upon predictions of growth in the Consumer Price Index (CPI), as shown in the following table:
2015-16 2016-17 2017-18 2018-19 THERE AFTER
CPI 2.40% 2.00% 2.00% 2.50% 2.50%
INFLATION RATE FORECASTSDeposit interest rates are expected to remain low until at least the late to medium term of the long term nancial plan period.
Lending interest rates are anticipated to also remain low, at least until the medium term.
The latest RBA commentary has indicated that despite interest rates being at their lowest levels on record, further rate cuts remain an option. This commentary supports the interest rate outlook built into the LTFP.
Fairfield will continue to experience moderate structural shift in declining employment in the manufacturing, retail and wholesale industries and increasing growth in health care and education. The gradual return of skilled labour from the mining industry is hoped to remove some of the current growth barriers for business and industry as well as introduce innovations, improved business processes and new drivers of growth which will lead to higher business and consumer confidence and drive positive local economic growth in the medium to long term. However, local economic growth is still expected to remain largely in line with the national outlook.
POPULATION GROWTH
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 153
22 LONGTERMFINANCIALPLAN
ASSET MANAGEMENT, CAPITAL EXPENDITURE AND DEPRECIATION
An asset revaluation required under the Fair Value Accounting Standard every five years will be undertaken in the 2014/15 year using replacement cost data. Compounded CPI has been assumed in the 2019/20 and 2024/25 years to derive the revaluation required in those years. The depreciation impact follows in the year after revaluation.
ASSET MANAGEMENT
Council’s assets are considered to be in a comparatively good condition with only 1.2% of all assets falling into the poor (condition 4) and 0% in the very poor (condition 5) categories as a percentage of written down value (per Special Schedule No. 7 2014 Published Financial Statements). The table below shows the comparative asset conditions for neighbouring and other comparable Councils.
The Special Rate Variation (SRV) included a recognition that Asset Management Plans addressing Asset backlog was a priority for Council. This will result in an additional $42.41m over 10 years being spent on asset upgrades.
The SRV also commits $1.7M per annum ($15.3M for 10 years from 2014/15) for building and infrastructure renewal. Council has strengthened internal classification processes for renewals of assets as part of its depreciation and asset review. This will result in separately identifying renewal components from improvements or extensions. In the past, asset renewals were understated due to the classification of work performed as new projects. This classification problem occurred because most renewal work also accommodates improvements that have been identified responding to community expectations.
The table below outlines the renewal capital as a percentage of the Fair Value Replacement Cost at 30 June 2014 for each asset category. The strength of the Asset Management Plans means that an appropriate and balanced renewal programme has been defined with consideration across asset classes.
FAIRFIELD CITY
COUNCIL 2014
BLACKTOWN CITY
COUNCIL 2014
HOLROYD CITY
COUNCIL 2014
LIVERPOOL CITY
COUNCIL 2014
PARRAMATTA CITY
COUNCIL2014
PENRITH CITY
COUNCIL 2014
BANKSTOWN CITY
COUNCIL 2014
SUTHERLAND CITY
COUNCIL 2014
1. (Excellent) 45.1% 25.8% 28.1% 41.1% 17.0% 25.0% 16.1% 15.3%
2. (Good) 44.4% 35.6% 39.9% 32.6% 31.7% 43.7% 34.1% 57.3%
3. (Average) 9.3% 30.9% 20.4% 20.7% 31.4% 21.0% 40.2% 21.1%
4. (Poor) 1.2% 5.7% 8.0% 3.3% 14.1% 7.8% 5.9% 4.2%
5. (Very Poor) 0.0% 2.0% 3.6% 2.3% 5.8% 2.5% 3.7% 2.1%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 154
23LONGTERMFINANCIALPLAN
RENEWAL PERCENTAGE BASED ON FAIR VALUE 2015 - 2024
Fair Value as at 30/6/14 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25
$163,247,000 Buildings 3.37% 5.87% 5.97% 6.07% 6.17% 6.27% 6.37% 6.48% 6.82% 6.47%
$87,445,000 Footpaths 3.09% 2.53% 2.00% 2.04% 2.08% 2.12% 2.16% 2.21% 3.00% 1.54%
$24,169,000 Open Space 9.64% 9.71% 9.79% 9.86% 9.94% 10.02% 10.09% 10.18% 10.26% 10.34%
$28,561,000 Plant 20.55% 20.96% 21.38% 21.81% 22.24% 22.69% 23.14% 23.60% 24.08% 24.56%
$645,338,000Roads, Bridges, Kerb and Gutter
2.09% 1.74% 1.77% 1.80% 1.83% 1.87% 1.90% 1.93% 1.97% 2.01%
$284,815,000Stormwater Drainage
0.13% 0.13% 0.13% 0.13% 0.13% 0.13% 0.14% 0.14% 0.14% 0.14%
◊ Blackspot
• Plant and Equipment Replacement
• Strategic Land Use Planning
• Existing Stormwater Management
• Flood Mitigation
• Stormwater Levy
• Waste Less Recycle More
• Place Management and Economic Development
• Productivity Improvements and Cost Containment Strategy
• Workforce Management Plan
• Fleet Renewal Program
NEW INITIATIVES
• SRV Drainage Upgrade
• SRV Roads, Kerbs and Gutters
• SRV Community Building Upgrades
• SRV Footpath Connections
• SRV Sports Ground Renovation and Upgrade
• SRV Open Space Upgrade
CAPITAL EXPENDITURE
Council undertakes a number of major works programs each year with the specific locations or tasks listed in the annual Operational Plan. The Major Programs are:
• Social and Cultural Development
• Disability Upgrades – Access Improvement Program
• CCTV New Cameras
• Road Renewal / Upgrade
◊ Road Rehabilitation
◊ Roads to Recovery
◊ Roads and Maritime Services Repair
◊ Road & Maritime Services 3*3 Grant
• Building Assets Renewal / Upgrade
• Footpath Renewal / Upgrade / New
• Emergency Asset Failure
• Asset Management Strategy
• Open Space Land Acquisition & Embellishment
• Open Space Asset Renewal / Upgrade
• Traffic Management Renewal / Upgrade / New
◊ Local Area and Traffic Management
◊ Pedestrian Access and Mobility Plan
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 155
24 LONGTERMFINANCIALPLAN
The capital expenditure programme over the life of the LTFP is consistent with the exception of increases in the 2014/15, 2015/16 and 2018/19 years. These increases relate to new assets identi ed as part of the SRV initiatives, property development, and $10.65M in 2015/16 for infrastructure funded by the Federal Government to support the new airport. The capital expenditure ratio represents the capital spend in relation to depreciation expense. A ratio of 1.00 means that capital expenditure equals depreciation, indicating that the asset base is being maintained. A ratio above 1.00 is targeted due to the mix of renewal and new capital activity.
The total (new and renewal) capital expenditure by asset class planned over the life of the LTFP is outlined in the table below. The graphs that follow show different dissections of this expenditure.
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25
Capital Expenditure Ratio - General Fund
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 Grand Total
Buildings $19,866,568 $9,686,739 $9,846,474 $22,009,404 $10,175,592 $10,345,104 $10,518,006 $10,694,366 $11,244,732 $10,687,259 $125,074,243
Footpaths $2,999,229 $2,516,814 $1,955,150 $1,994,253 $2,034,138 $2,074,821 $2,116,317 $2,158,643 $2,859,117 $1,588,552 $22,297,033
Open Space $4,505,000 $2,727,900 $2,651,258 $2,675,083 $2,699,385 $2,724,173 $2,749,456 $2,775,245 $2,801,550 $2,828,381 $29,137,431
Other Assets $1,825,500 $2,433,610 $1,462,282 $1,491,528 $1,521,358 $1,551,786 $1,582,821 $1,614,478 $1,766,277 $1,560,193 $16,809,833
Plant $5,868,727 $5,986,102 $6,105,824 $6,227,940 $6,352,499 $6,479,549 $6,609,140 $6,741,323 $6,876,149 $7,013,672 $64,260,923
Roads $24,128,273 $12,928,238 $13,162,803 $13,402,059 $13,646,100 $13,895,022 $14,148,923 $14,407,901 $14,672,059 $14,941,501 $149,332,881
Stormwater Drainage
$1,786,902 $1,819,640 $1,853,033 $1,887,093 $1,921,835 $1,957,272 $1,993,418 $2,030,286 $2,067,892 $2,106,249 $19,423,620
Grand Total $60,980,199 $38,099,043 $37,036,824 $49,687,360 $38,350,908 $39,027,726 $39,718,080 $40,422,242 $42,287,775 $40,725,807 $426,335,964
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 156
25LONGTERMFINANCIALPLAN
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25
Capital Expenditure
Renewal/Upgrade New Assets SRV initiatives
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25
Spend Per Asset Category
Buildings Footpaths Open Space Other Assets Plant Roads Stormwater Drainage
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 157
26 LONGTERMFINANCIALPLAN
DEPRECIATION
Council’s nancial results have contained signi cant increase in depreciation expense as illustrated below.
Depreciation expense history, expressed in $ [millions]
This has been caused by:
• introduction of new accounting standards regarding asset revaluations
• the related impacts on depreciation expense
• Application of the current conservative depreciation methodology.
The Building asset category is the most signi cant contributor to the increase in the expense over the 2007 to 2014 period.
The following breakdown of the asset category and the related expense:
Over this 7 year period building additions of $30M have occurred, whilst net valuations of $102.6M occurred in the 2 valuation years of 2008 and 2013. These signi cant increases in the $ base on which the depreciation expense is calculated is the reason for the expense increase.
The calculation of annual depreciation charge is affected by the assessment of ‘useful life’ and ‘residual value’.
• Roads, bridges and footpath revaluations were performed by FCC based on assessment of asset conditions and application of estimated useful lives and residual values to the components therein.
• Buildings revaluations were performed by an independent expert who applied useful lives in accordance with their knowledge for the components involved.
For the 2010 fair valuation, Council did not calculate any residual values for the Roads, Bridges and Footpath asset category. Similarly, the valuer was instructed not to calculate Building component residual values in the 2008 and 2013 fair valuations. These decisions have had a very signi cant impact on the depreciation expense calculated for each asset category.
Further, comparison of FCC’s nancial statements to other councils in the Sydney metropolitan area indicated signi cant differences in useful life estimations. Differences in all aspects impacting on depreciation were noted – level of componentisation, useful lives and possibly residual values. As shown in the table below, Fair eld Council currently recognises the highest level of depreciation and the shortest asset life which is very conservative. A change in the depreciation policy which has conditional external audit approval has been worked into the 2015/16 budget and the subsequent years of the LTFP. The revised depreciation methodology restated in the table is still consistent with a more conservative approach and comparable to the four highest depreciation rates.
Depreciation Expense
2007 2008 2009 2010 2011 2012 2013 2014
- Buildings 1.8 2.0 5.6 5.7 5.7 6.0 6.1 10.0
- Infrastructure 10.3 10.9 11.0 11.3 13.6 13.6 14.2 14.7
- Other Assets 4.1 4.5 5.1 5.0 5.0 5.0 5.1 4.6
Total Depreciation
16.2 17.4 21.7 22.0 24.3 24.6 25.4 29.3
Note: Depreciation expense history, expressed in $ (millions):
Buildings 2007 2008 2009 2010 2011 2012 2013 2014
– Depn. expense 1.79 2.05 5.64 5.69 5.69 6.02 6.06 9.96
– Cost /Fair Valn. 8.32 8.84 8.97 9.07 11.29 11.44 11.95 12.43
- Additions 8.38 2.28 1.32 2.75 5.37 1.06 2.40 6.39
– Net Valn. Increase 0.00 68.49 0.00 0.00 0.00 0.00 34.12 0.00
Note: Depreciation expense history, expressed in $ (millions):
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 158
27LONGTERMFINANCIALPLAN
Published Financial Statements 30 June 2014.
$ooo's
Infrastructure (Depreciable
Fair Value)
Depreciation
Expense %
Average # Years to fully
Depreciate assets
Fair eld - Current Depreciation Method 1,224,337 24,631 2.01% 49.7
Sydney 1,942,537 34,954 1.80% 55.6
Blacktown 2,214,422 38,385 1.73% 57.7
Parramatta 1,143,413 19,703 1.72% 58.0
Fair eld Revised Depreciation Method Restated 1,224,337 21,000 1.72% 58.3
Sutherland 1,479,392 19,549 1.32% 75.7
Lane Cove 254,729 3,358 1.32% 75.9
Liverpool 1,746,474 20,158 1.15% 86.6
Bankstown 1,828,948 20,741 1.13% 88.2
Holroyd 940,232 10,355 1.10% 90.8
Manly 299,188 3,044 1.02% 98.3
Penrith 1,059,922 9,015 0.85% 117.6
Council’s methodology to be introduced for the 2014/2015 and subsequent years will result in a signi cant impact (reduction) on depreciation expense for the initial year and for years thereafter. The reduction is essentially a recognition of assets residual values and asset degradation curves based on asset condition inspections over the useful lives as illustrated below with the roads example.
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28 LONGTERMFINANCIALPLAN
Council’s Integrated Planning and Reporting (IP&R) documents identify many of the initiatives that will be undertaken in coming years to achieve further savings and ef ciencies. In addition, there are a number of actions in various strategies, service plans and individual work plans that will also contribute. Council needs to work on a range of ef ciencies to manage expenses responsibly moving forward and to look for sustainable revenue sources.
Ef ciencies identify the other improvements in operations which reduce costs, improve productivity and allow more to be done with existing resources. The organisation has been working on ef ciencies for a number of years. This has generated savings and productivity improvements. As part of this process, the following priority areas for the organisation have emerged:
• Process improvement and reengineering
• People development and service alignment
• New and improved systems
• Reviewing how Council procures
• Reviewing asset management
• Identifying new sustainable revenue sources.
Council is committed to holding fees and charges to an affordable level and providing services and facilities because of the nature of our disadvantaged community. Rates are maintained at an affordable level including the Special Rate Variation, discounted accommodation for a range of Non-Government Organisations (NGO’s) to serve the community and provision of facilities for youth including a new water park, adventure park and study spaces in libraries. Council also has a commitment to commercial revenue opportunities to reduce reliance on rates. This includes the Sustainable Resource Centre (SRC), property development, sub-division and sales, Dutton Lane commercial development, as well as a new proposed development in 2018/19.
Council has a proud record of delivering productivity improvements, cost containment and improved revenue opportunities, and a number of achievements in recent years continue to deliver bene ts in the current year. These have been measured and monitored since 2008 and have resulted in approximately $5.7M per annum in improvements to the operating result. Such initiatives include::
• Withdrawal of management of the Fair eld City Farm (2009)
• Structural change for salaries and wages (2010)
• Christmas closure of non-essential services (2010)
• Energy and waste minimisation programme (2010-2013)
• Review of operations of multi-deck car parks (2012).
Fair eld City Council remains committed to an ongoing program of initiatives to achieve further nancial bene ts for our community. These productivity improvements and cost containment enable Council to maximise the services it can deliver and the value for each rate dollar for ratepayers.
PRODUCTIVITY IMPROVEMENTS, REVENUE OPPORTUNITIES, COST CONTAINMENT STRATEGIES
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Council has identi ed a range of productivity initiatives to be explored and developed to deliver increased ef ciencies, revenue increases and cost reductions over the life of the LTFP. These will form initiatives to be explored with speci c proposals being assessed through a business case methodology. Identi ed strategies include:
INITIATIVES IN PROGRESS
• Continued focus on employee costs – particularly leave management
• Purchase ongoing revenue generating properties – Dutton Lane development. Project forecast to return $2.4 million per annum
• Review appropriateness of user fee and charges
• Changing the waste recycling delivery resourcing model - $600K cost reduction
• Property Development Fund – Diamond Crescent and various smaller subdivisions – one off capital return on investment through land sales.
• Modifying the operation of goods storage to move to Just In Time delivery approach for bulk of stock items.
• Analysis of purchasing to identify ef ciencies from procurement.
INITIATIVES UNDER CONSIDERATION
• Opportunities for shared services or resource sharing
• Review service levels and core versus optional services
• Fully cost subsidies for Council’s services so that future decisions can be made concerning the level of subsidy
• Review resourcing models including use of contract services
• Business case assessment of the subsidy level, utilisation and alternate delivery models for community halls and / or community of ce space.
The management of Councils ef ciency program is documented in Productivity Improvements and Cost Containment 2013-2017.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 161
30 LONGTERMFINANCIALPLAN
REVENUE FORECASTS
RATES AND ANNUAL CHARGES
The rate peg for 2015/16 has been handed down and will be 2.4% and this has been incorporated into Year 1.
Given population growth in the Fairfield Local Government Area is not forecast to be significant, no changes to rates and annual charges have been included for population increase. Future years’ rate peg is expected to align to CPI, with annual changes as per the table below.
RATES AND ANNUAL CHARGES 2015-16 2016-17 2017-18 2018-19 THERE AFTER
Rate Peg 2.40% 2.00% 2.00% 2.50% 2.50%
STORMWATER LEVIES ARE ALSO EXPECTED TO ALIGN TO CPI.
The pensioner rate rebate has been retained throughout the life of the LTFP. The NSW State Government has committed to 50% funding of pensioner rebates on rates for one year, but has not firmly committed beyond this point. The LTFP has assumed continued commitment.
58.5%9.4%
1.7%
7.9%
10.9%11.5%
Sources of Revenue - % of Total 2015/16
Rates and Annual Charges User Charges and Fees
Interest & Investment Revenue Other Revenues
Grants & Contributions for Operating Purposes Grants & Contributions for Capital Purposes
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 162
31LONGTERMFINANCIALPLAN
The below graphs summarise the average residential, business and farmland rates between Fairfield and neighbouring Councils.
620
640
660
680
700
720
740
760
780
800
820
2009/10 2010/11 2011/12 2012/13 2013/2014 2014/2015 2015-2016
Fairfield Average Residential Rates
0
200
400
600
800
1000
1200
Fairfield Liverpool Penrith Bankstown Parramatta Blacktown
2014/2015 Average Residential Rate Comparison between Councils
0
2000
4000
6000
8000
10000
12000
Fairfield Liverpool Penrith Bankstown Parramatta Blacktown
2014/2015 Average Residential, Business and Farmland Rate Comparison between Councils
Residential Average Rates Business Average Rates Farmland Average Rates
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 163
32 LONGTERMFINANCIALPLAN
USER CHARGES AND FEES
Most fees and charges are expected to align with CPI and hence increases are consistent with the rate peg table shown above.
New fees and charges introduced over the life of the LTFP relate to new infrastructure resulting from the Special Rate Variation, such as the Youth Centre and the Water Park. Refer to the Asset Management, Capital Expenditure and Depreciation section above.
INTEREST AND INVESTMENT REVENUE
Given interest rates have declined in recent years and expected to remain low, it is assumed that interest and investment revenue will decline, since longer term investments will mature over the life of the LTFP and re-investment will be at lower than the historical rates.
Whilst rates are projected to increase in the later years of the LTFP, the increased interest revenue from investments maturing in those years is not expected to outweigh the decline resulting in the earlier years.
OTHER REVENUESPROPERTY RENTAL
Property rental is expected to increase significantly in 2016-17 due to the development of Dutton Lane in Cabramatta. This development which is expected to bring to Council a long term income stream of additional rental income of $3.6m per year in 2016-17, with a CPI increase in each subsequent year. The net bottom line impact from this development is forecast to be $2.4m after allowance for outgoings.
An additional Property Development Fund investment is expected to be commenced in the 2018/19 year. This will be financed through new borrowings of approximately $12 million, with projected returns of approximately 10% p.a. ($1,200,000) to commence from
the 2020/21 year.
The Diamond Crescent development underway in 2014/15 recognises the cash flow implications however as this is a non-recurring benefit, the profit on sale of assets has been discounted for the purposes of the LTFP.
COMMERCIAL ACTIVITIES
Fees for the commercial waste service, childcare centres, leisure centres and showground are expected to increase in line with CPI. Ability to increase fees for these activities, beyond the CPI, is limited due to the price sensitive nature of customers and the necessity for Council to provide market competitive prices.
GRANTS AND CONTRIBUTIONS PROVIDED FOR OPERATING PURPOSESGRANTS AND SUBSIDIES
Most grants and subsidies have been assumed to increase in line with CPI.
A three year CPI freeze for the three years of 2014/15, 2015/16 and 2016/17 is expected for Federal Assistance Grants and hence this assumption impacts the first three years of the LTFP. CPI increases have been assumed for the remainder of the Plan period.
In respect of NSW State Government distributions, a 5% reduction has been assumed for the first year of the LTFP. CPI increases have been assumed beyond that point.
It has been assumed that other operational grants relating to Child Care will continue unchanged, and hence increased by CPI throughout the LTFP. Similarly, other grant funded programmes have been assumed to continue with no changes.
No assumptions have been made in relation to Fit for The Future funding changes, as there have been no concrete decisions made by the State Government in respect of any grants currently provided for operating purposes.
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33LONGTERMFINANCIALPLAN
GRANTS AND CONTRIBUTIONS PROVIDED FOR CAPITAL PURPOSESGrants for 2015/16 increase significantly due to $10.65M one off infrastructure grant in respect of roads for the new Badgery’s Creek airport. The removal of this grant for 2016/17 accounts for the significant reduction in grants in that year compared to 2015/16.
Future years assume continuation of capital grants at the current modest levels and hence CPI increases have been applied throughout the Plan.
No assumptions have been made in relation to Fit for The Future funding changes, as there have been no concrete decisions made by the State Government in respect of any grants currently provided for capital purposes.
External restrictions are growing over the life of the LTFP because of the collection of some capital grants which currently do not have a forecasted project to apply such funds. S94 and S94A contributions are examples.
Section 94A collection is quite consistent, apart from the odd major development which would provide a one off large lump sum payment into the account. However, in recent times Section 94A expenditure has been cyclical. Funds are collected and once there are significant funds available, those funds are allocated to a major projects. Once those funds are spent, the account is generally allowed to build up to a point where another significant project can be funded through Section 94A. Additionally, the Plan does not contain a list of projects for funds to be allocated, just a list of community infrastructure categories for which funds can be spent. As a result, Section 94A expenditure can be opportunistic.
Section 94 collection is linked to a number of factors such as the residential approvals and as a result the collection of Section 94 funds is generally harder to anticipate. Expenditure of S94 is just as hard to anticipate on a yearly basis. Projects identified in the Section 94 Plan are generally only funded once the total amount required is collected. This can take a number of years, particularly in the case of land acquisition for
open space where the cost is high. Additionally, for acquisition of open space, there are many other factors that impact on the timing of expenditure of funds, such as identification of appropriate sites for open space, whether the existing owner is willing to sell, etc. Expenditure for open space acquisition is sometimes opportunistic.
NET GAIN FROM DISPOSAL OF ASSETSNo large sales of assets are anticipated. It has been assumed that proceeds from disposal from any assets will equate to written down values, and hence no profit or loss on disposal has been included.
INCOME FROM JOINT VENTURES AND ASSOCIATED ENTITIEs
Council has an interest in the WESPOOL self-insurance consortium ( joint venture). Insurance premiums are dictated by actuarial review. The difference between income collected (insurance premiums) from joint venture partners as set by this actuarial review and actual claims and expenses will generate a profit or a loss each year, with Council’s share being taken up in the income statement. Whilst the reality will be that a profit or loss each year will result, revisions to premiums from subsequent actuarial reviews should deliver a net breakeven position over the long term. Accordingly no income or loss from this joint venture has been included in the LTFP.
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34 LONGTERMFINANCIALPLAN
EMPLOYEE BENEFITS AND ON-COSTS
Increases in employee costs consist of three components:
• award increases
• movements within the salary system as part of the annual performance review process
• increases in liabilities for untaken long service and annual leave.
Recent analysis forecasted Council’s future salary obligations. It compared the annual salary system increase (the Local Government State Award increase and the annual performance progressions for staff) versus the annual rate peg increase. The analysis illustrated that for Council to maintain the salary and wages costs to the level of rate peg increases it must intervene.
EXPENDITURE FORECASTS
44.4%
0.0%
15.7%
19.8%
20.1%
Expenditure - % of Total Spend 2015/16
Employee Benefits and Costs Borrowing Costs Materials & Contracts
Depreciation and Amortisation Other Expenses
As a result of previously implemented structural changes, there has been a 4.5% improvement in wages in the base year of the LTFP. Employee Benefit and On-Costs are now projected to be $68.429m for the base year of 2015/16, as compared to $71.6m for the same year in the previous LTFP.
Wages have been estimated to increase by the rate peg plus 1% for award and performance increments.
EMPLOYEE BENEFITS /ON-COSTS
2015-16
2016-17
2017-18
2018-19
THERE AFTER
Annual Increase
3.40% 3.00% 3.00% 3.50% 3.50%
Cost savings from “employee churn” have been included in forecasts. Assuming a 5% staff turnover, $3.691m savings are expected to be achieved in 2015/16 from the time period between an employee leaving and the position being filled.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 166
35LONGTERMFINANCIALPLAN
Minimal growth in employee entitlements have been projected over the life of the LTFP as an outcome of the directive that Managers must manage their staff leave balances so that leave is (at least) being taken over the year at the same rate it is accrued.
It has been assumed that there are no significant changes to wages and salaries and employee benefits arising from any government policy changes. Previously announced changes such as the move to a flat 20% rate for the statutory formula method of calculating motor vehicle fringe benefits have already been worked into projections. Penalty rates, workers compensation and other on-costs are also projected to remain consistent across the LTFP. Further, staff training is expected to continue at similar levels to those currently experienced.
The employee costs forecasts build in current Enterprise Agreement conditions, however it is noted that these are currently the subject of an industrial negotiation.
Casuals, agency staff and overtime are expected to remain at current levels. No on-off redundancies and related ongoing cost savings have been built into projections as no structural changes are currently anticipated. Note that under the Fit For the Future proposals, employment is guaranteed for three years after any merger.
BORROWING COSTS
As per the SRV application, Councillors have directed that debt will be used where commercial opportunities are available to deliver an acceptable rate of return including funding costs. An additional Property Development Fund investment is expected to be commenced in the 2018/19 year. This will be financed through new borrowings of approximately $12 million, with projected returns of approximately 10% p.a. ($1,200,000) to commence from the 2020/21 year.
MATERIALS AND CONTRACTS
Expenditure on materials, contracts and other operating costs has been generally based on CPI increases. A continued focus on the efficiencies programme and new procurement efficiencies have been forecast to deliver benefits of a magnitude sufficient to restrict expenditure increases to CPI only.
It is noted that crude oil prices have recently been reducing. As this affects asphalt costs under the roads programme, a potential benefit may arise which will help offset any above CPI cost increases.
Conversely, Council was foundation partner to a waste disposal contract which initially increased waste disposal costs but with the foresight that considerable cost savings would be achieved longer term, and these are now being achieved. This contract was initially with State Government but has since been transferred to the private sector. The expiry of this contract is outside the life of the LTFP, and hence no changes from the current position outside of CPI increases have been built into the Plan. This contract is noted with respect to the future, for if upon expiry negotiation cannot deliver a similar contracted cost, a significant expenditure increase is likely to arise. Whilst the waste reserve currently has a balance in excess of $10m, this would be quickly consumed and may require an increased Waste Levy to residents if offsetting cost savings or efficiencies cannot be identified.
With respect to the Sustainable Resource Centre, it is noted that there is significant competition in the market and Council has constraints that commercial operators do not. There is a risk that feed stock, crushing contracts, sales and hence the return on investment to Council may reduce with competition. However at this stage, no significant change to financial outcomes for the Centre have been projected.
The recent NSW state government election result means that it is likely that there will be changes to energy prices and the partial privatisation of poles creates cost risks. As there has not been anything concrete announced regarding anticipated cost impacts arising from the implementation of this programme, no
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 167
36 LONGTERMFINANCIALPLAN
expenditure changes outside of CPI increases have been included in projections.
As it is not possible to predict natural disasters or other localised events, no uninsured losses have been budgeted, nor have any increased Emergency response components.
DEPRECIATION AND AMORTISATION
Refer to the Asset Management, Capital Expenditure and Depreciation section above. Changes in the depreciation policy have resulted in a reduction in depreciation expense for the 2014/15 and future financial years, as compared to previous projections.
OTHER EXPENSES
Consistent with other expenditure lines, most items have been projected to increase by CPI only.
Comments in relation to energy prices noted in the Materials and Contracts section above have been equally applied here – i.e. no movements outside of CPI increases have been projected. No significant changes to utility costs such as network, telephone, water and gas have been included in the Plan.
Council elections have been assumed to continue every 4 years, at a current cost of approximately $700,000 per election. The first of these has been included for the 2016/17 year.
Pooling resources and buying power under State contracts, and WESROC (Western Sydney Regional Organisation of Councils) and WESPOOL (self-insurance) consortiums deliver cost saving benefits to Council. These have been projected to continue for the life of the LTFP. However a risk remains to the cost savings with the Fit For The Future proposals tabled by the State Government, as the dissolving of a number of Councils may reduce the economies of scale and result in increased pricing.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 168
37LONGTERMFINANCIALPLAN
2015/16ProjectionPrevious
LTFP
2015/16Projection
CurrentLTFP
KEY FACTORS INFLUENCING REVISED 2015/16 PROJECTION
VS PREVIOUS LTFP
Rates and Annual Charges 103,758 103,758 No change
User Charges and Fees 20,463 16,709 Approx $3.7M revenue reclassi ed from here to Other Revenues
Interest & Investment Revenue 4,025 3,086 Decline in interest rates below previous projection
Other Revenues 9,255 13,992 Approx $3.7M revenue reclassi ed to here from User Fees and Charges; Additional increase due to higher car parking revenues.
Grants & Contributions for Operating Purposes
22,957 19,353 Federal Assistance Grants freeze (previously assumed CPI increase); 5% reduction in State Government grants in each of 2 years (previously assumed CPI increase).
Grants & Contributions for Capital Purposes
4,321 20,373 $10.65M additional relates to one off infrastructure grant in respect of roads for the new Badgery’s Creek airport. Previous projection anticipated large decreases v prior years, this has not eventuated
Total Income From Continuing Operations
164,778 177,271
Employee Bene ts and Costs 71,629 68,207 Previously implemented structural change have delivered a 4.5% improvement in wages costs
Borrowing Costs 599 57 Previous projection expected Dutton Lane property development to be partially funded from external nance. Now to be funded from internal reserves.
Materials & Contracts 24,674 24,140 No signi cant change, some cost savings achieved
Depreciation and Amortisation 31,639 30,416 Policy change as detailed in the Asset Management, Capital expenditure and Depreciation section
Other Expenses 31,972 30,884 Cost containment strategies delivering results
Total Expenses from Continuing Operations
160,513 153,704
Net Operating Result 4,265 23,567
Result before Grants & Contributions for Capital Purposes
(55) 3,194
2015-16 PROJECTION – CHANGES FROM PREVIOUS LTFP
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 169
38 LONGTERMFINANCIALPLAN
The LTFP contains a number of assumptions based on various sources. Accordingly variations in these assumptions during the life of the plan may have a significant impact on the Council’s future financial plans.
The LTFP is therefore updated annually in conjunction with the preparation of the Operational Plan.
Key drivers in the estimates provided in the LTFP and the impact of a 1% plus or minus movement are provided below.
SENSITIVITY ANALYSIS
EFFECT OF 1% MOVEMENT IN CPI IN EVERY YEAR OF THE LTFP
Impact
Drivers Assumption Impact One Year Total 10 Years
In ation 1% Revenue $1,625,190 $103,588,175
Expenses $1,565,080 $105,158,818
Net Result $60,110 -$1,570,643
Rate Peg (In ation exceeds rate peg by 1%) -$728,248 -$47,817,048
Charges 1% $993,778 $65,802,577
Fees and Charges and Operating Grants 1% $387,103 $23,394,842
Employee Costs 1% $705,832 $45,189,529
Materials and Contracts and Other Expenses 1% $241,680 $15,598,341
EFFECT OF 1% MOVEMENT IN CPI IN ONLY THE FIRST YEAR (2015/16) ON THE LTFP
Impact
Drivers Assumption Impact One Year Total 10 Years
In ation 1% Revenue $1,625,190 $18,036,579
Expenses $1,565,080 $22,537,171
Net Result $60,110 -$4,500,592
Rate Peg (In ation exceeds rate peg by 1%) -$728,248 -$8,090,149
Charges 1% $993,778 $11,022,191
Fees and Charges and Operating Grants 1% $387,103 $4,300,346
Employee Costs 1% $705,832 $8,125,319
Materials and Contracts and Other Expenses 1% $241,680 $2,684,827
Interest on Investments10% Movement on Balances Invested (Assumes Same Rate)
$191,205 $2,288,413
1% change to Interest Rate $637,350 $7,628,043
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 170
39LONGTERMFINANCIALPLAN
RISK ASSESSMENT
Council’s risk management strategy comprises the annual update of the LTFP. This is done in conjunction with the preparation of the Operational Plan where key assumptions and forecasts are reviewed and adjusted where necessary. The revised LTFP is also submitted to Council for adoption with the new Operational Plan and Delivery Program. The impact of significant variances or changes to the LTFP is identified with proposals for any necessary mitigating corrective action.
In addition, to determine whether there may be any emerging trends that may impact on the LTFP, monthly financial reports are submitted to Council as well as Quarterly Budget Review Statement. Monitoring and reporting against Council’s Financial Sustainability Indicators forms part of the quarterly review.
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
171
40 LONGTERMFINANCIALPLAN
Fairfi
eld Ci
ty Co
uncil
10 Ye
ar Fin
ancia
l Plan
for th
e Yea
rs en
ding 3
0 Jun
e 202
5INC
OME S
TATE
MENT
- GEN
ERAL
FUND
Actua
lsCu
rrent
Year
Scen
ario:
Base
Case
2013
/1420
14/15
2015
/1620
16/17
2017
/1820
18/19
2019
/2020
20/21
2021
/2220
22/23
2023
/2420
24/25
$$
$$
$$
$$
$$
$$
Incom
e from
Conti
nuing
Ope
ration
sRe
venu
e:Ra
tes &
Annu
al Ch
arges
95,09
2,000
99,37
7,814
103,7
58,23
2
105,8
02,24
2
107,8
87,13
3
110,5
45,36
8
113,2
70,05
9
116,0
62,86
8
118,9
25,49
7
121,8
59,69
1
124,8
67,24
0
127,9
49,97
9
User
Charg
es &
Fees
15,80
8,000
17,52
8,200
16,70
8,590
17,04
2,762
17
,383,6
17
17,81
8,207
18
,263,6
63
18,72
0,254
19
,188,2
61
19
,667,9
67
20
,159,6
67
20,66
3,658
Intere
st & I
nves
tmen
t Rev
enue
3,734
,000
3,472
,494
3,086
,280
2,894
,280
2,710
,294
2,640
,294
2,570
,294
3,012
,294
3,282
,294
3,561
,294
3,810
,294
4,114
,294
Othe
r Rev
enue
s13
,900,0
00
13
,261,2
23
13
,992,0
79
16
,671,9
21
17
,005,3
59
17
,430,4
93
17
,866,2
55
19
,512,9
12
20
,000,7
34
20
,500,7
53
21
,013,2
72
21
,538,6
03
Gr
ants
& Con
tributi
ons p
rovide
d for
Opera
ting P
urpos
es15
,061,0
00
21
,182,0
77
19
,352,5
66
19
,739,6
17
20
,134,4
10
20
,637,7
70
21
,153,7
14
21
,682,5
57
22
,224,6
21
22
,780,2
37
23
,349,7
42
23
,933,4
86
Gr
ants
& Con
tributi
ons p
rovide
d for
Capit
al Pu
rpose
s7,9
97,00
0
11
,169,6
81
20
,373,5
43
5,0
86,46
5
5,1
88,19
4
5,3
17,89
9
5,4
50,84
6
5,5
87,11
8
5,7
26,79
6
5,8
69,96
5
6,0
16,71
5
6,1
67,13
2
Ot
her In
come
:Ne
t gain
s from
the d
ispos
al of
asse
ts17
8,000
-
-
-
-
-
-
-
-
-
-
-
Joint
Ventu
res &
Asso
ciated
Entitie
s79
4,000
-
-
-
-
-
-
-
-
-
-
-
Total
Inco
me fro
m Co
ntinu
ing O
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ions
152,5
64,00
0
165,9
91,48
9
177,2
71,29
0
167,2
37,28
7
170,3
09,00
7
174,3
90,03
2
178,5
74,83
2
184,5
78,00
3
189,3
48,20
2
194,2
39,90
7
199,2
16,93
0
204,3
67,15
3
Expe
nses
from
Conti
nuing
Ope
ration
sEm
ploye
e Ben
efits
& On-C
osts
64,27
5,000
71,37
0,770
68,20
7,193
70,32
8,256
72,51
2,219
74,84
0,374
77,24
1,222
79,44
9,017
81,72
0,893
84,05
8,719
86,46
4,419
88,93
9,971
Borro
wing C
osts
121,0
00
103,2
51
57,11
1
55
,670
31,11
6
33
2,965
32
4,406
32
0,484
32
0,080
32
0,080
32
0,080
32
0,080
Ma
terials
& Co
ntrac
ts24
,830,0
00
24
,225,8
46
24
,140,1
00
24
,628,2
62
25
,126,1
87
25
,761,0
42
26
,411,7
68
27
,078,7
63
27
,762,4
32
28
,463,1
93
29
,181,4
73
29
,917,7
10
De
precia
tion &
Amort
isatio
n29
,195,0
00
30
,343,2
70
30
,415,6
56
30
,673,8
15
31
,287,2
91
31
,913,0
37
32
,551,2
98
33
,202,3
24
33
,866,3
71
34
,543,6
98
35
,234,5
72
35
,939,2
63
Im
pairm
ent
-
-
-
-
-
-
-
-
-
-
-
-
Othe
r Exp
ense
s31
,123,0
00
31
,413,6
08
30
,883,7
04
32
,886,2
29
32
,829,9
53
33
,650,7
02
34
,491,9
70
36
,054,2
69
36
,238,1
26
37
,144,0
79
38
,072,6
81
39
,724,4
99
Int
erest
& Inv
estm
ent L
osse
s-
-
-
-
-
-
-
-
-
-
-
-
Ne
t Los
ses f
rom th
e Disp
osal
of As
sets
-
-
-
-
-
-
-
-
-
-
-
-
Joint
Ventu
res &
Asso
ciated
Entitie
s-
-
-
-
-
-
-
-
-
-
-
-
To
tal Ex
pens
es fro
m Co
ntinu
ing O
perat
ions
149,5
44,00
0
157,4
56,74
5
153,7
03,76
4
158,5
72,23
2
161,7
86,76
7
166,4
98,12
1
171,0
20,66
4
176,1
04,85
7
179,9
07,90
2
184,5
29,77
0
189,2
73,22
5
194,8
41,52
3
Opera
ting R
esult
from
Conti
nuing
Ope
ration
s3,0
20,00
0
8,5
34,74
4
23
,567,5
26
8,6
65,05
5
8,5
22,24
0
7,8
91,91
1
7,5
54,16
8
8,4
73,14
6
9,4
40,30
1
9,7
10,13
8
9,9
43,70
5
9,5
25,62
9
Disco
ntinu
ed O
perat
ions -
Profi
t/(Los
s)-
-
-
-
-
-
-
-
-
-
-
-
Ne
t Prof
it/(Lo
ss) fr
om Di
scon
tinue
d Ope
ration
s-
-
-
-
-
-
-
-
-
-
-
-
Net O
perat
ing Re
sult f
or the
Year
3,020
,000
8,534
,744
23,56
7,526
8,665
,055
8,522
,240
7,891
,911
7,554
,168
8,473
,146
9,440
,301
9,710
,138
9,943
,705
9,525
,629
Net O
perat
ing Re
sult b
efore
Gran
ts an
d Con
tributi
ons p
rovide
d for
Capit
al Pu
rpose
s(4,
977,0
00)
(2,
634,9
37)
3,1
93,98
3
3,578
,590
3,3
34,04
6
2,574
,012
2,1
03,32
2
2,886
,028
3,7
13,50
5
3,840
,172
3,9
26,99
0
3,358
,497
Proje
cted Y
ears
PRO
JEC
TIO
N
INC
OM
E ST
AT
EMEN
T
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
172
41LONGTERMFINANCIALPLAN
Fairf
ield
City
Cou
ncil
10 Y
ear F
inan
cial
Pla
n fo
r the
Yea
rs e
ndin
g 30
Jun
e 20
25B
ALA
NC
E SH
EET
- GEN
ERA
L FU
ND
Act
uals
Cur
rent
Yea
rSc
enar
io: B
ase
Cas
e20
13/1
420
14/1
520
15/1
620
16/1
720
17/1
820
18/1
920
19/2
020
20/2
120
21/2
220
22/2
320
23/2
420
24/2
5$
$$
$$
$$
$$
$$
$A
SSET
SC
urre
nt A
sset
sC
ash
& C
ash
Equi
vale
nts
16,0
65,0
00
7,92
2,90
6
3,
772,
962
3,
774,
889
7,
658,
541
10
,382
,937
9,88
7,73
1
8,87
4,55
6
9,23
5,10
3
9,99
5,70
2
9,86
5,53
3
9,73
6,30
4In
vest
men
ts36
,672
,000
35
,600
,477
28
,781
,760
26,9
82,9
00
25
,184
,040
24
,584
,420
25,1
84,8
00
26,4
49,9
90
28
,207
,395
29
,609
,990
32
,374
,420
36,5
33,6
60R
ecei
vabl
es8,
306,
000
11,1
24,8
97
11,6
65,2
37
12
,916
,026
13,1
84,2
99
13,5
20,1
73
13
,862
,002
14
,845
,308
15,2
27,7
68
15,6
26,1
10
16,0
27,4
03
16
,451
,907
Inve
ntor
ies
571,
000
61
6,84
7
622,
976
635,
435
648,
144
664,
348
680,
956
697,
980
715,
430
733,
316
751,
649
770,
440
Oth
e r89
5,00
0
864,
544
85
9,14
2
89
7,84
3
90
4,70
5
92
7,32
3
95
0,50
6
98
5,14
6
99
8,62
5
1,
023,
591
1,
049,
181
1,
086,
287
Non
-cur
rent
ass
ets
clas
sifie
d as
"hel
d fo
r sal
e"-
-
-
-
-
-
-
-
-
-
-
-To
tal C
urre
nt A
sset
s62
,509
,000
56
,129
,670
45
,702
,077
45,2
07,0
93
47
,579
,730
50
,079
,201
50,5
65,9
96
51,8
52,9
81
54
,384
,322
56
,988
,708
60
,068
,185
64,5
78,5
98
Non
-Cur
rent
Ass
ets
Inve
stm
ents
23,2
90,0
00
24,3
61,5
23
31,1
80,2
40
32
,979
,100
34,7
77,9
60
35,3
77,5
80
37
,777
,200
40
,512
,010
42,7
54,6
05
45,3
52,0
10
46,5
87,5
80
48
,428
,340
Rec
eiva
bles
1,00
9,00
0
1,
050,
146
1,09
6,43
5
1,11
8,03
4
1,14
0,06
6
1,16
8,15
6
1,19
6,94
8
1,22
6,46
0
1,25
6,71
0
1,28
7,71
7
1,31
9,49
8
1,35
2,07
4In
vent
orie
s-
-
-
-
-
-
-
-
-
-
-
-In
frast
ruct
ure,
Pro
perty
, Pla
nt &
Equ
ipm
ent
1,68
3,27
3,00
0
1,71
8,10
6,90
1
1,74
5,42
9,44
4
1,75
1,92
5,83
2
1,75
6,72
7,94
8
1,77
3,53
1,16
9
1,94
2,91
5,39
9
1,94
7,72
0,53
71,
952,
526,
476
1,
957,
333,
105
1,
963,
287,
595
2,
164,
077,
958
Inve
stm
ents
Acc
ount
ed fo
r usi
ng th
e eq
uity
met
hod
4,79
4,00
0
4,
794,
000
4,79
4,00
0
4,79
4,00
0
4,79
4,00
0
4,79
4,00
0
4,79
4,00
0
4,79
4,00
0
4,79
4,00
0
4,79
4,00
0
4,79
4,00
0
4,79
4,00
0In
vest
men
t Pro
pert y
12,3
40,0
00
12,3
40,0
00
12,3
40,0
00
12
,340
,000
12,3
40,0
00
12,3
40,0
00
12
,340
,000
12
,340
,000
12,3
40,0
00
12,3
40,0
00
12,3
40,0
00
12
,340
,000
Inta
ngib
le A
sset
s-
-
-
-
-
-
-
-
-
-
-
-N
on-c
urre
nt a
sset
s cl
assi
fied
as "h
eld
for s
ale"
-
-
-
-
-
-
-
-
-
-
-
-
Oth
e r-
-
-
-
-
-
-
-
-
-
-
-To
tal N
on-C
urre
nt A
sset
s1,
724,
706,
000
1,
760,
652,
570
1,
794,
840,
119
1,
803,
156,
966
1,
809,
779,
973
1,
827,
210,
904
1,
999,
023,
547
2,
006,
593,
008
2,01
3,67
1,79
1
2,02
1,10
6,83
2
2,02
8,32
8,67
3
2,23
0,99
2,37
1TO
TAL
ASS
ETS
1,78
7,21
5,00
0
1,81
6,78
2,24
0
1,84
0,54
2,19
6
1,84
8,36
4,06
0
1,85
7,35
9,70
3
1,87
7,29
0,10
6
2,04
9,58
9,54
3
2,05
8,44
5,98
82,
068,
056,
113
2,
078,
095,
540
2,
088,
396,
858
2,
295,
570,
969
LIA
BIL
ITIE
SC
urre
nt L
iabi
litie
sBa
nk O
verd
raft
-
-
-
-
-
-
-
-
-
-
-
-
Paya
bles
18,8
72,0
00
17,5
55,9
82
17,3
70,9
24
16
,159
,339
16,2
28,5
13
16,4
86,3
04
16
,745
,237
17
,142
,588
17,2
83,0
11
17,5
62,1
63
17,8
48,3
87
18
,273
,694
Borro
win
gs30
6,00
0
344,
731
36
8,27
0
34
7,16
7
18
9,48
1
88
3,09
9
82
3,22
4
80
0,00
0
80
0,00
0
80
0,00
0
80
0,00
0
80
0,00
0Pr
ovis
ions
6,03
1,00
0
5,
623,
615
5,76
0,47
6
5,90
0,07
5
6,04
2,46
5
6,18
8,41
5
6,33
8,01
4
6,49
1,35
3
6,64
8,52
6
6,80
9,62
7
6,97
4,75
7
7,14
4,01
4Li
abilit
ies
asso
ciat
ed w
ith a
sset
s cl
assi
fied
as "h
eld
for s
ale"
-
-
-
-
-
-
-
-
-
-
-
-
Tota
l Cur
rent
Lia
bilit
ies
25,2
09,0
00
23,5
24,3
28
23,4
99,6
70
22
,406
,581
22,4
60,4
59
23,5
57,8
18
23
,906
,475
24
,433
,941
24,7
31,5
36
25,1
71,7
90
25,6
23,1
44
26
,217
,709
Non
-Cur
rent
Lia
bilit
ies
Paya
bles
-
-
-
-
-
-
-
-
-
-
-
-
Borro
win
gs1,
391,
000
1,01
1,24
1
64
2,97
1
29
5,80
4
10
6,32
3
10
,423
,224
9,60
0,00
0
8,80
0,00
0
8,00
0,00
0
7,20
0,00
0
6,40
0,00
0
5,60
0,00
0Pr
ovis
ions
18,5
08,0
00
21,6
04,9
27
22,1
90,2
85
22
,787
,350
23,3
96,3
56
24,0
20,5
87
24
,660
,425
25
,316
,258
25,9
88,4
87
26,6
77,5
21
27,3
83,7
82
28
,107
,699
Inve
stm
ents
Acc
ount
ed fo
r usi
ng th
e eq
uity
met
hod
-
-
-
-
-
-
-
-
-
-
-
-
Liab
ilitie
s as
soci
ated
with
ass
ets
clas
sifie
d as
"hel
d fo
r sal
e"-
-
-
-
-
-
-
-
-
-
-
-To
tal N
on-C
urre
nt L
iabi
litie
s19
,899
,000
22
,616
,168
22
,833
,256
23,0
83,1
54
23
,502
,679
34
,443
,811
34,2
60,4
25
34,1
16,2
58
33
,988
,487
33
,877
,521
33
,783
,782
33,7
07,6
99TO
TAL
LIA
BIL
ITIE
S45
,108
,000
46
,140
,496
46
,332
,926
45,4
89,7
35
45
,963
,138
58
,001
,630
58,1
66,8
99
58,5
50,1
99
58
,720
,023
59
,049
,312
59
,406
,925
59,9
25,4
07N
et A
sset
s1,
742,
107,
000
1,
770,
641,
744
1,
794,
209,
270
1,
802,
874,
325
1,
811,
396,
565
1,81
9,28
8,47
6
1,99
1,42
2,64
4
1,
999,
895,
790
2,
009,
336,
090
2,
019,
046,
228
2,
028,
989,
933
2,
235,
645,
562
EQU
ITY
Ret
aine
d Ea
rnin
gs67
4,92
7,00
0
68
3,46
1,74
4
70
7,02
9,27
0
71
5,69
4,32
5
72
4,21
6,56
5
73
2,10
8,47
6
73
9,66
2,64
4
74
8,13
5,79
0
757,
576,
090
767,
286,
228
777,
229,
933
786,
755,
562
Rev
alua
tion
Res
erve
s1,
067,
180,
000
1,
087,
180,
000
1,
087,
180,
000
1,
087,
180,
000
1,
087,
180,
000
1,
087,
180,
000
1,
251,
760,
000
1,
251,
760,
000
1,25
1,76
0,00
0
1,25
1,76
0,00
0
1,25
1,76
0,00
0
1,44
8,89
0,00
0C
ounc
il Eq
uity
Inte
res t
1,74
2,10
7,00
0
1,77
0,64
1,74
4
1,79
4,20
9,27
0
1,80
2,87
4,32
5
1,81
1,39
6,56
5
1,81
9,28
8,47
6
1,99
1,42
2,64
4
1,99
9,89
5,79
02,
009,
336,
090
2,
019,
046,
228
2,
028,
989,
933
2,
235,
645,
562
Min
ority
Equ
ity In
tere
s t-
-
-
-
-
-
-
-
-
-
-
-To
tal E
quity
1,74
2,10
7,00
0
1,77
0,64
1,74
4
1,79
4,20
9,27
0
1,80
2,87
4,32
5
1,81
1,39
6,56
5
1,
819,
288,
476
1,
991,
422,
644
1,99
9,89
5,79
0
2,00
9,33
6,09
0
2,01
9,04
6,22
8
2,02
8,98
9,93
3
2,23
5,64
5,56
2
Proj
ecte
d Ye
ars
BALA
NC
E SH
EET
FAIR
FIEL
D C
ITY
CO
UN
CIL
CH
APT
ER 2
– F
INA
NC
IAL
CRI
TERI
A A
ND
MEA
SURE
S -
173
42 LONGTERMFINANCIALPLAN
Fairf
ield
City
Cou
ncil
10 Y
ear F
inan
cial
Pla
n fo
r the
Yea
rs e
ndin
g 30
Jun
e 20
25CA
SH F
LOW
STA
TEM
ENT
- GEN
ERAL
FUN
DAc
tual
sCu
rren
t Yea
rSc
enar
io: B
ase
Case
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
$$
$$
$$
$$
$$
$$
Cash
Flo
ws
from
Ope
ratin
g Ac
tiviti
esRe
ceip
ts:
Rat
es &
Ann
ual C
harg
es95
,394
,000
98,9
44,3
21
10
3,59
6,22
2
10
5,72
6,64
4
10
7,81
0,02
3
11
0,44
7,05
3
11
3,16
9,28
7
11
5,95
9,57
6
11
8,81
9,62
2
12
1,75
1,17
0
12
4,75
6,00
6
12
7,83
5,96
3
U
ser C
harg
es &
Fee
s18
,825
,000
17,5
28,2
00
16
,708
,590
17,0
42,7
62
17
,383
,617
17,8
18,2
07
18
,263
,663
18,7
20,2
54
19
,188
,261
19,6
67,9
67
20
,159
,667
20,6
63,6
58
In
tere
st &
Inve
stm
ent R
even
ue R
ecei
ved
3,20
8,00
0
3,70
7,98
5
3,13
0,27
1
2,88
9,57
0
2,69
0,42
2
2,62
1,13
1
2,55
3,09
4
2,98
7,44
0
3,25
6,54
0
3,52
8,57
6
3,78
3,76
5
4,07
3,92
3
Gra
nts
& C
ontri
butio
ns23
,058
,000
32,3
49,1
11
39
,725
,858
24,8
27,0
31
25
,322
,565
25,9
55,6
19
26
,604
,510
27,2
69,6
22
27
,951
,363
28,6
50,1
47
29
,366
,401
30,1
00,5
61
Bo
nds
& D
epos
its R
ecei
ved
21,0
00
-
-
-
-
-
-
-
-
-
-
-
O
ther
19,5
82,0
00
10
,601
,829
13,5
23,7
20
15
,478
,891
16,8
12,0
75
17
,184
,056
17,6
13,6
58
18
,628
,292
19,7
19,7
07
20
,212
,699
20,7
18,0
17
21
,235
,967
Paym
ents
:Em
ploy
ee B
enef
its &
On-
Cos
ts(6
5,14
7,00
0)
(6
9,09
7,93
0)
(6
7,56
7,49
0)
(7
1,25
8,37
4)
(7
1,76
0,82
2)
(7
4,07
0,19
3)
(7
6,45
1,78
6)
(7
8,63
9,84
5)
(8
0,89
1,49
2)
(8
3,20
8,58
3)
(8
5,59
3,02
9)
(8
8,04
6,79
7)
M
ater
ials
& C
ontra
cts
(32,
512,
000)
(25,
138,
151)
(24,
243,
217)
(24,
224,
063)
(25,
076,
431)
(25,
546,
939)
(26,
192,
237)
(26,
732,
711)
(27,
652,
585)
(28,
226,
539)
(28,
938,
818)
(29,
547,
946)
Borro
win
g C
osts
(118
,000
)
(1
05,6
52)
(57,
263)
(55,
833)
(31,
269)
(328
,099
)
(3
24,7
96)
(320
,848
)
(3
20,4
34)
(320
,434
)
(3
20,4
34)
(320
,434
)
Bo
nds
& D
epos
its R
efun
ded
-
-
-
-
-
-
-
-
-
-
-
-
Oth
er(3
2,94
6,00
0)
(3
1,41
3,60
8)
(3
0,88
3,70
4)
(3
2,88
6,22
9)
(3
2,82
9,95
3)
(3
3,65
0,70
2)
(3
4,49
1,97
0)
(3
6,05
4,26
9)
(3
6,23
8,12
6)
(3
7,14
4,07
9)
(3
8,07
2,68
1)
(3
9,72
4,49
9)
Net C
ash
prov
ided
(or u
sed
in) O
pera
ting
Activ
ities
29,3
65,0
00
37
,376
,105
53,9
32,9
87
37
,540
,400
40,3
20,2
26
40
,430
,135
40,7
43,4
22
41
,817
,511
43,8
32,8
56
44
,910
,925
45,8
58,8
93
46
,270
,397
Cash
Flo
ws
from
Inve
stin
g Ac
tiviti
esRe
ceip
ts:
Sale
of I
nves
tmen
t Sec
uriti
es22
,500
,000
-
-
-
-
-
-
-
-
-
-
-Sa
le o
f Inf
rast
ruct
ure,
Pro
perty
, Pla
nt &
Equ
ipm
ent
1,00
9,00
0
20,1
81,2
00
3,
242,
000
92
8,84
0
94
7,41
7
97
1,10
2
99
5,38
0
1,
020,
264
1,
045,
771
1,
071,
915
1,
098,
713
1,
126,
181
Paym
ents
:Pu
rcha
se o
f Inv
estm
ent S
ecur
ities
(14,
500,
000)
-
-
-
-
-(3
,000
,000
)
(4
,000
,000
)
(4
,000
,000
)
(4,0
00,0
00)
(4
,000
,000
)
(6
,000
,000
)Pu
rcha
se o
f Inv
estm
ent P
rope
rty9,
593,
000
-
-
-
-
-
-
-
-
-
-
-
Purc
hase
of I
nfra
stru
ctur
e, P
rope
rty, P
lant
& E
quip
men
t(4
1,59
2,00
0)
(6
5,35
8,37
1)
(6
0,98
0,19
9)
(38,
099,
043)
(3
7,03
6,82
4)
(49,
687,
360)
(3
8,35
0,90
8)
(39,
027,
726)
(3
9,71
8,08
0)
(4
0,42
2,24
2)
(4
2,28
7,77
5)
(40,
725,
807)
Net C
ash
prov
ided
(or u
sed
in) I
nves
ting
Activ
itie s
(22,
990,
000)
(45,
177,
171)
(57,
738,
199)
(3
7,17
0,20
3)
(36,
089,
407)
(4
8,71
6,25
8)
(40,
355,
529)
(4
2,00
7,46
2)
(42,
672,
309)
(43,
350,
327)
(45,
189,
062)
(4
5,59
9,62
6)
Cash
Flo
ws
from
Fin
anci
ng A
ctiv
ities
Rece
ipts
:Pr
ocee
ds fr
om B
orro
win
gs &
Adv
ance
s-
-
-
-
-
12,0
00,0
00
-
-
-
-
-
-Pr
ocee
ds fr
om F
inan
ce L
ease
s-
-
-
-
-
-
-
-
-
-
-
-Pa
ymen
ts:
Rep
aym
ent o
f Bor
row
ings
& A
dvan
ces
(1,3
78,0
00)
(3
41,0
28)
(344
,731
)
(368
,270
)
(347
,167
)
(989
,481
)
(883
,099
)
(823
,224
)
(800
,000
)
(8
00,0
00)
(8
00,0
00)
(8
00,0
00)
Rep
aym
ent o
f Fin
ance
Lea
se L
iabi
litie
s-
-
-
-
-
-
-
-
-
-
-
-
Net C
ash
Flow
pro
vide
d (u
sed
in) F
inan
cing
Act
iviti
es(1
,378
,000
)
(341
,028
)
(3
44,7
31)
(3
68,2
70)
(3
47,1
67)
11,0
10,5
19(8
83,0
99)
(8
23,2
24)
(8
00,0
00)
(800
,000
)
(800
,000
)
(800
,000
)
Net I
ncre
ase/
(Dec
reas
e) in
Cas
h &
Cash
Equ
ival
ents
4,99
7,00
0
(8,1
42,0
94)
(4
,149
,943
)1,
927
3,
883,
652
2,
724,
396
(495
,206
)
(1,0
13,1
75)
360,
547
760,
598
(130
,168
)
(129
,229
)
plus
: Cas
h, C
ash
Equi
vale
nts
& In
vest
men
ts -
begi
nnin
g of
yea
r11
,068
,000
16,0
65,0
00
7,
922,
906
3,
772,
962
3,
774,
889
7,
658,
541
10
,382
,937
9,88
7,73
1
8,87
4,55
6
9,23
5,10
3
9,99
5,70
2
9,86
5,53
3
Cash
& C
ash
Equi
vale
nts
- end
of t
he y
ear
16,0
65,0
00
7,
922,
906
3,
772,
962
3,
774,
889
7,
658,
541
10
,382
,937
9,88
7,73
1
8,87
4,55
6
9,23
5,10
3
9,99
5,70
2
9,86
5,53
3
9,73
6,30
4
Cas
h &
Cas
h Eq
uiva
lent
s - e
nd o
f the
yea
r16
,065
,000
7,92
2,90
6
3,77
2,96
2
3,77
4,88
9
7,65
8,54
1
10,3
82,9
37
9,
887,
731
8,
874,
556
9,
235,
103
9,
995,
702
9,
865,
533
9,
736,
304
Inve
stm
ents
- en
d of
the
year
59,9
62,0
00
59
,962
,000
59,9
62,0
00
59
,962
,000
59,9
62,0
00
59
,962
,000
62,9
62,0
00
66
,962
,000
70,9
62,0
00
74
,962
,000
78,9
62,0
00
84
,962
,000
Cash
, Cas
h Eq
uiva
lent
s &
Inve
stm
ents
- en
d of
the
year
76,0
27,0
00
67
,884
,906
63,7
34,9
62
63
,736
,889
67,6
20,5
41
70
,344
,937
72,8
49,7
31
75
,836
,556
80,1
97,1
03
84
,957
,702
88,8
27,5
33
94
,698
,304
Repr
esen
ting:
- Ext
erna
l Res
trict
ions
44,9
93,0
00
27
,326
,142
30,7
59,6
59
32
,232
,330
33,7
34,4
72
35
,274
,186
36,8
52,4
12
38
,470
,117
40,1
28,2
87
41
,827
,934
43,5
70,0
72
45
,355
,764
- Int
erna
l Res
trici
tons
27,6
28,0
00
33
,644
,077
23,2
72,1
16
22
,898
,677
24,5
17,7
69
26
,177
,338
26,8
78,3
97
27
,596
,982
28,3
33,5
31
31
,088
,494
33,9
12,3
32
36
,806
,765
- Unr
estri
cted
3,40
6,00
0
6,91
4,68
7
9,70
3,18
7
8,60
5,88
2
9,36
8,30
0
8,89
3,41
3
9,11
8,92
3
9,76
9,45
8
11,7
35,2
86
12
,041
,273
11,3
45,1
29
12
,535
,775
76,0
27,0
00
67
,884
,906
63,7
34,9
62
63
,736
,889
67,6
20,5
41
70
,344
,937
72,8
49,7
31
75
,836
,556
80,1
97,1
03
84
,957
,702
88,8
27,5
33
94
,698
,304
Proj
ecte
d Ye
ars
CA
SH F
LOW
STA
TEE
MN
T
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 174
43LONGTERMFINANCIALPLAN
Operating Performance Ratio - The operating performance ratio measures council’s achievement of containing operating expenditure within operating revenue. Total continuing operating revenue (excl. Capital Grants & Contributions) - Operating Expenses / Total continuing operating revenue (excl. Capital Grants & Contributions)
Own Source Operating Revenue Ratio - The own source revenue ratio measures fiscal flexibility as it indicates the extent of external funding sources such as operating and capital grants and contributions received by councils. Total continuing operating revenue (less ALL Grants & Contributions) / Total continuing operating revenue.
Unrestricted Current Ratio - The unrestricted current ratio measures the adequacy of working capital and the ability of a council to satisfy its obligations in the short term. Current Assets less all External Restrictions / Current Liabilities less Specific Purpose Liabilities.
Debt Service Cover Ratio - This ratio measures the availability of operating cash to service debt including interest, principal and lease payments. Operating Result before capital excluding interest and depreciation, impairment, amortisation (EBITDA) / Principal Repayments (from the Statement of Cash Flows) + Borrowing Interest Costs (from the Income Statement)
Rates, Annual Charges, Interest & Extra Charges Outstanding Percentage - This ratio assesses the impact of uncollected rates and annual charges on liquidity and the efficiency of councils’ debt recovery. Rates, Annual and Extra Charges Outstanding / Rates, Annual and Extra Charges Collectible
Building & Infrastructure Renewals Ratio - The building and infrastructure asset renewal ratio assesses the rate at which assets are being renewed against the rate at which they are depreciating. Renewal is defined as the replacement of existing assets to equivalent capacity or performance capability, as opposed to the acquisition of new assets. Asset renewals (building and infrastructure) / Depreciation, amortisation and impairment (building and infrastructure).
Infrastructure Backlog Ratio - The infrastructure backlog ratio shows the infrastructure backlog as a total value of a council’s infrastructure. Estimated cost to bring assets to a satisfactory condition / Total (WDV) of infrastructure, buildings, other structures and depreciable land improvement assets.
Asset Maintenance Ratio - The asset maintenance ratio compares councils’ actual asset maintenance against the estimated required annual asset maintenance. It indicates if a council is investing enough funds within the year to stop the infrastructure backlog from growing. Actual Asset Maintenance / Required Asset Maintenance.
Capital Expenditure Ratio - This ratio shows whether a Council earns more from its’ main activities or spends more to maintain or expand these activities. Annual Capital Expenditure / Annual Depreciation
Debt Service Ratio - The debt service ratio indicates the proportion of revenue from ordinary activities utilised for debt repayment. It is generally higher for councils which have acquired funding for infrastructure development. Cost of debt service (interest expense & principal repayments) / Total continuing operating revenue (exc. capital grants and contributions).
APPENDIX
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 175
44 LONGTERMFINANCIALPLAN
Rates & Annual Charges Coverage Ratio - The purpose of the Rates & Annual Charges Coverage Ratio is to assess the degree of Council’s dependence upon revenue from rates and annual charges and to assess the security of Council’s income.
Net Financial Liabilities Ratio (Gearing Ratio) - This ratio indicates the extent to which net financial liabilities of a Council could be met by its operating revenue. Where the ratio is falling over time it indicates that the Council’s capacity to meet its financial obligations from operating revenue is strengthening. This ratio is calculated as follows, total liabilities less current assets divided by operating revenue.
Net Interest Coverage Ratio - A ratio used to determine how easily a Council can pay interest on outstanding debt. The ratio is calculated by dividing Councils earnings before interest and taxes (EBIT) by its interest expenses for the same period. The lower the ratio, the more the Council is burdened by debt expense.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 176
FIT FOR THE FUTURE Fairfield City Council Pitcher Partners Depreciation Expense Report
APPENDIX 2
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 177
Fairfield City Council – Review of Depreciation Expense and Related Asset Management Issues i
1
Fairfield City Council
Report – Review of Depreciation Expense and Related Asset Management Issues
Carl Millington Partner Pitcher Partners Level 22 Martin Place, Sydney NSW 2000 Telephone +61 2 9228 2249 Facsimile +61 2 9223 1762 Email [email protected]
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 178
Fairfield City Council – Review of Depreciation Expense and Related Asset Management Issues i
2
Table of Contents
EXECUTIVE SUMMARY ........................................................................................................................................ 3
Introduction ........................................................................................................................................................ 3
Objectives / Scope .............................................................................................................................................. 3
Approach ............................................................................................................................................................ 3
Summary of Key Findings and Recommendations ............................................................................................. 4
Acknowledgement .............................................................................................................................................. 5
Accountability and responsibility ....................................................................................................................... 5
DETAILED REPORT OF FINDINGS ........................................................................................................................ 6
Detailed Approach .............................................................................................................................................. 6
Detailed Findings ................................................................................................................................................ 6
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 179
3 Fairfield City Council – Review of Depreciation Expense and Related Asset Management Issues
Executive Summary
Introduction
Fairfield City Council (“FCC”) via correspondence received on 8 January 2014 [refer Appendix 1] from Tony Smith, then FCC Chief Financial Officer, requested that a review into the depreciation expense calculations be performed with a view to determining the appropriateness of the significant increases that have occurred in the 8 years to 2013/2014 and the further increases forecast to occur in future financial years.
Additionally, in early 2015, Brad Cutts, FCC Chief Financial Officer, provided a document outlining the methodology on which depreciation would be calculated from 01 July 2015 [refer Appendix 2]. The document titled ‘Asset Values identifying Residual Asset Values’ is intended to be the basis for calculation of depreciation expense on the fair valuation of FCC’s infrastructure assets from 2015/2016.
In relation to the initial correspondence, this report looks at the historical basis for the depreciation charge, its composition between asset categories, the factors impacting on the expense recognised and comparisons of FCC to other council entities.
In relation to the new methodology issued for future application, this report again compares the assumptions made to other councils as well as assessing the appropriateness of the useful lives and residual values to be applied in the calculation of depreciation expense. It also makes reference to the accounting treatment required from the changes being made to the estimates on which depreciation expense is calculated.
Objectives / Scope
The overall objectives of the review were as follows:
1. Review the basis for the historic depreciation calculation and determine the primary reasons for the increase in the expense for the 8 year period to 2013/2014.
2. Compare FCC’s depreciation of infrastructure assets to other ‘Group 3’ councils in the Sydney area.
3. Assess FCC’s intended methodology going forward in relation to assumptions used for the components of categories of infrastructure assets which impacts (decreases) depreciation expense.
Upon completion of the above we have prepared this report of factual findings.
Approach
Our approach was to review the basis of the calculation of depreciation expense incurred to date and the changes being considered impacting on calculation of the expense in future financial years. Our review required discussions with staff involved in the administration of assets and asset management as well as persons in the finance department. We conducted testing and analytical procedures in accordance with the scope set out above.
FAIRFIELD CITY COUNCIL CHAPTER 2 – FINANCIAL CRITERIA AND MEASURES - 180
4 Fairfield City Council – Review of Depreciation Expense and Related Asset Management Issues
Summary of Key Findings and Recommendations
Our observations and testing identified the following key findings and recommendations:
The main contributors to the FCC depreciation expense is the asset categories of Buildings and Roads, Bridges and Footpaths. All other categories, whether infrastructure or other property, plant and equipment have a limited impact on depreciation expense.
Buildings depreciation expense has increased from $1.793M in 2007 to $9.958M in 2014. This is largely a result of:
- revaluing assets at Fair Value in the 2008 and 2013 years rather than historical Cost, as required by the Office of Local Government.
- Asset additions of $30.1M since 2007.
Roads, bridges and footpath depreciation expense has increased from $8.32M in 2007 to $12.432M in 2014, primarily from:
- revaluation increments of $317.24M;
- additions of $114M that have been recognised in the period since 2007.
The calculation of annual deprecation charge is affected by the assessment of ‘useful life’ and ‘residual value’.
- Roads, bridges and footpath revaluations were performed by FCC based on assessment of asset conditions and application of estimated useful lives and residual values to the components therein.
- Buildings revaluations were performed by an independent expert who applied useful lives in accordance with their knowledge for the components involved.
For the 2010 fair valuation, FCC did not calculate any residual values for the Roads, Bridges and Footpath asset category. Similarly, the valuer was instructed not to calculate Building component residual values in the 2008 and 2013 fair valuations. These decisions appear to have had a very significant impact on the depreciation expense calculated for each asset category.
Comparison of FCC’s financial statements to other ‘Group 3’ councils in the Sydney metropolitan area indicated significant differences in useful life estimations. Differences in all aspects impacting on depreciation were noted – level of componentisation, useful lives and possibly residual values. It appeared that the bases that FCC used resulted in a depreciation expense within the middle of the range of this group of council’s reviewed.
It was noted that the disclosure concerning Residual Value was not detailed in Note 1 of these council’s financial statements. This is despite the fact that the Residual Value appears to have a critical impact on the depreciation expense calculated.
FCC’s methodology to be introduced for the 2014/2015 and subsequent years will result in a significant impact (reduction) on depreciation expense for the initial year and for years thereafter. The reduction is based on review of useful life and residual value. This resulted in the methodology as detailed at Appendix 2.
Our review of the proposed methodology indicates that it appears to be in accordance with current Australian Accounting Standards and that the application of the revised methodology is consistent with the requirements of the Office of Local Government and more accurately reflects the periodic consumption of the asset classes involved.
A change in an accounting policy requires disclosure in accordance with AASB108, ‘Accounting Policies, Changes in Accounting Estimates and Errors’. Following is an example of the application of the Accounting Standard:
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5 Fairfield City Council – Review of Depreciation Expense and Related Asset Management Issues
Penrith City Council was identified as a council in which a significant change to these variables occurred recently. Penrith’s financial statements for 2013 (the year of re-assessment) were reviewed as an example of the relative $ impact and the disclosures required. Note 1 of those statements stated: “For 2012/2013 Council reviewed and amended the useful lives and residual value for its road, drainage and building asset classes to more accurately reflect the consumption of these assets. This change in method of incorporating both a change in useful lives and the use of a residual value resulted in a decrease in depreciation expense from the previous year and now more realistically represents the consumption of these assets.”
Our detailed findings are as set out in the Detailed Report of Findings.
Acknowledgement
The co-operation of Council Staff and Management in providing information to enable this review to be undertaken and completed is acknowledged with thanks.
Brad Cutts (Chief Financial Officer); Ponniah Jeyarajah (Manager Financial Accounting); and Zahid Hassan (Asset Management).
Accountability and responsibility
Pitcher Partners takes responsibility for this report, which is prepared on the basis of the limitations, set out below.
Contact Persons Telephone Number
Title
Carl Millington (02) 9228 2249 Partner, Business Advisory & Assurance
The matters raised in this report are only those that came to our attention during the course of our review and are not necessarily a comprehensive statement of all the issues that exist or all improvements that might be made. Council should assess recommendations for improvements for their full commercial impact before they are implemented. This report has been prepared solely for the use of Council and should not be quoted in whole or in part without our prior written consent. No responsibility to any third party is accepted as the report has not been prepared, and is not intended, for any other purpose.
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Detailed Report of findings
Detailed Approach
Our detailed approach was as follows:
1. We conducted a review as to the calculation of the depreciation expense incurred from the 2007 to 2014 financial years. This review entailed:
Review the pattern of change for depreciation expense for these financial years; Review increases related to Buildings; Review increases related to Roads, Bridges and Footpaths; and Compare FCC estimations used in 2014 to other Group 3 councils.
2. We conducted a review of the methodology devised by FCC in 2015 to more accurately reflect the depreciation of assets between fair valuation assessments performed. This review entailed:
Determining the reasonableness of the assumptions made in preparation of the new methodology as at Appendix 2.
Assessing the accounting treatment required for this change in estimates occurring. Detailed Findings
1.1 –Depreciation expense increase from 2007 to 2014
FCC’s depreciation expense history, expressed in $ [millions] is as follows:
Depreciation Exp. 2007 2008 2009 2010 2011 2012 2013 2014
- Buildings 1.8 2.0 5.6 5.7 5.7 6.0 6.1 10.0
- Infrastructure 10.3 10.9 11.0 11.3 13.6 13.6 14.2 14.7
- Other Assets 4.1 4.5 5.1 5.0 5.0 5.0 5.1 4.6
Total Depreciation 16.2 17.4 21.7 22.0 24.3 24.6 25.4 29.3
Accordingly, - Buildings depreciation expense has increased by $9.2M or 511%; infrastructure depreciation expense has increased by $4.4M or 43%; and the total depreciation expense has increased by $13.1M or 81%.
Recommendations
Management re-assess the bases for the increases in the depreciation expense to ensure that the expense accurately reflects the consumption of the assets.
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1.2 – Review of increases related to Buildings
Findings
As can be seen from point 1.1, the Building asset category is the most significant contributor to the increase in the expense over the 2007 to 2014 period.
The following breakdown of the asset category and the related expense [expressed in millions $] is extracted from FCC’s GPFRs:
Buildings 2007 2008 2009 2010 2011 2012 2013 2014
– Depn. expense 1.79 2.05 5.64 5.69 5.69 6.02 6.06 9.96
– Cost /Fair Valn. 8.32 8.84 8.97 9.07 11.29 11.44 11.95 12.43
- Additions 8.38 2.28 1.32 2.75 5.37 1.06 2.40 6.39
– Net Valn. Increase 0.00 68.49 0.00 0.00 0.00 0.00 34.12 0.00
Over this 7 year period building additions of $30.1M have occurred, whilst net valuations of $102.6M occurred in the 2 valuation years of 2008 and 2013. These significant increases in the $ base on which the depreciation expense is calculated is the reason for the expense increase. It is noted that the 2013 fair valuation saw a net increase of $34M which was disclosed in Note 9 of the GPFRs on a net (accumulated depreciation has been cleared against the fair value) basis. However, despite this, the depreciation expense applicable in the 2014 year, as expected, increased significantly as based on the current replacement cost assessed of circa $248M. FCC has used the independent valuers, Scott Fullarton Valuations Pty Ltd (“SFV”) to perform the valuations of its Building assets. SFV has performed the fair value analysis based on the relevant accounting standard, AASB 116 ‘Property, Plant and Equipment’ and guidance contained in NSW Treasury Accounting Policy [tpp 07-1] and NSW Department of Local Government (now Office - “OLG”) guidelines. The Current Replacement Costs are based on SFV unit rates from their database of values built up from performance of such valuations. The SFV valuation states that; “Our schedule provides the Gross Value of each building, which is obtained by applying a unit rate to a structure or a square metre rate to a building, based on its current replacement cost, which is the lowest cost of replacing the economic benefits of the existing asset using modern technology. These rates have been derived from substantial analysis of construction costs from over one hundred and twenty (120) Councils throughout New South Wales and are continually updated in our database to reflect movements in construction costs.” This is deemed as appropriate and therefore no variations to the rates used are recommended to be investigated by FCC with a view to possibly reducing the depreciation expense that emanates from the current replacement cost applied to the building assets. The Useful Life has been determined by component for each but the most basic Building assets within this asset class. The SFV valuation states that; “we estimate the Total Life and Residual Life of each building/structure and, where the building is considered a complex asset, for each component,
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as they have useful lives different from those of the non-current assets to which they relate. In regard to componentisation, paragraph 43 of AASB116 requires each part of the asset with a cost that is significant in relation to the asset be depreciated separately. As discussed with Council, we noted the suggested minimum componentisation of buildings by the OLG and, as agreed, the level of componentisation that we adopt is structure, internal finishes, electrical services, mechanical services, fire/security, transportation (lifts etc.) and roof.” The action taken is deemed as appropriate as in accordance with this accounting standard and OLG guidance for the valuation of Buildings. Review of the 30 June 2013 valuation indicates that the maximum useful life applied for the building structures (or masonry) component is 60 years. Review of the Code as well as disclosures in Note 1 of other council’s financial statements indicates that up to 100 years is used as the Useful Life for such components in Building assets. It is noted that FCC management has not updated the Peoplesoft asset register to reflect the new Useful Lives of buildings as assessed in the 2013 SFV valuation. This results in the depreciation charge being overstated as the Useful Lives were predominantly greater than the lives recorded in FCC’s asset register. As with all other classes of FCC assets, no Residual Value has been applied to the Building assets. As per the SFV excerpt above it would appear as though they considered the possibility of Residual Values for the Buildings components – however the non-use of it is not referred to thereafter. This action appears critical to the increase in the depreciation expense for Building assets.
Recommendations
Management action required:
update the Peoplesoft asset register to reflect the useful lives of Building asset components as per the SFV valuation document.
ensure that useful lives and asset carrying values are reviewed each year.
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1.3 – Review of increases related to Roads, Bridges and Footpaths
Findings
As detailed above in point 1.1, the infrastructure category is also a significant contributor to depreciation expense. The most significant category therein is Roads, Bridges and Footpaths for which the following breakdown of the asset category and the related expense [expressed in $ - millions $] is extracted from FCC’s GPFRs:
Roads, Bridges, F/paths 2007 2008 2009 2010 2011 2012 2013 2014
– Depn. expense 8.32 8.84 8.97 9.07 11.29 11.44 11.95 12.43
– Cost /Fair Valn. 419.9 424.7 439.6 666.5 681.8 695.5 712.2 732.8
- Additions 10.04 10.82 14.07 14.95 15.04 13.68 16.72 17.92
– Net Valn. Increase 0.00 0.00 0.00 317.24 0.00 0.00 0.00 0.00
Over this 7 year period additions of $114M have occurred, whilst a net valuation of $317M occurred in the valuation year of 2010. These significant increases in the $ base on which the depreciation expense is calculated is the reason for the expense increase.
The Current Replacement Cost value for this class of assets when initially fair valued in 2010 was $666.5M - this has since increased, through additions, by $66.3M to $732.8M at 30 June 2014. Review of Note 9a of FCC’s financial statements showed respective additions of $15.3M in 2011, $13.7M in 2012, $16.7M in 2013 and $17.9M which add to $63.6M – a difference of $2.7M related to an adjustment in 2013. This confirms that the unit costs used as the basis for valuation in 2010 have remained unchanged, as required, through to 2014. FCC unit rates used for the 30 June 2010 valuation were reviewed and assessed as appropriate. Re-assessment is required for the valuation required as at 30 June 2015 which could further impact on the current replacement cost and therefore the depreciation expense for the 2015/2016 year and beyond. The Useful Life applied in the 2010 review stated that “the useful lives of assets have been based on IPWEA guidelines, Council’s experience or a Council with similar assets”. Review of the useful lives as per the depreciation calculation work papers for the year ended 30 June 2013 indicated that the useful lives used were at the upper end of the IPWEA guidelines as stated in the 2010 methodology and the useful lives as referred to for each class of assets in the DLG Code 21 for 2013. Whilst the useful life should be determined by council’s asset manager and should be aligned to councils Asset Management Plan it is considered reasonable that the useful lives for these infrastructure assets are in accordance with the IPWEA and Code guidelines. As a consequence, there is not considered to be any significant scope for review of useful lives and ultimately reduction in depreciation expense in the years going forward.
As noted for FCC Buildings, no Residual Values were considered in the 2010 fair valuation of infrastructure assets. It is expected that FCC asset management will consider establishing Residual Values for appropriate infrastructure asset components from 1 July 2015.
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Recommendations
Management review the estimations for the useful lives and residual values of all components of these infrastructure assets.
Review the unit rates applied in valuations to ensure that as accurate as possible reflecting the Current Replacement Cost. Detailed benchmarking with other councils with similar infrastructure characteristics and costs should be performed to further support the rates used.
Residual Value can be considered for infrastructure assets where the cost to renew to its service potential is less than the cost to replace the asset. This can typically occur for road assets as well as stormwater drainage assets. As per the Australian Infrastructure Financial Management Guidelines in these instances council is required to maintain “documentation supporting asset performance and residual values in current asset renewal practices and for future planned renewals detailed in adopted asset management plans.” A Residual Value can also be allocated where the asset has a salvage value. Council should consider the possibility of salvage values applicable to components of infrastructure assets. It is anticipated that such components may include asphalt seals used in the road network and for council footpaths as well as brick or concrete components used in road structures, bridges, footpaths and car parks.
It is noted that the inclusion of Residual Values involves a considerable effort to support the calculation and to administer throughout the life of the asset. A cost/benefit analysis should be performed by management to determine the impact Residual Values would have on future year’s depreciation expense.
In the event that it is decided that a change to the methodology is required, update The FCC Asset Management Plan to reflect the maintenance and capital expenditure programs to support the estimated of useful life and residual values used.
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1.4 – Comparison of Current FCC Depreciation estimates to other Group 3 Councils
Findings
FCC’s 2013 Financial Statements, Note 1 – ‘Summary of Significant Accounting Policies – Depreciation’ was reviewed as were a selection of 6 other ‘Group 3’ (large Metropolitan) councils. The table below shows the results obtained indicated differences in the useful lives applied to the various categories of assets. It is noted that information pertaining to any Residual Values used cannot be determined from review of financial statements.
Asset Class Fairfield
CC Black. CC Banks.
CC Suth. CC Hurst. CC Warr. CC R’wick
CC Buildings - Structure 40-80 25-384 100 50 0-100 50-100 60 - Components 20 - - - - 20-40 20 Infrastructure Roads – Surface 30 10-50 35 40 50-100 20 25 Roads – Structure 100 15-150 100 75 50-100 100 80 Bridges 100 15-100 80 80 - 100 - Road - Pavements - - 20 - - 100 Kerb & Gutter 80 - 75 70 50-80 100 110 Footpaths 60 50-60 60 50 50-80 100 20-80 Drainage 100 50-100 120 100 25-100 100 50-120
This information is a summation of the useful lives used for the calculation of depreciation for the asset classes as noted. General observations from these disclosures are:
Only Warringah has disclosed componentising of Buildings, though the Useful Life range for
Blacktown and Hurstville indicates componentisation may also have occurred there. FCC’s componentising of Buildings is in accordance with the Code’s requirements and is therefore considered appropriate.
Building Structure Useful Lives for other councils appear to be in excess of the Useful Life used at FCC. Only Sutherland and Randwick have similar Useful Life ranges.
FCC’s Sealed Road - Surfacing Useful Life is only greater than Warringah. Other councils have a significant range within this category indicating that some components may be significantly greater than 30 years.
Kerb and Gutters useful lives for Warringah and Randwick are significantly greater than FCC. All other councils have similar useful lives to FCC.
Specific conclusion cannot be drawn from these general ranges disclosed; however it would appear that there are differences in the useful lives of assets/asset components between councils. This emphasises the importance of continual benchmarking with one another.
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FCC’s 2013 Financial Statements, Note 9a – ‘Infrastructure Property Plant and Equipment’ was reviewed for the selection of Group 3 councils as noted above. The following was noted based on the 2012/2013 depreciation expense as a percentage of the opening balance of the asset classes noted:
Asset Class Fairfield
CC Black. CC Banks. CC Suth. CC Hurst. CC Warr. CC Randwick
CC Buildings 2.91% 1.77% 1.68% 1.96% 1.29% 1.00% 3.02% Infrastructure Roads, Bridges & Footpaths
1.72% 2.00% 1.18% 1.87% 1.16% 0.91% 1.06%
Stormwater Drainage
0.80% 1.17% 0.71% 1.16% 1.02% 1.05% 0.82%
For Buildings, the FCC depreciation expense at 2.91% of the opening balance amount is in line with Randwick Council where componentisation has also occurred. Whilst Warringah’s Note 1 indicates that componentisation should occur, the overall depreciation rate is very low. If FCC’s depreciation expense proportion was 2.00% of the asset class then the annual saving is estimated at $1.9M, with further savings going forward with the 30/06/13 revaluation taking effect from the 2013/2014 year. Infrastructure – for Roads, Bridges and Footpaths the FCC depreciation expense is estimated at 1.72% and is second highest to Blacktown with all other councils’ estimate being less. If the expense proportion for Roads, Bridges and Footpaths was reduced to 1.2% of the asset class then the annual saving is estimated at $3.6M. This amount will increase if the revaluation to occur as at 30 June 2015 results in greater current replacement costs than the 2010 assessment. Infrastructure – Stormwater Drainage, FCC’s depreciation proportion for this class is in the lower range of the councils reviewed. TCorp’s ‘Financial Sustainability of the New South Wales Local Government Sector’ issued in April, 2013 referred to the dramatic impact of depreciation expense on all councils in a post-revaluation climate. Review of the document’s Findings and Recommendations section revealed:
Main Findings 6.1.11 is titled - “Depreciation rates and expenses, and methodologies vary across
Councils”.
Recommendations 6.2.18 states that “further analysis of depreciation needs to be undertaken to ensure assets are being depreciated at the correct rate to reflect applicable asset lives.” It is noted that “the average depreciation rate for infrastructure assets vary from 2.5% to more than 5.0%. Such a range appears too large and further analysis needs to be conducted to validate the depreciation.”
Analysis of Group 3 councils (of which FCC is one) was performed at page 77. The DLG council snapshot for 2011/2012 indicates that FCC’s depreciation expense as a total of operating expenses is 18.3% compared to the Group 3 mean of 17.7%.
TCorp’s conclusion that more comprehensive analysis is required indicates that FCC should proceed cautiously with any adjustments to the parameters which impact on the magnitude of the annual depreciation charge.
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Recommendations
FCC management continue to benchmark the variables related to their depreciable assets to industry and Council records.
Management particularly review the basis for introduction of Residual Values for Roads, Bridges and Footpath components and maintain documentation supporting the Residual Value decisions reached.
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2.1 – Testing of FCC Asset Valuation Methodology - 2015
Findings
FCC provided the document as at Appendix 2 which will be the basis for the valuation and related depreciation charge to be applied to each component within the depreciable asset categories of Buildings and infrastructure assets from the 2015/2016 financial year.
The changes in estimates for the Useful Life and Residual Value variables is management’s best estimate of the actual situation related to each class of assets. This has been represented by management who also provided referenced information to support the changes. Recommendations
Management should provide an authorised representation for the estimates of Useful Lives and of Residual Values used. Management should compile a supporting file of documentary information on which the estimates have been made. This information is expected to include industry standards (such as IPWEA guidelines) as well as benchmarking against similar local government entities. This information should be able to withstand critical review by external parties such as audit or the OLG. Management should consider engaging the external valuers, SFV, to provide an opinion on the revised methodology related to Building assets for which they have valued in 2008 and 2013 as Building assets are not required to be fair valued again until 30 June 2018.
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2.2 – Accounting Treatment for Initial Year and Subsequent Years of Changed Methodology
Findings
Council’s decision to re-assess the bases on which depreciation is calculated on its Building and infrastructure assets will result in a significant change in the estimates and therefore require appropriate treatment and disclosure as allowed per current Australian accounting standards.
Recommendations
Review of the accounting standards indicates that AASB 108 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ is applicable. Review of AASB116, ‘Property, Plant & Equipment’ paragraph 51 states that AASB108 applies for changes in estimations related to asset revaluations where it is not the initial application of a policy to revalue assets. Should this change occur it will not be the initial application of a policy to revalue assets. AASB108 paragraphs 36 and 37 state that the impact of changes in estimates are to be included in the Income Statement and reflected in the asset/liability and equity balances for the period of the change; – that is, there is no requirement to restate in prior period comparatives. AASB108 paragraphs 39 and 40 outline the disclosure requirements related to such a change. It is noted that such a change to estimates impacting on asset values and depreciation expense was effected at Penrith City Council as at 30 June 2012. The following was noted as depreciation expense incurred for the relevant years – most of which relates to Building and infrastructure assets:
2014 2013 2012 Depreciation expense charged $19.7M $19.1M $39.0M A significant reduction in the depreciation expense in the initial year (2013) of the revised estimates for Useful Life and Residual Values was expected as the depreciation expense for the previous financial years since the last fair valuation would have been significantly greater than required compared to the amount to equate to the fair valuation calculation for each asset as at 30 June 2013 based on the new estimate variables. It was expected that the depreciation charge for 2014 would increase over 2013 as the required adjustment made in the initial year of the revision had been effected and the reduction would decrease with a ‘normal’ year’s expense based on the new estimates. This did not occur, – as can be seen the depreciation expense remained at $19M indicating that the initial adjustment required to equate to the fair values based on the revised estimates was not significant.
The impact on FCC’s depreciation expense will not be seen until the 2015/2016 financial year.