REPORT TO COUNCIL

Strategic Asset Management Plan 2 (A03/2112)

Report dated 9 December 2007 from the Director, Corporate & Technical Services aboutCouncil’s 2nd Strategic Asset Management Plan – SAMP2.

Recommendation

1. That Council note:

a) the content and findings of SAMP2;b) the extent of works programs recommended for asset Categories 1, 2, 3, 4, 5 & 9

and the budget top ups required to deliver these programs;c) the need for further studies to close knowledge gaps about the condition of certain

categories of assets;d) the need to increase staff and systems capacity to achieve best practice

benchmarks in asset management in a business excellence framework;e) the findings on our financial capacity to deliver the recommended works programs;f) that while no Special Variation to Rates is recommended at this time for asset

management, there is a possibility that extra finance may be required to achievesustainable assets within the next few years and the financial situation needs to bemonitored at least annually;

g) that recommendations to formally adopt expenditures proposed in SAMP2 will be putto Council through forthcoming budget review and planning processes; and

h) that SAMP2 includes a draft Asset Management Policy which, in the context ofSAMP2, should be subject to consultation.

2. That Council endorse the targets set for asset management in the Plan.

3. That Council adopt SAMP2 and the draft Asset Management Policy for purposes ofpublic exhibition in 2008.

_________________________________________________________________________

Purpose of Report

Council adopted its first Strategic Asset Management Plan – SAMP1 – in March 2006.

The purpose of this report to advise Council of:

the outcomes of Council’s second Strategic Asset Management Plan, SAMP2; the cost impacts of moving towards sustainable asset management in the next few

years; and the results of investigations into the need or otherwise for a special variation to rates

to assist with sustainable asset management programs.

Background

Since SAMP1, officers have been working to close gaps in our understanding of assets toimprove the quality of our asset programs and financial modelling. SAMP1 identified anumber of priority projects to help close these knowledge gaps. These projects included:

stormwater mapping and modelling; a new pavement management system for our roads, footpaths and kerbs & gutters; asset condition surveys of our buildings including the Bondi Pavilion; an assessment of our organisational capacity to support asset management; and an Investment Strategy.

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Most of these projects have now been completed and have led to the development of theasset management programs proposed in this SAMP for the following assets categories:

Category 1: Roads Category 2: Footpaths Category 3: Kerbs & Gutters Category 4: Stormwater Drainage (system capacity only) Category 5: Buildings Category 9: Cemeteries (Waverley Cemetery only).

There is still some work to do to investigate the structural stability of our stormwaterdrainage system, works required in the cemeteries and further condition assessments arescheduled for future SAMPs on our:

Category 6: Urban Open Spaces & Malls Category 7: Beach & Coastal Infrastructure Category 8: Parks & Reserves; Category 11: Trees

Completion of the Investment Strategy has resulted in a significant optimisation of Council’sbuilding and depot portfolio. This rationalisation has had the effect of optimising our totalportfolio so that more services should now be able to be delivered by the whole asset base,per unit of cost.

Through the Investment Strategy Councillor Working Group and the SAMP2 CouncillorWorking Group, councillors have actively participated in decision making, particularly inrelation to defining what might constitute a “satisfactory standard” for our assets. Selectionof a standard is critical to determining cost impacts.

The result is a plan that is considered affordable and that will make a substantialcontribution towards sustainable asset management in Waverley.

Sustainable Asset Management is defined in the Plan as: everything we have to do to makesure our assets are maintained at a satisfactory standard in a “triple bottom line” sense. It is:

The amount and timing of investment and resources and systems necessary tomake sure our assets can make the social or environmental contribution that

we need or want at the least risk and cost.

SAMP2 includes a Draft Asset Management Policy to assist us to achieve sustainableasset management. Such a Policy is likely to be required under the framework for AssetManagement Planning currently being developed by the Department of LocalGovernment.

A full Executive Summary of SAMP2 is provided as Attachment 1. A copy of the DraftAsset Management Policy is attached as Attachment 2.

Main Findings

The condition of assets covered within the plan has been assessed using the same 5-point rating system used in SAMP1 as follows:

Condition Rating 1 - Good ConditionCondition Rating 2 - Minor Deterioration

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Condition Rating 3 - Medium DeteriorationCondition Rating 4 - Major DeteriorationCondition Rating 5 - Unserviceable

Condition assessments in SAMP1 were based on preliminary assessment information. ForSAMP2 more detailed assessments of asset condition have been conducted for Categories1, 2, 3, 4, 5 and 9 with some further assessments to be conducted for SAMP3 on Categories4 and 9. A desk-top review has been undertaken of assets in Categories 6, 7, and 8. Theresults show a change in the condition ratings of our asset categories as shown in thefollowing graph.

Change in Condition Ratings of Assets - SAMP1 to SAMP2

0

10

20

3040

50

6070

8090

100

Roads Footpaths Kerbs &Gutters

StormwaterDrainage

Buildings Urban OpenSpaces &

Malls

Beach &Coastal

Infrastructure

Parks &Reserves

Infrastructure

Cemeteries

%

Condition 1 & 2 SAMP1 Condition 1 & 2 SAMP2

Condition 3,4 & 5 SAMP1 Condition 3, 4 & 5 SAMP2

Considering the changes since SAMP1, we can note that:

the proportion of assets in Categories 1, 2, and 3 – roads, footpaths and kerbs &gutters – that are in the poorer condition ratings of 3 or 4 is now assessed as beingslightly greater compared to the assessment in SAMP1;

the proportion of assets in Category 5 - buildings – that are in the poorer conditionratings of 3 or 4 is now assessed as being slightly smaller compared to theassessment in SAMP1;

the condition of assets in Category 6 – urban open spaces & malls – has noticeablyimproved;

the proportion of assets in Category 7 – beach & coastal infrastructure – that are inthe poorer condition ratings of 3 or 4 is now assessed as being greater compared tothe assessment in SAMP1;

the condition of assets in Category 8 – parks & reserves – has slightly improved;

Waverley Cemetery is still in relatively poor condition overall, compared to othercategories; and

a relatively small proportion of the stormwater system (38% of pipe length and11% of inlet pits) is under capacity to handle frequent rain events.

Recommended Targets for Assets

SAMP 1 set a general target for the minimum condition of our overall asset base with the

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purpose of ensuring that the proportion of assets in the poorer condition ratings of 3, 4 and 5does not increase. SAMP2 re-affirms that achievement of this target would representachievement of a “satisfactory standard” for our assets.

SAMP2 recognises that Waverley has some capacity to exceed this minimum andenhance some assets to improve service levels to meet demand in areas where it is growing.The above condition results for our buildings and urban open spaces and malls show we areimproving our capacity to do this through our capital works program and the InvestmentStrategy.

The above minimum targets is considered satisfactory based on the following generalagreement:

1. Our roads, footpaths, kerbs & gutters and buildings are in reasonably good conditionoverall, with each of these categories having over 70% of assets in Condition Rating1 or 2.

2. If our assets are maintained in proper rotation and we meet the targets of ensuring nogrowth in the total proportion of assets in Condition Ratings 3 & 4, we should be ableto deliver services into the future at a satisfactory level or better.

3. Funding should be allocated to meet this target as a minimum for all Categories 1, 2,3, 4, 5, & 9 within the planning period to prevent a decline of the asset base.

4. Acceptance that this standard is “satisfactory” is based on an assumption that:

a reasonable level of cyclic maintenance will be given as a priority to theassets that are in the poorer condition ratings within the planning period, and

that no asset will be allowed to slip into Condition 5 (Unserviceable).

5. In general it is agreed that satisfactory and in fact very good service levels can beprovided by our assets as a whole without having to have every asset in ConditionRating 1 all of the time.

Proposed Program to Achieve Targets

SAMP2 shows that to achieve the above targets the following levels of increasedexpenditure are required:

Sustainable Assets Budget Top Up Required –Categories 1, 2, 3, 4, 5, 9 & Coastal Walk

Category 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17Roads 0 651,814 563,346 539,441 490,048 504,749 519,892 535,488 551,553 568,100Footpaths 0 452,565 432,696 487,530 518,731 534,293 550,322 566,831 583,836 601,351Kerbs &Gutters

0 277,386 266,049 254,387 254,558 262,195 270,060 278,162 286,507 295,102

StormwaterDrainage

0 430,000 300,000 300,000 175,000 50,000 50,000 50,000 50,000 50,000

Buildings 675,000 762,200 1,086,500 490,500 56,000 356,500 830,767 681,312 630,004 645,246Cemetery 0 196,429 1,572,081 1,861,824 926,067 375,872 385,677 395,483 407,347 419,568Coast WkStage 1

0 0 600,000 0 0 0 0 0 0 0

Total 675,000 2,770,394 4,820,672 3,933,682 2,420,403 2,083,608 2,606,718 2,507,277 2,509,248 2,579,367

An independent study our Council’s capacity in terms of staff to achieve continuousimprovement in asset management and an agreed standard in best practice has shown that,in addition to funding for the above works, funding is needed for extra staff resources asfollows:

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Human Resource Capacity Expansion Required –Implementation Plan for Continuous Improvement in Asset Management

Asset Category Suggested Extra Staff(Equivalent Full Time – EFT pa)

Roads, Footpaths Kerbs & Gutters,Drainage

3.6 EFT pa

Buildings and Cemeteries 1 EFT paBeaches, Coastal Infrastructure, Urban

Open Spaces & Malls0.6 EFT pa

Parks & Reserves 2.4 EFT paTotal 7.6 EFT pa

Budget Impact

SAMP2 has been linked with Council’s Long Term Financial Strategy to determine the costimpacts of achieving sustainable asset management.

It has been found that we do have capacity to increase expenditure on assetmaintenance in Categories 1, 2, 3, 4, 5, & 9 without affecting Council’s current levels ofservice delivery and without affecting our overall financial soundness in the next fouryears. This can be achieved primarily through the use of reserves built up for assetrenewal purposes in recent years. As such, a Special Variation to Rates is notconsidered necessary at this time for asset management. This decision should bereviewed annually, however, as there is some considerable uncertainty in the modelling,particularly beyond the next four years, due to a range of uncertainties such as:

the condition of some major asset categories, and a possibility that predicted income may not be achieved, including from

Investment Strategy projects and other "at risk" sources.

In the next two years, data will be gathered to fill knowledge gaps about the realcondition of our stormwater assets and some other categories. No allowance has beenmade in the Asset Maintenance Plans shown in Chapters 4 and 5 for what will inevitablybe an increase in the current level of expenditure in areas where we have majorknowledge gaps, particularly on stormwater and some major infrastructure assets suchas sea walls.

The recommended data gathering projects are:

Key Projects for Future SAMPsProject Priority

A. CCTV Inspection of Priority Drains. SAMP3B. Integrated Plan for Infrastructure Renewal and

Management in Waverley Cemetery.SAMP3

C. Business Plan to Sustain Waverley Cemetery as a ViableOperational Service.

SAMP3

D. Assessment of the condition of seawall and other selectedcoastal infrastructure.

SAMP3

E. Parks & Reserves assets condition update. SAMP3 or 4F. Maintenance Plans for Urban open Spaces & Malls SAMP4G. Incorporation of the Tree Plan into SAMP SAMP3 or 4

Analysis

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Financial:

If the above projects reveal significant shortfalls in the capacity of our assets to meetthe targets of this plan, then this naturally will increase the cost of the SustainableAssets Program. A budget shortfall may be financed by increased borrowing or by aSpecial Variation to Rates or by a combination of both.

The targets adopted in this plan are considered to be financially sustainable forthe moment and should not expose Council to any significant risk.

Management Plan:

SAMP2 is consistent with Directions and Strategies for asset management inboth our 12-Year Strategic Plan and Management Plan, including:

Council is a financially sustainable organization now and into thefuture.

Council’s operations are efficient and effective and provide value formoney.

Council is the steward of community assets for past, present andfuture generations.

Council is recognized for business excellence. Council achieves sound risk management practices for our

employees, the local environment and public facilities.

Consultation:

Given the exposure of the Plan to the above vulnerabilities, it may be advisable tolook at ways of engaging the community sooner rather than later in further debateabout the standards and the service levels they want and are prepared to pay for.If we are to meet minimum obligations that should be expected of a responsibleasset manager, further discussion about priorities for service provision should bean important input to the decisions on whether and how to fund priorities forenhancement of assets. For this reason it is recommended that SAMP2 beplaced on public exhibition to provide a basis for more informed debate aboutchallenges and choices for sustainable asset management.

Recommendation

1. That Council note:

a) the content and findings of SAMP2;b) the extent of works programs recommended for asset Categories 1, 2, 3, 4, 5 & 9

and the budget top ups required to deliver these programs;c) the need for further studies to close knowledge gaps about the condition of certain

categories of assets;d) the need to increase staff and systems capacity to achieve best practice

benchmarks in asset management in a business excellence framework;e) the findings on our financial capacity to deliver the recommended works programs;f) that while no Special Variation to Rates is recommended at this time for asset

management, there is a possibility that extra finance may be required to achievesustainable assets within the next few years and the financial situation needs to bemonitored at least annually;

g) that recommendations to formally adopt expenditures proposed in SAMP2 will be putto Council through forthcoming budget review and planning processes; and

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h) that SAMP2 includes a draft Asset Management Policy which, in the context ofSAMP2, should be subject to consultation.

2. That Council endorse the targets set for asset management in the Plan.

3. That Council adopt SAMP2 and the draft Asset Management Policy for purposes ofpublic exhibition in 2008.

Bronwyn KellyDirector Corporate and Technical Services

Attachment 1 SAMP2 Executive SummaryAttachment 2 Draft Asset Management Policy

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Attachment 1:

SAMP2 – Executive Summary

EXECUTIVE SUMMARY

This is Waverley’s second Strategic Asset Management Plan (SAMP2). It supersedes andbuilds on the original Plan (SAMP1) that was adopted by Council in March 2006.

1. Coverage

SAMP1 identified 10 asset categories including:

1. Roads.2. Footpaths.3. Kerbs & Gutters.4. Stormwater Assets.5. Buildings.6. Urban Open Spaces & Malls.7. Beach & Coastal Infrastructure.8. Parks & Reserves Infrastructure.9. Cemeteries.10. Other Infrastructure, including:

bus shelters, fencing, retaining walls, stairs, street lighting, street furniture, signage, parking infrastructure.

SAMP1 covered the first nine of these categories and deferred the 10 th category. SAMP1also foreshadowed the development of extra categories including an 11th category ofTrees.

SAMP2 concentrates on the categories of:

1. Roads.2. Footpaths.3. Kerbs & Gutters.4. Stormwater Assets.5. Buildings.9. Cemeteries.

SAMP3 and subsequent SAMPs will supply detail for remaining categories, updates ofinformation on all categories and new information on any new categories added.

2. Purpose

The purpose of SAMP2 is:

to build on SAMP1 and quantify more accurately the extent of works necessary to bringassets in categories 1, 2, 3, 4, 5 and 9 to an acceptable condition over the next 10

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years, to assess the cost of those works and determine the funding required, and to do this within the context of a Long Term Financial Strategy covering all of Council’s

activities.

3. Aim – Towards Sustainability

The intent of this and future SAMPs is ultimately to achieve sustainability in assetmanagement.

We define sustainable asset management as everything we have to do to make sure ourassets are maintained at a satisfactory standard in a “triple bottom line” sense. It is:

The amount and timing of investment and resources and systems necessary tomake sure our assets can make the social or environmental contribution that

we need or want at the least risk and cost.

SAMP2 summarises the actions required over the life of SAMP2, and beyond, to progresstowards achieving sustainability in asset management, including:

actions necessary to bring various assets to the standard deemed to be “satisfactory”by Council and the Waverley Community to meet the levels of service we require,

processes required to fill knowledge gaps, the current estimated cost of achieving satisfactory levels of service, and proposals for financing asset maintenance into the future.

4. Approach

SAMP2 builds on the asset management approach adopted in SAMP1 of basingdecisions on relevant knowledge about assets in preference to or in addition to moretraditional accounting approaches. It takes a “business excellence” approach byfocussing on:

conducting condition assessments, integrating decisions with other plans and continually assessing the role of assets in

achieving Council’s Vision and priorities, performance measurement, and continuous improvement.

SAMP2 extends the approach taken in SAMP1 in as much as we have undertaken severalmajor projects which have enhanced our capacity to achieve business excellence in assetmanagement and to meet the objectives of our SAMP as described in Chapter 3. Keyactivities undertaken are:

Strategic Projects and Activities Undertaken Since SAMP1Prescribed

ActivityProjects Undertaken

Maintain data onassets:

Data for several categories of assets have been entered into ourLand Information System (LIS). Staff are now accessing andupdating data on assets within the LIS via Exponaire. Thiscentralises and preserves knowledge of our assets.

Understand theircondition:

Up to date condition data is now available as a result of thecompletion of: The Asset Condition Survey for Buildings was completed and

received in April 2006.

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Strategic Projects and Activities Undertaken Since SAMP1Prescribed

ActivityProjects Undertaken

The Asset Condition Survey for the Bondi Pavilion wasreceived in March 2007.

A new Pavement Management System for roads, footpathsand kerbs & gutters was completed in 2006/07.

A project to map stormwater drainage systems wascompleted in July 2007 and modelling has been completedwhich defines effective programs to optimise the capacity ofthe stormwater systems. Further modelling is to beundertaken to develop a program for rectification of structuralissues in drains.

Further assessments of Waverley Cemetery have beenundertaken to update knowledge of the condition of criticalinfrastructure in the Cemetery. These studies are ongoing.

Assess theirsuitability for use:

The Investment Strategy has been completed resulting in arationalisation of assets for service delivery and community use.

Assess theirrisks, impactsand benefits:

An evaluation of the importance and capacity of various buildingassets to help us meet desired social and environmentaloutcomes has been conducted through the process of theInvestment Strategy and the Waverley Strategic Plan. This hasconfirmed the benefits of retaining and renewing key assets suchas the Bondi Pavilion and the Waverley Pavilion.

Asset condition surveys have also highlighted potential risksarising from assets, including:o flooding risks from drainage assets,o health and safety risks in some buildings and infrastructure,o business, service and environmental risks in Waverley

Cemetery.Revise thecomposition ofthe assetportfolio:

The Investment Strategy has been completed resulting inresolutions to dispose of the Waverley Woollahra ProcessingPlant, Council’s Depot at Waterloo, industrial units owned byCouncil in Alexandria, and various pieces of closed road withinthe LGA.

The Investment Strategy also prescribed the creation of newassets to enable Council to accommodate staff, deliver servicesand support community projects more efficiently and at less costthan would have been the case with the old asset portfolio.

The result is an optimised portfolio consistent with our objectivesas stated in Chapter 3. The optimised portfolio is capable ofmaking a significantly greater contribution than the previousportfolio to the Vision for Waverley as expressed in the WaverleyStrategic Plan.

Developmaintenanceplans:

Annual Maintenance Plans have been prepared for infrastructureand buildings. These have contributed to our ability to assessfunding gaps for asset maintenance into the future.

Plan foracquisition andallocation ofresources:

An independent study of our Capacity to Manage Assets hasbeen completed by external consultants. The study recommendsan increase in resources to achieve business excellence in assetmanagement to a certain level over the next 3 years. It alsoprovides information on methods of accessing such resources.

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4.1 Continuous Improvement of the Strategic Approach

SAMP2 takes into account developments in preferred approaches to asset managementsince SAMP1, particularly as they have been reflected in the recently released NSWDepartment of Local Government draft Position Paper on Asset Management Planningfor NSW Local Government. The Position Paper envisges that asset management planswill include a Policy, a Strategy, A Delivery Plan and overarching good Governanceprinciples and processes. Accordingly SAMP2 includes:

a draft asset management Policy, a re-defined Strategy for renewal of assets, a new Delivery Plan incorporating a revised set of Action Plans in Chapter 5 and

its Appendices A.1 to A.12, and further refinements of the original integrated planning approach to achieve good

Governance, including:

the connection of SAMP2 to a Long Term Financial Strategy (LTFS), alignment of asset management planning with an asset rationalisation

program and planning for creation of new assets through the InvestmentStrategy,

inclusion of an Implementation Plan for Continuous Improvement inAsset Management, and

a program to revise the organisational structure of Council and attract suitableexpertise to enhance our Capacity to Manage Assets.

5. Policy & Objectives

SAMP2 has been developed in an integrated planning framework. The key direction forassets in Waverley’s 12-year Strategic Plan, Waverley Together, is to:

Ensure that Council assets are well maintained for their current purposeand future generations and that changing community needs areaccommodated.

The objectives of the plan are:

Stewardship To ensure the protection of assets for current and futuregenerations.

Optimisation To ensure the portfolio is composed in an optimal balance tomaximise desired social and environmental outcomes at leastcost and impact.

Relevance To continuously improve the contribution of assets to enhancedservice delivery and maintain the relevance of assets as servicedemands change.

A draft Asset Management Policy has been developed and is attached. The Policy andthe Plan both aim to achieve sustainability in asset management.

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6. Main Findings

6.1 Current Condition of Assets

The condition of assets covered within the plan has been assessed using the same 5-point rating system used in SAMP1 as follows:

Condition Rating 1 - Good ConditionCondition Rating 2 - Minor DeteriorationCondition Rating 3 - Medium DeteriorationCondition Rating 4 - Major DeteriorationCondition Rating 5 - Unserviceable

Condition assessments in SAMP1 were based on preliminary assessment information. ForSAMP2 more detailed assessments of asset condition have been conducted for Categories1, 2, 3, 4, 5 and 9 with some further assessments to be conducted for SAMP3 on Categories4 and 9. A desk-top review has been undertaken of assets in Categories 6, 7, and 8. Theresults show a change in the condition ratings of our asset categories as shown in thefollowing graph.

Change in Condition Ratings of Assets - SAMP1 to SAMP2

0

1020

3040

50

6070

80

90100

Roads Footpaths Kerbs &Gutters

StormwaterDrainage

Buildings Urban OpenSpaces &

Malls

Beach &Coastal

Infrastructure

Parks &Reserves

Infrastructure

Cemeteries

%

Condition 1 & 2 SAMP1 Condition 1 & 2 SAMP2Condition 3,4 & 5 SAMP1 Condition 3, 4 & 5 SAMP2

Considering the changes since SAMP1, we can note that::

the proportion of assets in Categories 1, 2, and 3 – roads, footpaths and kerbs &gutters – that are in the poorer condition ratings of 3 or 4 is now assessed as beingslightly greater compared to the assessment in SAMP1;

the proportion of assets in Category 5 - buildings – that are in the poorer conditionratings of 3 or 4 is now assessed as being slightly smaller compared to theassessment in SAMP1;

the condition of assets in Category 6 – urban open spaces & malls – has noticeablyimproved;

the proportion of assets in Category 7 – beach & coastal infrastructure – that are inthe poorer condition ratings of 3 or 4 is now assessed as being greater compared tothe assessment in SAMP1;

the condition of assets in Category 8 – parks & reserves – has slightly improved;

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Waverley Cemetery is still in relatively poor condition overall, compared to othercategories; and

a relatively small proportion of the stormwater system (38% of pipe length and11% of inlet pits) is under capacity to handle frequent rain events.

Further work is required to determine the structural condition of drains throughout the LGAand the condition of some assets within Waverley Cemetery. Table 16 lists the programsproposed to close these and some other knowledge gaps for SAMP3.

6.2 Preferred Asset Condition Targets

SAMP2 consolidates more accurately than ever before the cost to bring assets inCategories 1, 2, 3, 4, 5 and 9 to a “satisfactory standard”. When defining “satisfactorystandard” at Waverley we talk in terms of the proportion of assets we are prepared to acceptin each condition rating across a period.

SAMP 1 set a general target for the minimum condition of our overall asset base with thepurpose of ensuring that the proportion of assets in the poorer condition ratings of 3, 4 and 5does not increase. SAMP2 re-affirms that achievement of this target would representachievement of a “satisfactory standard” for our assets.

SAMP2 recognises that Waverley has some capacity to exceed this minimum andenhance some assets to improve service levels to meet demand in areas where it is growing.We are improving our capacity to do this through our capital works program and theInvestment Strategy.

Generally it is agreed that:

1. Our roads, footpaths, kerbs & gutters and buildings are in reasonably good conditionoverall, with each of these categories having over 70% of assets in Condition Rating1 or 2.

2. If our assets are maintained in proper rotation and we meet the targets of ensuring nogrowth in the total proportion of assets in Condition Ratings 3 & 4, we should be ableto deliver services into the future at a satisfactory level or better.

Funding should be allocated to meet this target as a minimum for all Categories1, 2, 3, 4, 5, & 9 within the planning period to prevent a decline of the asset base.

Acceptance that this standard is “satisfactory” is based on an assumption that:

3. a reasonable level of cyclic maintenance will be given as a priority to the assets thatare in the poorer condition ratings within the planning period, and

4. that no asset will be allowed to slip into Condition 5 (Unserviceable).

5. In general it is agreed that satisfactory and in fact very good service levels can beprovided by our assets as a whole without having to have every asset in ConditionRating 1 all of the time.

6.3 Proposed Program to Achieve Targets

In developing the target of achieving no growth in the proportion of assets in ConditionRatings 3 & 4, we have adopted a the term, “flat line” approach, which is basically ashorthand term for the trend line we want to see when showing the total percentage ofassets in poorer condition ratings over time. The line should stay relatively flat or should

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trend downwards as necessary so that at least at the end of the planning period theproportion of assets in the poorer condition ratings has not risen above where it was at thestart.

To achieve a flat line or better we need to enhance spending in all Categories 1, 2, 3, 4, 5 &9 by reasonably substantial amounts per annum as follows:

Average Top Up of Existing Budget Required Per AnnumTo Achieve “Flat Line” Target

Asset Category Average Top Up paCategory 1 Roads $492,442 in a 20-year cycleCategory 2 Footpaths $472,816 in a 7-year cycleCategory 3 Kerb & Gutter $244,441 in a 7-year cycleCategory 4 Stormwater Drainage $161,000 for 10 years*Category 5 Buildings $602,523 for 10 yearsCategory 9 Waverley Cemetery $654,035 for 10 years***Excludes any allowance for remediation of drains post CCTV assessment.

**Indicative only, until further assessments and maintenance plans are finalised.

The timing of expenditure is likely to be varied across the planning period due toresource constraints and other planning and investigation that needs to take place inareas such as stormwater and the Cemetery. Cash flows will be revised annually.

Sustainable Assets Top Up - Categories 1, 2, 3, 4, 5, 9 & Coastal WalkCategory 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17Roads 0 651,814 563,346 539,441 490,048 504,749 519,892 535,488 551,553 568,100Footpaths 0 452,565 432,696 487,530 518,731 534,293 550,322 566,831 583,836 601,351Kerbs &Gutters

0 277,386 266,049 254,387 254,558 262,195 270,060 278,162 286,507 295,102

StormwaterDrainage

0 430,000 300,000 300,000 175,000 50,000 50,000 50,000 50,000 50,000

Buildings 675,000 762,200 1,086,500 490,500 56,000 356,500 830,767 681,312 630,004 645,246Cemetery 0 196,429 1,572,081 1,861,824 926,067 375,872 385,677 395,483 407,347 419,568Coast WkStage 1

0 0 600,000 0 0 0 0 0 0 0

Total 675,000 2,770,394 4,820,672 3,933,682 2,420,403 2,083,608 2,606,718 2,507,277 2,509,248 2,579,367

Chapter 5 shows a breakdown of the individual works within the Program.

Sustainable Assets - Top Up required to Maintain Assets to DefinedSatisfactory Standard Over 10 Years - Categories 1, 2, 3, 4, 5, 9 &

Coastal Walk Stage 1

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

$

Roads Footpaths Kerbs & Gutters StormwaterBuildings Cemetery Coast Wk Stg 1

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6.4 Increasing Our Capacity to Achieve the Targets

An independent study our Council’s capacity in terms of staff to achieve continuousimprovement in asset management and an agreed standard in best practice has shown that,in addition to funding for the above works, funding is needed for extra staff resources asfollows:

Human Resource Capacity Expansion Required –Implementation Plan for Continuous Improvement in Asset Management

Asset Category Suggested Extra Staff(Equivalent Full Time – EFT pa)

Roads, Footpaths Kerbs & Gutters,Drainage

3.6 EFT pa

Buildings and Cemeteries 1 EFT paBeaches, Coastal Infrastructure, Urban

Open Spaces & Malls0.6 EFT pa

Parks & Reserves 2.4 EFT paTotal 7.6 EFT pa

6.5 Filling Knowledge Gaps

No allowance has been made yet in the program for the cost of drains remediation that maybe required when the CCTV inspection program referred to above is completed. TheCemetery works estimates are still also preliminary.

In addition to this no allowance has been made for top ups that be required for maintenanceof assets in:

Category 6: Parks & Reserves, Category 7: Urban Open Spaces & Malls, Category 8: Beach and Coastal Infrastructure (except the Coastal Walk), and Category 11: Trees.

Assets in Category 10, Other Infrastructure, are expected to be funded through normalmaintenance and reserves that are put aside for this purpose already.

To close the critical knowledge gaps the following program of investigations andplanning is to be undertaken for SAMP3 and subsequent SAMPs as resources permit:

Key Projects for Future SAMPsProject Priority

A. CCTV Inspection of Priority Drains. SAMP3B. Integrated Plan for Infrastructure Renewal and

Management in Waverley Cemetery.SAMP3

C. Business Plan to Sustain Waverley Cemetery as a ViableOperational Service.

SAMP3

D. Assessment of the condition of seawall and other selectedcoastal infrastructure.

SAMP3

E. Parks & Reserves assets condition update. SAMP3 or 4F. Maintenance Plans for Urban open Spaces & Malls SAMP4G. Incorporation of the Tree Plan into SAMP SAMP3 or 4

Funding for Item A as been provided for in the top ups recommended for StormwaterDrainage in SAMP2. Funding for Items B and C is available in the Waverley CemeteryReserve.

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REPORT TO COUNCIL

Funding for resources for all Items is allocated through the recommended staffallocations in the top up for SAMP2 as shown in Table 32 of Chapter 6. If externalconsulting services are required, extra funds will need to allocated for Items D, E, F andG but it might be expected that these projects could be completed by the recommendedextra staff, if they are available in the market.

7. Finance

SAMP2 has been linked with Council’s Long Term Financial Strategy to determine the costimpacts of achieving sustainable asset management.

It has been found that we do have capacity to increase expenditure on assetmaintenance in Categories 1, 2, 3, 4, 5, & 9 without affecting Council’s current levels ofservice delivery and without affecting our overall financial soundness in the next fouryears. This can be achieved primarily through the use of reserves built up for assetrenewal purposes in recent years. As such, a Special Variation to Rates is notconsidered necessary at this time for asset management. This decision should bereviewed annually, however, as there is some considerable uncertainty in the modelling,particularly beyond the next four years, due to a range of uncertainties such as:

the condition of some major asset categories, and a possibility that predicted income may not be achieved, including from

Investment Strategy projects and other "at risk" sources.

In the next two years, data will be gathered to fill knowledge gaps about the realcondition of our stormwater assets and some other categories. No allowance has beenmade in the Asset Maintenance Plans shown in Chapters 4 and 5 for what will inevitablybe an increase in the current level of expenditure in areas where we have majorknowledge gaps, particularly on stormwater and some major infrastructure assets suchas the sea walls.

Significant cost control has been achieved through the methodology we have chosen andthe extensive consideration that has been given in that process to what constitutes a“satisfactory standard”. It is now known that at least for roads footpaths and kerb & gutters,the real cost is likely to be substantially lower per annum than the costs published inSchedule 7 of the Annual Statements of Accounts for 2006/07.

7.1 Our Financial Model – the LTFS

The LTFS is structured in 3 layers:

Base Case – shows the financial results when the current adopted budget for2007/11 is plugged in and subsequent years are added extending income andexpenditure profiles out to 2015/16.

Investment Strategy Case – shows the financial results taking account of estimatesin the recently adopted Investment Strategy.

Sustainable Assets Case – shows financial results taking account of selected assetmaintenance programs in SAMP2.

7.2 Effect of SAMP2 on Financial Outcomes

Overlaying the financial effects of the Investment Strategy and SAMP2 on the current

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REPORT TO COUNCIL

budget indicates that Council is likely to experience the following operating results beforecapital over the next 10 years:

LTFS – Base, Investment Strategy and Sustainable Assets CasesOperating Results Before Capital – $'000

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17Base Case 13,129 2,267 2,352 2,479 2,493 1,398 204 -1,098 -2,514 -4,051 -5,719InvestmentStrategyCase

13,129 2,267 2,352 2,479 2,591 2,757 1,563 261 -1,155 -2,692 -4,360

SustainableAssetsCase

13,129 2,227 1,426 1,200 1,053 1,049 -295 -1,779 -3,371 -5,087 -6,937

It should be noted that these results are before we add in the cost of:

drains remediation post CCTV inspection, Categories 6, 7, 8 & 11; and revisions of plans for Category 9 that may arise through the development of an Integrated

Plan for Infrastructure Renewal and Asset Management in Waverley Cemetery.

However, they are after we take into account the cost of staff as shown above.

7.3 Capacity to Finance Sustainable Assets

The LTFS shows that Council can finance the Sustainable Assets Program for Categories 1,2, 3, 4, 5 & 9, for three or four years without the need for augmenting finance through extraborrowings or levies. This is because we currently have substantial reserves, a significantproportion of which are available for investment in asset works.

It should be noted that there are some vulnerabilities in the model in addition to theknowledge gaps about the condition of certain assets. One of these is that in the last sixyears of the model there may be some reduction in capacity to allocate the base levelexpenditure as projected in the assumed budget allocations. There is an allowance in themodel of $5 million per annum for capital works which may help us bolster any reducedcapacity to fund this base. But it may be difficult. The Cemetery is particularly vulnerable tothis risk.

If this base isn’t sustained then the top up will need to increase to provide for the totalexpenditure necessary to achieve the targets set in SAMP2.

8. Conclusion

If the investigative projects listed in Table 16 of Chapter 4 reveal significant shortfalls in thecapacity of our assets to meet the targets of this plan, then this naturally will increase thecost of the Sustainable Assets Program.

Having quite a low debt ratio and some operational surpluses before capital for the next fewyears, Council has some capacity to increase its loans and thereby spread the cost ofinfrastructure renewal over a longer period. This would be a sound financial approach in theevent of a shortfall.

A Special Variation to Rates may also be used to augment our capacity to renew assets to asatisfactory standard. This might be considered in conjunction with increased borrowing or

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REPORT TO COUNCIL

on its own.

The targets adopted in this plan are considered to be financially sustainable for themoment and should not expose Council to any significant risk.

9. Consultation

Given the exposure of the model to the above vulnerabilities, it may be advisable to lookat ways of engaging the community sooner rather than later in further debate about thestandards and the service levels they want and are prepared to pay for. If we are to meetminimum obligations that should be expected of a responsible asset manager, furtherdiscussion about priorities for service provision should be an important input to thedecisions on whether and how to fund priorities for enhancement of assets. It isunknown, for instance whether the community would prefer to see assets optimised forenvironmental performance ahead of enhancing them to provide a higher level of servicein terms of, say, “looking good”. The Waverley community values both the environmentaland social contributions of its assets and it would not be desirable to find ourselves in aposition of choosing between the two o trading them off against each other.

For this reason it is desirable to exhibit SAMP2 to provide a basis for more informeddebate about challenges and choices for sustainable asset management.

130

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■

DR

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Dec

embe

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7

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