Chapter 7. Asset Management. The Board Guidelines below were provided to the Council to assist it in preparation of its submission to the Review:

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1 Chapter 7 Asset Management The Board Guidelines below were provided to the Council to assist it in preparation of its submission to the Review: Board Guidelines to the Council Councils are the custodians of public infrastructure and assets. Asset management has a significant impact on operational sustainability and the delivery of service to the community over many generations. The Board is looking for evidence of: (a) comprehensive register of infrastructure assets including valuation, condition assessments and identifiable categorisation; (b) maintenance plans; (c) asset replacement strategies (d) strategies for creation of new assets (e) funding plans. Items for consideration include: Roads, streets, bridges, footpaths, cycleways, etc Sewerage services Stormwater drainage Waste management Water supplies Buildings Fleet and plant management Land development Public amenities Recreation facilities and parks Works depots and store 116

2 7.1 Comprehensive Register of Infrastructure Assets including Valuation, Condition Assessments and Identifiable Categorisation Asset Management System In November 2002, Council purchased Conquest, an Asset Management System software package (along with the Maloney Modeller), for the recording of assets. Conquest provides Council with a spatial (GIS Geographic Information System) and non-spatial asset recording system and also links to other computing systems; ie Financial and Information Management systems. Conquest has a built in Customer Requests System that links requests directly to the relevant assets. It also enables Council to utilise the Maloney Modeller and provide Elected Members and Managers with an effective Asset and Financial Modelling tool. Currently, data on most asset classes has been loaded onto Conquest. Bridges and buildings have had all data, including location, description, financial and condition loaded with information up to date. Water & Sewerage asset information, excluding a field condition assessment, has now been loaded on Conquest and it is proposed to add stormwater in the 2004/05 financial year. Condition assessment of these underground asset classes will be progressively undertaken in the future. The major asset class of roads and streets is currently being worked on to provide the necessary data input for Conquest. Roads have been divided into segments with field work in progress for spatial identification. Revaluation and condition assessment is to be carried out during the 04/05 financial year. This work is using the MAV Step Programme as a guide and external resources are being utilised for the extensive data input for this asset class. The following is a summary table of asset types and values:- Type Detail Approx Replacement Values Roads 86km sealed urban 24km gravel urban 459km sealed rural Water Sewer Written Down Values 246km gravel rural Total $106.05M $60.2M 181.5km of mains Treatment/Storage/Pumping Total $18.59M $10.76M 143.7km of mains 25 pump stations 4 treatment plants Total $17.91M $10.18M Stormwater 54km of mains $6.89M $5.43M Bridges 216 bridges/9,073m2 deck area $9.75M $4.85M Buildings 106 $9.17M $8.70M Parks, Reserves & $2.64M $1.51M Playing Fields 38 TOTAL $171M $101.63M 117

3 The Board notes the progress made by Council in relation to the implementation of its asset management system. At the request of the Board, Council demonstrated the customer service system that links requests to the relevant asset. In conjunction with Maloney Modeller software, the information is used to determine future priorities. The Board commends the effectiveness of the system integration Roads & Streets (Urban and Rural including street furniture Initially valued in June 1993, revalued in July Presently valued at cost but will be revalued by 30 th June 2004 to fair value. Depreciated over 20 to 100 years. Current Valuation; Gross Value as at 30 June 2003, $106,048,557. (Accumulated Depreciation of $45,921,846), valued as at July Council is responsible for a total of 815 kilometres of road pavements. This is made up of 86 kilometres of sealed Urban roads, 24 kilometres of Urban unsealed roads, 459 kilometres of Rural Sealed Roads and 246km of unsealed Rural roads. All Council roads will have each asset component identified and condition assessed as part of the current revaluation cycle. All road assets are condition assessed based on the Councils Road Hierarchy. Qualified Council staff carry out the road inspection process. Work is currently in progress to identify all segments and locate all culverts and this is progressively being loaded into conquest. A footpath inspection programme (governed by the Operational Plan) is now in its second year of operation and requires periodic inspection in priority order and information is then fed into current maintenance or future capital works programmes. Council s road network is maintained to a good standard. The annual expenditure of $2.975 million (based on 2003/04 budget figures) on roads can be broken down into the following areas; Capital reconstruction 709,000 Capital gravel resheeting 309,000 Resealing 350,000 Maintenance 1,198,000 Roads to Recovery 409,000 Total $2,975,000 The Board notes in the Annual Report for the year ended 30 June 2003, that Council reported on its policy of not depreciating unsealed roads. Council advised that it has been the practice to 118

4 maintain the unsealed roads in top condition over a three year cycle. The Board was further advised that the question of road and street depreciation is currently under review with valuations being based on the fair value method. The Board notes that for the current financial year ending 30 June 2005, the new asset values will be used. The Board commends Council for transferring all asset valuations to fair value calculations, ensuring a realistic replacement figure as compared with the previously used fixed historical cost method Bridges (All Bridge assets) Initially valued in June 1995, revalued in July Presently valued at fair value. Next revaluation due July Depreciated over 20 to 100 years. Current Valuation; Gross Value as at 30 June 2003, $9,751,847. (Accumulated Depreciation of $3,490,626), valued as at July Council is responsible for a total of 216 Bridges with a deck area of 9,073 square meters. A Bridge Management and inspection program is contracted to TasSpan Pty Ltd. They inspect and prioritise works on a 6 monthly basis with this information fed into maintenance and capital works. TasSpan also provide a long-term model on anticipated bridge capital works based on life cycle/inspections. A copy of this has been provided for the Board under separate cover. (Attachment P) Council s bridge network is maintained to a good standard. The annual expenditure of $0.629 million (based on 2003/04 budget figures) on bridges can be broken down as follows; Bridge Reconstruction $467,000 and Bridge maintenance $162, Sewerage (reticulation and treatment) Initially valued in June 1993, revalued in July Presently valued at fair value. Next revaluation is due July Depreciated over 50 to 100 years. 119

5 Current Valuation; Gross Value as at 30 June 2003, $17,911,168. (Accumulated Depreciation of $5,059,393) valued as at July Council operates four sewerage schemes within the municipality; they service Prospect Vale/Blackstone Heights, Hadspen/Carrick, Westbury and Deloraine. All sewer assets are recorded in an as constructed form in the Asset Management system. Council sewer schemes have been progressively upgraded and improved treatment equipment installed to meet the current environmental and occupational health and safety requirements. Council s sewerage network is maintained to a good standard. The annual expenditure of $0.761 million (based on 2003/04 budget figures) can be broken down as follows; $330,000 on Capital works and $430,700 on the maintenance of the sewerage schemes. Council has spent over $3 million over the past five years upgrading all of the treatment plants and assets, of which we received $957,600 from various government grant schemes Water (Reticulation & Treatment) Initially valued in June 1993, revalued in July Presently valued at fair value. Next revaluation due July Depreciated over 50 to 100 years. Current Valuation; Gross Value as at 30 June 2003, $18,589,294. (Accumulated Depreciation of $6,994,608) valued as at July Council operates 4 water schemes, grouped into the following classes; Treated Water Esk, Untreated Chlorinated Water, Treated Water Deloraine and Raw Water. Untreated Chlorinated water is supplied to the townships of Westbury, Exton, Hagley and Bracknell. Council is responsible for the collection, chlorination, storage and supply of water in these townships. Treated Water Deloraine is a fully treated water scheme that services the Deloraine Township and Council is responsible for the collection, full treatment, storage and supply of water. The Deloraine Water system was upgraded at a cost of $1,600,000 in early 2000, of which Council received Grants totalling $600,000. This involved a new Water Treatment Plant and some upgrade work to the infrastructure in the township. Before this upgrade Deloraine was supplied only by untreated chlorinated water. 120

6 Raw Water refers to the water supplied to the township of Mole Creek. The Water scheme for Mole Creek is a system where water is drawn from a mountain creek and reticulated to the town and into an adjacent reservoir. It is an ageing scheme supplying 200 tenements which is hydraulically inefficient. Quality is an issue and the town suffers from a permanent 'boiled water' alert. Work is currently being carried out to determine whether it is feasible and affordable to improve the water quality and reticulation and early indicators are not promising. Treated Water Esk refers to the scheme were Esk Water provides the bulk water supply for the townships of Prospect Vale, Hadspen, Blackstone and Carrick. Council is responsible for the reticulation and some storage infrastructure only in these townships. Council has recently constructed a trunk supply main from the township of Hadspen to Carrick at a cost of $630,000 with government grants to the value of $280,000. Before this upgrade Carrick was supplied by untreated chlorinated water from the Liffey River. Under the requirements of National Competition Policy, Council has introduced two-part water pricing on all of its water schemes, except for the Mole Creek Scheme (Raw Water). All schemes subject to two-part water pricing are totally metered. Council introduced two-part water pricing because it is a fairer and more equitable system of charging for water usage and provides the bonus of being a very effective demand management tool. Council s Environmental Health Officer tests all water schemes regularly and last year 96% of these tests met the appropriate water quality guidelines. The Board notes there are a number of untreated water supplies in the municipal area. It also notes that, last year, while 96% of water scheme tests met the appropriate water quality guidelines, the Model Water Quality Report provided by Council indicates clearly that particular supplies do not meet public health standards. The Board notes, for example, that the Mole Creek water supply demonstrated frequent questionable results and a permanent boiled water alert. In response to a question, Council indicated the development of additional treated supplies would be dependant on the availability of substantial Government funding support. The Board notes that provision of water is a core local government responsibility and that Council is in a good financial position, with a capacity to borrow. Council itself reports in section 8.2 its increased financial capacity to fund capital expenditure. The Board suggests that consideration be given to how to deal with water quality issues, irrespective of the availability of other Government funding, and that plans be put in place as soon as possible. A meeting was held by the Board with Council Representatives on 26 October 2004 to discuss the Board s Preliminary Draft Report. The Board notes Council s advice, at the time of the discussion of the Draft Report, that it ensures that there is public participation in the debate for improvement to water supplies, that area meetings have been held in the past and will be held to determine future options. The Board considers the strategy of particular area meetings to be an appropriate consultation process. 121

7 7.1.6 Buildings Initially valued in June 1996, revalued in July Presently valued at fair value. Next revaluation due July Depreciated over 50 to 100 years. Current Valuation; Gross Value as at 30 June 2003, $9,166,616.(Accumulated Depreciation of $302,159) valued as at July Buildings are currently recognised at valuation based on valuations provided by Geoff Taylor Pty Ltd in July This valuation is done on a three yearly cycle with a revaluation due in July In May 2003, Council engaged Consulting Engineers Pitt and Sherry Pty Ltd to conduct building inspections, as part of Council s Risk and Asset Management policy. The report has provided Council with information on the works necessary to extend the life with proactive maintenance, improve access and minimise risks associated with each of the buildings. These inspection reports have formed the basis of a new building maintenance program and the work has been prioritised based on the Building Hierarchy and has been included in the Financial and budgetary planning for the future financial years. Council has also undertaken a strategic review to determine where Council should consider investment or divestment strategies. Some of the maintenance work is carried out by local Hall Committees and Council provides direction and advise to help prioritise such work Fleet and Plant Management Initially valued in June Presently valued at cost. Depreciated over 5 to 20 years. Current Valuation; Gross Value as at 30 June 2003, $9,166,616.(Accumulated Depreciation of $302,159) valued as at July Council maintains its fleet in accordance with a fleet replacement program. Council analyses its fleet requirements annually taking into account the availability of private use, usage and operational costs. A copy of the Plant Replacement Program 2004 has been provided for the Board under separate cover. (Attachment Q) 122

8 Major items of plant are maintained in accordance with the 10-year Plant Hire replacement program. The hire rates for each item of plant are reviewed annually and are required to generate sufficient income over the life of the time to cover operating and replacement costs at the time of replacement. The plant hire rates include a charge for the opportunity cost of capital Land Improvements Initially valued in July Presently valued at cost but will be revalued at fair value at the next revaluation due July Depreciated over 10 to 100 years. Current Valuation; Gross Value as at 30 June 2003, $9,166,616.(Accumulated Depreciation of $302,159) valued as at July New subdivision development results in new assets that are created by developers and passed onto Council, these include roads, drainage, streetlights, parks, water, sewer and reserves etc. These assets, once taken over are valued at cost and reflected as revenue in the Annual Financial Report. The level of these taken over assets is: 1999/2000 $835,461, 2000/2001 $576,271, 2001/2002 $243,276 and 2002/2003 $134, Public Toilets Council has a total of 17 Public Toilets throughout the Municipal Area. The facilities are maintained and cleaned by Councils Works Department. Council investigated outsourcing the maintenance and cleaning several years ago and it was found to be more efficient to continue with the status quo. Council has recently undertaken a review of its Public Toilets, looking at the provision of new toilets, their current and future locations and the maintenance standards. This review highlighted that the provision of public toilets in the municipality was an important service provided by Council to the local community and visitors. Increasing visitor numbers has also placed greater stress on the ageing facilities. With this in mind Council has accepted a three stage process of updating (ie: 123

9 making DDA Compliant and providing parenting facilities), creating new and/or disposing of low volume use facilities Recreation Facilities and Parks Council is responsible for 14 Community Halls, 7 sporting ovals, two swimming pools and numerous parks and reserves. This class of asset has been the recipient of Council funds over the last few years, with ageing infrastructure being replaced. Council has 2 major sporting Complexes, the Deloraine Community Complex and the Westbury Sports Centre. The Deloraine Community Complex has a replacement cost of $2,250,000 and contains 2 basketball courts, an Auditorium and kitchen facilities. The Westbury Sports Centre has a replacement cost of $1,250,000 and contains a basketball court and squash courts with the basketball floor being replaced in 2002 at a cost of $130,000. Council has established an Indoor Recreation Facilities Committee to manage these facilities. Council operates a 22 metre pool at Deloraine. This Swimming Pool facility was recently refurbished at a cost of $250,000. The refurbishment included: solar water heating, new change facilities, toddler water play area and general amenity improvements which have resulted in an increase in pool attendances since the refurbishment. A Special Committee of Council operates Councils other swimming facility at Caveside (a rural area). The Westbury Recreation Ground has recently received a Council contribution of $30,000 for the redevelopment of 6 turf cricket wickets which will ensure the continuation of NTCA Grade cricket at the facility. Council has also set up a Parks, Recreation and Townscape Committee with the objectives of this Committee being:- Develop Parks and Reserves within the Municipal area to a standard that meets the reasonable needs of the local communities; Improve the appearance of the Townscapes, so that Towns are well presented to visitors and Local Communities. Council has 14 Special Committees of Management that operate sporting facilities and community halls. These committees control the operation of these facilities according to their signed Memorandum of Understandings. 124

10 Council's Works and Infrastructure Departments maintain Park and Recreation ground equipment such as playground equipment, park furniture, barbeques and shelters etc. The equipment is inspected and maintained on a regular basis and Council continues to inject significant resources into this area to ensure that these facilities meet risk management guidelines Works Depot and Store Council operate two Works depots located at Deloraine and Westbury. Approximately half the heavy plant and manpower is located at each depot with a Supervisor at each. The possibility of combining the workforce and plant at either location or a new location was investigated approx. 6 years ago. After looking at capital and operating costs, transport logistics and service provision it was apparent there was no advantage in combining the two depots onto one location. Each depot contains adequate facilities for the workforce and good covered storage for the majority of plant. Limited quantities of materials are kept at each depot for maintenance purposes, ie pipe, fittings, gravel etc. Material for capital works jobs are ordered direct from suppliers to job sites which removes the need to run a substantial store. 7.2 Maintenance Plans There is presently no formal maintenance plan. Within the Operational Plan there are documented standards for the maintenance of infrastructure assets, As part of the Asset Management Strategy, outlined in Section 7.3, a detailed maintenance plan will be established. 125

11 7.3 Asset Replacement Strategies Council is in the process of implementing an Asset Management Policy and Strategy detailing the approach for replacement of assets and the creation of new assets. A copy of the policy is available from our website ( A copy of the Strategy Plan has been provided under separate cover. (Attachment R) The policy outlines a strategic approach to the management of Councils assets. It embraces the Whole of Life concept for assets (Life cycle assessments) and requires an evaluation of acquisitions, operations and maintenance, modifications and enhancements, performance monitoring, disposal of assets and accounting for these aspects. The Asset Management Policy requires the development of the following documents: A Capital Investment Plan that will detail new assets or major changes within each asset class for a 20-year period. This is to be completed by April A detailed 5 year Capital Works Program for each asset class. A program will be completed for roads, water, sewerage, buildings and land improvements in 2004/05. A Maintenance and Operations Plan that will ensure that all existing assets are appropriately maintained operated and utilised. Roads will be completed in 2004/05. A Disposal Plan that will identify assets that are surplus to requirements. An Asset Management Working Group is responsible for the implementation, monitoring, maintenance, reviewing and auditing of the Asset Management Strategy. Functional responsibility lies with the Infrastructure Services Department. Council has recently allocated additional resources of a 0.5 full-time equivalent to assist with progressing this work. A major urban infrastructure review has recently been undertaken to better understand the likely infrastructure upgrading works that will be necessary in the future. Existing infrastructure was looked at for the suburban areas of Prospect Vale and Blackstone and all country towns from Hadspen west to Mole Creek. The review showed that there is a limit to the amount of urban growth, which can be permitted in all centres when compared to current infrastructure capacity, especially sewerage and drainage. Works necessary to meet identified deficiencies will be factored into the Capital Investment Plan. 126

12 The Board notes Council s advice and commends its long term and strategic approach towards fully funding depreciation. It recognises that this has required a decade long commitment to a rating strategy that will allow this to occur. The Board is particularly pleased to note Council s intention to be guided by an integrated strategy that includes a capital investment plan, supported by a five year capital works program, that will support the twenty year time frame of the Asset Management Policy. 7.4 Strategies for Creation of New Assets At present Council s Works Manager and Infrastructure Manager jointly undertake assessments of Council assets each year and assess which work should receive priority funding in the annual Capital Works Program. In doing this, account is taken of asset condition, the visible rate of deterioration and the technical, social and safety needs to rehabilitate assets or create new ones. In the areas of water and sewerage, account is taken of externally set standards and guidelines, which may require improved works, ie DPIWE discharge limits, Drinking Water Quality guidelines, the Disability Discrimination Act etc. Work is then assessed using a two-tier assessment criteria framework, which recognises that creating new assets imposes lifecycle costs on Council, which must be balanced against the strategic benefit of investment. A copy of this framework has been provided for the Board under separate cover. (Attachment S) Councillors also undertake an annual bus tour of the relevant areas to assess the priority works identified in the Capital Works Budget. From 2005/06 the creation of new assets will be assessed as part of the Capital Investment Plan and the related Capital Works Programs.. The Board also recognises that strategies described by Council will need to be relied upon as it makes decisions about how it will address issues relating to treated water across the municipal area. 7.5 Funding Plans Refer Section 8.4. : 127

13 Chapter 8 Financial Matters The Board Guidelines below were provided to the Council to assist it in preparation of its submission to the Review: Board Guidelines to the Council The financial efficiency of the Council is crucial to the manner in which the Council performs its functions. Items for consideration are: Operating Income and Expenditure results: for the past 5 years and budget for current year Capital expenditure program and funding for past 5 years and future plans Financial management, performance relative to the capital and operating budget for the last 5 years Long term financial planning Financial reporting, Statutory accounts Reports to Council Management reporting Key financial indicator trends, highlighting matters of interest in and information provided for the KPI report Measuring Council Performance Levels of rates over past 5 years Risk Management practices, including Insurance Assessment National Competition Policy requirements Pricing policies Community service obligations Transparency Efficiency and effectiveness Compliance with S 84(2)(da) and Reg 32 under the Act Compliance with the Government Prices Oversight Act,

14 Introduction The importance and priority given by Council to the management of its finances is demonstrated by devoting a complete section to the area within its five year Strategic Plan adopted in October Section 8 of the Strategic Plan FINANCIAL MANAGEMENT has the following single goal:- To attain long term financial sustainability for the Meander Valley Council Performance targets are: (1) To operate on a break-even basis, allowing for full funding of depreciation. (2) To maintain cash reserves of not less than $2.5 million. (3) To maintain rating levels at a comparable level with similar sized councils. Strategies employed to achieve the targets are (in order of priority): (1) Prepare a long term financial plan. (2) Increase fees and charges to meet the true cost of the service. (3) Provide information to stakeholders on council s financial performance. The tables and commentary in this chapter demonstrate that Meander Valley Council has built a solid foundation during the life of this strategic plan to achieve (and maintain) its strategic goal of long-term financial sustainability. The influence of the long-term financial plan is evident throughout this chapter. The performance targets have been met and exceeded to date. 129

15 8.1 Operating Income and Expenditure Results Table 1 - Operating Income and Expenditure incl. current years anticipated. Operating Expenditure 1998/1999 $ % Employee Costs 2,394,540 Materials and Contracts 4,514,742 Depreciation and Amortisation 3,126,796 Interest 90,687 Other 117, /2000 $ % 2000/2001 $ % 2001/2002 $ % 2002/2003 $ % 2003/2004 Anticipated $ % 23 2,384, ,570, ,562, ,816, ,961, ,050, ,665, ,903, ,731, ,472, ,149, ,220, ,352, ,544, ,165, , , , , , ,390, ,380 1 Total Expenses $10,244, % $10,825, % $11,708, % $12,259, % $13,483, % $12,720, % Operating Revenue 1998/1999 % 1999/2000 % 2000/2001 % 2001/2002 % 2002/2003 % 2003/2004 % Rates 7,112, ,305, ,641, ,655, ,128, ,630, Interest 242, , , , , ,000 3 Reimbursements and Contributions 230, , , , , ,030 3 Subdivisional Work Taken Over 136, , , , , ,000 1 User Charges 840, , ,182, ,377, ,636, ,714, Annual Financial Assistance Grants 2,214, ,183, ,395, ,483, ,585, ,628, Roads to Recovery Grants , , , ,584 4 Other Grants (NRM & RFA) 128, , ,211 3 $555, , ,545 1 Profit/(Loss) on Disposal of assets -76, , , , , Sub Total $10,829, % $12,507, % $13,276, % $13,102, % $14,197, % $14,831, % Other - Increased share in Esk Water , Specific Capital Grants 0 638, , , , ,472 Total Revenue $10,829,577 $13,145,608 $14,299,835 $13,980,296 $14,867,116 $15,281,

16 8 1.1 Expenditure Table 1 above shows a reasonably consistent balance of expenditure between the five categories after taking account of the influence of transactions for Council s federally funded Natural Resource Management (NRM) devolved grant project in 2001/2002 and 2002/2003 (shown in Other ). Depreciation expense represents almost a third of the total. The increase anticipated for depreciation in 2003/2004 reflects completion of a new $1m wastewater treatment plant and revaluation of road assets. Expenditure has increased by approximately 24% during this six year period. The Library and Local Government levies are no longer payable from July 1 st 2004 under the State and Local Government financial reform package. Their value in 2003/2004 was $307,360 or just over 2% of expenses (refer to further comment under Revenue). Table 2 Expenditure Growth 1998/ / / / /03 Expenditure Growth -7.3% 5.7% 8.2% 4.7% 10.0% KPI High N/A 9.5% 13.6% 8.4% 20.8% KPI Low N/A -1.6% -2.9% -3.7% 1.3% KPI - Group Average N/A 4.4% 4.3% 2.1% 7.6% Data for table 2 above is from the KPI s for measuring council performance. The significant influence is the timing of special project expenditure, particularly in 2002/2003, the final year of the Natural Resource Management devolved grants scheme where the bulk of devolved grants were paid to recipients Revenue Table 1 above indicates Council s major sources of revenue have been very consistent within the balance of revenue categories. Specific capital grants and the other revenue item for increased share of Esk Water are shown separately as they are not considered regular income. 131

17 Rates are the major source providing just under three fifths of all regular income. The annual Financial Assistance grant provides almost one fifth whilst User Charges have shown a reasonable increase from 8% to 12% of which approximately 2% can be attributed to the full introduction of two-part water pricing in 2001/2002. The Roads to Recovery (R to R) grant has been a welcome additional source with the majority being spent on road and bridge asset replacement. Approximately $100,000 per annum of R to R funding is allocated to additional roadside drainage maintenance with a view to longer term asset preservation. The State and Local Government financial reforms are anticipated to provide a net benefit to Council of $250,000 in 2004/2005 provided all rateable Government land is valued by December Table 3 Revenue Growth 1998/ / / / /03 Revenue Growth 1.0% 22.8% 8.8% -2.2% 6.3% KPI High N/A 22.8% 19.9% 11.9% 19.4% KPI Low N/A -11.8% -0.3% -8.9% 1.0% KPI - Group Average N/A 3.8% 7.9% 2.1% 6.7% Like table 2, table 3 data above has been influenced significantly by Natural Heritage Trust special project (NRM devolved grants scheme) and capital grants (Clean Water Quality program). Table 4 Revenue Per Capita 1999/ / / /03 Revenue Per Capita KPI High 1,208 1,212 1,385 1,410 KPI Low KPI - Group Average Table 4 indicates a capacity for Council to increase revenue compared to the average, however the influence of one major ratepayer providing 7% of Rates income needs to be kept in mind when considering this data. 132

18 8.2 Capital Expenditure Program Capital expenditure has increased significantly over the five year period as demonstrated in table 5 following. This is the case in all major functional areas but particularly roads, water and sewerage. Federal capital grants have had a major impact for water and wastewater treatment. The majority of Roads to Recovery annual grant is spent on priority road and bridge asset replacement. Changes to accounting policy added approx. $650,000 in 2002/2003 for road reseals and gravel resheeting (previously expensed). Future capital expenditure plans are covered in section 8.4 Long-term Financial Planning and Chapter 7 Asset Management. 133

19 Table 5 Capital Expenditure 134

20 Table 6 Capital Expenditure/Depreciation ratios 1998/ / / / /2003 Council Ratio 53.6% 79.4% 128.4% 187.5% 152.6% KPI - High N/A 169.4% 128.4% 187.5% 218.4% KPI - Low N/A 65.6% 71.6% 85.9% 68.1% KPI - Group Average N/A 97.2% 97.9% 120.7% 119.2% Not surprisingly, table 6 above mirrors table 5 with both reflecting an increased financial capacity to fund capital expenditure (with the aid of capital grants). At the same time Council was able to repay all external loan debt. Depreciation expense increased over the same period by 13.4%. 8.3 Financial Management Performance relative to budget Performance relative to the capital and operating budgets is demonstrated in the following tables for budget achievement. Revenue and Expenses data is taken from the measuring council performance KPI s. Table 7 Budget Achievement - Capital Budget Achievement 1998/ / / / / % 59.5% 89.1% 78.5% 89.5% Table 7 highlights Council s minimal resources for the programming and management of significant capital projects worth approximately $6.5m within the budget timeframes during this five year period. The last of these projects will be completed in 2004/2005. Table 8 Budget Achievement Revenue 1998/ / / / /03 Budget Achievement % 100.6% 105.1% 104.8% 98.5% 100.6% KPI High N/A 113.6% 123.4% 126.5% 113.8% KPI Low N/A 97.7% 96.5% 96.7% 97.1% KPI - Group Average N/A 103.5% 106.3% 104.8% 104.3% 135

21 Table 9 Budget Achievement Expenses 1998/ / / / /03 Budget Achievement % 92.6% 101.1% 95.0% 99.4% 105.0% KPI - High N/A 103.7% 106.4% 125.2% 123.3% KPI - Low N/A 93.2% 93.7% 90.0% 93.4% KPI - Group Average N/A 99.9% 99.9% 102.7% 102.8% Data in tables 8 & 9 compares favourably to the group average, particularly for Revenue. The 2001/2002 revenue under achievement relates to the timing of receipt of specific capital grants, whilst the 2002/2003 expenses increase relates particularly to the NRM devolved grants payments in that year (refer also to table 2 comments). 8.4 Long Term Financial Planning Long term financial planning is the centrepiece of Section 8 - FINANCIAL MANAGEMENT of Council s current Strategic Plan adopted in October The first of three strategies to attain its single goal of long term financial sustainability was the preparation of a long term financial plan. This was included as the number one action in the following year s (2000/2001) operational plan program for Financial Management and Reporting. A copy of the original version has been provided for the Board under separate cover. (Attachment T) The 2005 update is included in the 2004/2005 Budget Notes and a copy has been provided for the Board under separate cover. (Attachment U) The Board notes the extensive work that the Council has undertaken with regard to long term financial planning, covering yearly operations to 30 June

22 8.4.1 The Process in Preparing the Plan A draft ten-year financial plan (2001 to 2010) was prepared by management based on current service levels and known future changes in circumstances such as Roads to Recovery grants. The draft was first presented to Councillors at a workshop in March 2001 where it was highlighted that the poor performance of the General account was the major threat to Council s long term sustainability. The better performing Water and Sewerage accounts were shown to be hiding this threat when looking at an overall organisational picture of financial performance. The workshop identified the following measures necessary to enable the General account to break even by Measure Review our asset portfolio to identify non-core assets that are surplus to our requirements Review all services to determine if:- 1. They are necessary to be maintained; or 2. It is appropriate to amend the level of service; or 3. Whether additional sources of revenue can be generated Continue with the development of good asset management information to better understand the lifecycle of our existing assets and the $ required to fund their replacement Ensuring that any new investment decisions eg new asset creation or service provision, is accompanied with a detailed financial analysis Review our existing level of rating effort Timeframe Within next 12 months 0 2 years On-going Immediate (Completed April Workshop) At a second Council workshop in April 2001 various what if scenarios were explored and the following targets were set. 137

23 Target Achieve a breakeven position in the 2006/2010 period, after allowing for subdivisions taken over, through A 1.5% real General Rate increase each year; A 1% real Fees & Charges increase each year; Realising ongoing savings of $90K - $175K per annum within the next three years in service provision and asset disposal; OR through other methods including a combination of the above in varying proportions to arrive at the same result. Timeframe Each year to 2010 Each year to 2010 By the end of 2003/2004 By the end of the 2006/2010 period Council formally adopted the plan at its ordinary meeting in May With regard to the projected $175K estimated savings by the end of 2003/2004, Council advised that this target had been exceeded. In response to a question, Council confirmed that the estimated 1.5% real general rate increase per annum to 30 June 2010 was required to fully fund depreciation of assets for buildings, roads and bridges. The Board notes Council s advice Council s Commitment to the Plan The preparation and adoption of a financial plan was the essential first step for Council in aiming to attain financial sustainability. For the first time Council had a long term view of its financial direction and could see the effect that current and future decisions have on its finances and the level of affordable service delivery. The plan clearly shows the long term consequences of new asset creation and additional services on operating performance and rating levels. Previously decisions were based generally on a single year budget outlook. Adopting the plan in itself is of little use however unless the Council is committed to it. The next and most important phase is Council making the necessary decisions to achieve the targets and thus its strategic goal of attaining long term financial sustainability. The 2005 updated version of the original plan demonstrates that commitment with the General account surplus now being ahead of its original target. With the assistance of the State and Local Government Financial Relationship reform the plan indicates it is no longer 138

24 necessary for the 1.5% real General Rate increase above inflation each year to maintain current service levels plus there is some capacity for improving services into the longer term. The 1% real increase in Fees & Charges is also no longer necessary. Further details are included in the 2004/05 budget notes. The Board notes that the annual review process takes into account changing financial circumstances Continuing Development The Financial Plan is a living document. It continues to evolve and is reviewed and updated on an annual basis as an integral part of the budget process. A potential weakness in the current Plan is that Capital expenditure levels are based on an original five year capital works program, updated for inflation, with forward estimates into 2010 based on little asset management data. Council s asset management strategy plan (refer to detail in Asset Management chapter 7) has the goal in 2004/05 of developing a long term capital investment plan plus 5 year detailed capital works programs. This will enable the consolidated section of the current financial plan to be reviewed and detailed for each year plus extended further into the future, with detailed estimates at the very least on a five year rolling program basis and an overall plan linked to the 20 year life of the Capital Investment Plan. 8.5 Financial Reporting The Financial reporting requirements of Council are quantified in Councils annual Operational Plan (2004/2005 section 2.10). The timing, preparation and distribution of the following financial reports, namely; Statutory Annual Accounts, Fortnightly and Monthly Management Reporting and Quarterly Reports to Council are detailed in the Plan. A recent addition is Full Cost Recovery reporting for Council s Water and Wastewater activities Council s financial system, Finance One allows for the development of a Council specific chart of accounts and ledger system. With this in mind Council has developed a 3-ledger chart of accounts for its job costing and financial reporting needs. Primary reporting is generated 139

25 from the General Ledger with subsidiary job costing reports generated from the Project Ledger. A Plant Ledger provides specific reporting of Council s internal plant operations. The General Ledger is structured so as to reflect the council departments and ABS/Rating Functions of Council. Monthly Operating Statements, Councillor and Annual Reports are produced from this ledger. The Project Ledger is structured as a job costing ledger, it reflects all projects undertaken by Council and they are aggregated into the appropriate ABS/Rating Function for reporting at the primary level. The Plant ledger contains all the plant hire assets and reports the expenditure and internal plant hire revenue for all of these assets Annual Accounts In accordance with current legislation and the Australian Accounting Standards, comprehensive Statutory Accounts are produced on an Annual basis. The accounts are subject to external audit which is regulated by the State Auditor General. Council has received an unqualified audit opinion each year since its formation. The Tasmanian Audit Office is Council s appointed auditor. The chart of Accounts for the General Ledger is structured so as to reflect the reporting requirements for the Statutory Accounts. The Notes to the financial statements give users a detailed insight into the basis of their preparation and Council s accounting policies. A copy of Council s Financial Statements appears in the Annual Report Reports to Council Councillors receive quarterly financial reports and analysis. The reports provided are:- Cash Reconciliation, Rates Outstanding, Capital Works expenditure, Operating Statement and an Exception and Trends report. 140

26 The Cash Reconciliation and Rates Outstanding reports provide comparisons with the same period for the previous year. The Exceptions and Trends report provides explanations and comment for Councillors on notable exceptions and trends within the Operating Statement. A copy of the April 2004 reports has been provided for the Board under separate cover. (Attachment V) When the Board met with Council, it viewed a sample of quarterly financial reports to Council. In response to a question regarding the frequency of financial reports to Council, elected members generally advised that they considered quarterly reporting to be appropriate. A view was expressed by some Councillors that a period pro-rata estimate against budget could be advantageous. The Board notes the comments. In some other reviews, the Board has noted examples of leading or good practice in relation to financial reports, for example at Brighton and Glenorchy City Councils. It suggests that Council consider the effective use of graphics, made by those councils, that provide visual, easy to understand, financial reports Management Reporting Management reporting at Council revolves around two cycles and reporting types. The two cycles are fortnightly payroll periods and monthly. Project expenditure reports are produced fortnightly and the Operating Statement is produced monthly. Ad hoc reports are generated as and when required. The fortnightly project reports reflect the expenditure against the various jobs in the Project Ledger. These reports detail the expenditure against budget and also contain a variance analysis. They are distributed to all department managers and staff responsible for specific projects. Three project reports are produced; these being a Maintenance Project and a Capital Project summary plus an All Projects detailed expenditure report. Monthly Operating Statements are produced and distributed to all Managers. This report details the expenditure of Council against the rating budget and is generated from the general ledger. It also forms part of the quarterly reporting for Councillors. 141

27 8.6 Key Financial Indicator Trends The 2002/2003 Measuring Council Performance in Tasmania report now provides councils with four years of comparative data, particularly in regard to financial KPIs. This data becomes more useful as time goes on, not only for comparing performance with like sized councils but also for individual councils own trends from year to year. The KPI data is used in various sections of this chapter to which they relate to demonstrate Council s performance Liquidity Ratios Liquidity ratios are other financial KPI s of note and are highlighted in the following two tables. Table 10 Debt Service Ratio 1998/ / / / /03 Debt Servicing Costs 260, , , Total Revenue 10,700,659 13,145,608 14,299,834 13,980,296 14,867,116 Percentage 2.4% 1.6% 5.2% 0.0% 0.0% KPI - High N/A 1.6% 11.2% 13.1% 8.4% KPI - Low N/A 12.9% 0.0% 0.0% 0.0% KPI - Group Average N/A 6.9% 6.2% 6.3% 5.2% Council repaid its remaining external debt in 2000/2001. At the 30 th June 1993 total debt was $3.742m. Council s first budget in 1993/1994 provided $938,238 for debt servicing or 12% of revenue. Deloraine Water Treatment has since been part financed through a 20 year, $600,000 internal loan from the General Account in 2001/2002. Table 11 Working Capital Ratio 1998/ / / / /03 Current Assets 4,505,333 6,390,194 5,622,296 7,225,154 7,250,339 Current Liabilities 766,449 1,307,425 1,051,320 1,591,438 1,577,270 Council Percentage 588% 489% 535% 454% 460% KPI - High N/A 658.3% % % 985.9% KPI - Low N/A 81.3% 84.1% 103.4% 69.0% KPI - Group Average N/A 278.2% 339.9% 307.6% 314.0% 142

28 Working Capital Ratio is a measure of the liquidity or cash position of a Council. It is a measure of a Council s ability to meet its financial obligations as they fall due. If current liabilities exceed current assets (a ratio of<100%) then a Council would need to improve its liquidity position. Council is in a sound position in this respect and is consistently above the group average for the period. Current Assets include cash and investments of $6.2m in 2002/ Debt to Equity Ratio Although not used as a performance measure KPI the following table 12 is a clear indicator of Council s strong financial position. 54% of the liabilities in 2002/2003 are Creditors whilst the balance 46% is for Employee provisions. Table 12 Debt Exposure Ratio 1998/ / / / /03 Total Liabilities 1,705,362 1,902,669 1,114,134 1,675,112 1,628,057 Total Assets 120,316, ,696, ,499, ,918, ,953,785 Percentage 1% 2% 1% 1% 1% The Board agrees with Council that the above tables, Working Capital Ratio, Debt to Equity Ratio and Debt Exposure Ratio, all provide clear indicators of Council s strong financial position. 8.7 Levels of Rates Over Past 5 Years Council was last revalued as at 1 st July Past revaluations cycles have been five yearly, which under normal circumstances would mean a general revaluation is due. Whilst Council s financial plan and 2005 budget make provision for such we don t expect a General Revaluation will occur until at least 2006/07 given the backlog with other Councils and the current legislation. 143

29 Table 13 Total Rate Revenue Increase 1998/ / / / / /04 Rate Revenue 7,112,520 7,305,286 7,641,434 7,655,051 8,128,090 8,630,150 % Increase Table 13 above details total rate revenue and percentage increases for the last five years. The minor increase in 2001/2002 is due to the introduction of two-part water pricing to all metered water schemes resulting in a shift from water rates to user charges. Table 14 General Rate Revenue Comparison 1998/ / / / / /04 General Rates 4,245,200 4,301,170 4,511,600 4,756,300 5,051,960 5,380,040 % Increase Table 14 above demonstrates an increase in General Rate revenue of 25% over the past five years compared to table 15 below that shows a rate in the $ increase of 18.7% for the same period. The difference is due to development increases in the valuation base. The influence of Council s financial plan target of General Rate increases of at least 1.5% above inflation is also evident. Table 15 General Rate in $ of AAV Comparison 1998/ / / / / /04 c in $ of AAV % Increase 0.70* * Represents the budgeted revenue increase following the General Revaluation. The following tables 16 to 19 are derived from the KPI performance data. They show that even though General Rate increases have been above inflation (excl GST incr.) for the past four years Meander Valley s rating effort remains at the bottom end of the group of twelve medium sized councils. For the 2002/2003 year Meander Valley is lowest in its group for Total Rates per capita; third lowest for General Rates per capita and second lowest for Average Residential Rate ( refer also to table 4 Revenue per Capita note) 144