chapter 2€¦ · chapter 1 - scale and capacity chapter 2 – financial criteria and measures...

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


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


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.


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


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.


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


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.


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


Infrastructure Backlog Ratio


Asset Maintenance Ratio


Debt Service Ratio


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


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.


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)


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.

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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


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.



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.


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.











Debt Service Ratio




Financial Year

Financial Year

Financial Year

Financial Year

Financial Year

Financial Year

Financial Year


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.


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


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

(PDF

) 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


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).












Debt Service Ratio




Financial Year

Financial Year

Financial Year

Financial Year

Financial Year

Financial Year

Financial Year



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.


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.


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.


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).


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


INFRASTRUCTURE AND SERVICE MANAGEMENT


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%












Debt Service Ratio




Financial Year

Financial Year

Financial Year

Financial Year

Financial Year

Financial Year

Financial Year

Note- The table above shows the result per year.


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.


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.



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.


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












Debt Service Ratio




Financial Year

Financial Year

Financial Year

Financial Year

Financial Year

Financial Year

Financial Year



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


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.


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.


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.


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


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












Debt Service Ratio




Financial Year

Financial Year

Financial Year

Financial Year

Financial Year

Financial Year

Financial Year


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.



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.


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.


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.


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).


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




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.


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).


• Organisational restructure (2013).


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.


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.


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).


Calculation

Real Operating Expenditure (deflated by CPI)

Population


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

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TERI

A A

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122

STA

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lt:

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join

t con

sider

atio

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the

dire

ctio

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d m

agni

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of t

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s as

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9.21

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7.35

$

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Fina

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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

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TF

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om

2015

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5

$56

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$58

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$60

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$62

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$64

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$66

0.00

$68

0.00

$70

0.00

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

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2018

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2019

/20

2020

/21

2021

/22

2022

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2023

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2024

/25

Real

Ope

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MEA

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123

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utpu

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).

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ls of

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by

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ents

will

nee

d to

be

nego

tiate

d an

d th

e de

liver

y m

odel

s cos

ted.

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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

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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

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gy.

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ield

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ncil'

s str

uctu

ral c

hang

es re

sulte

d in

a 4

.5%

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ry re

duct

ion

and

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r effi

cien

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rogr

amm

es

have

gen

erat

ed sa

ving

s ove

r $5m

p.a

with

futu

re in

itiat

ives

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men

cing

, del

iver

ing

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ield

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ncil'

s pr

ojec

ted

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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

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ease

. Fai

rfie

ld is

an

infil

l Cou

ncil

with

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ighe

r pop

ulat

ion

dens

ity to

serv

ice,

mea

ning

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addi

tiona

l ser

vice

requ

irem

ents

can

be

prov

ided

with

the

curr

ent

infr

astr

uctu

re in

pla

ce. L

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is a

gro

wth

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ncil

with

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are

as a

nd n

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es to

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vide

via

ad

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nal i

nfra

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e re

quire

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ts, m

akin

g th

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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


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


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.


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.


• 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.


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


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.


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.


FIT FOR THE FUTURE Fairfield City Council Long Term Financial Plan 2015/16-2024/25

APPENDIX 1


LONG TERMFINANCIAL PLAN

2015/16 – 2024/25

FAIRFIELDCITYCOUNCIL


LONGTERMFINANCIALPLAN 2


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


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.



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



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%


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



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



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



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



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


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


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

(PDF

) 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


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


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


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


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


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



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;



• 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



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



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



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%



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



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



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



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):



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.



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)


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



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.



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



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



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.



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.



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.



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



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.



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



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



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.

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Actua

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Year

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Base

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2013

/1420

14/15

2015

/1620

16/17

2017

/1820

18/19

2019

/2020

20/21

2021

/2220

22/23

2023

/2420

24/25

$$

$$

$$

$$

$$

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Incom

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Conti

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sRe

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95,09

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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

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Charg

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15,80

8,000

17,52

8,200

16,70

8,590

17,04

2,762

17

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17

17,81

8,207

18

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3,734

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3,472

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3,086

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2,894

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2,710

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2,640

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2,570

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3,012

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3,282

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3,561

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3,810

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4,114

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79

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93

17

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55

19

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12

20

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34

20

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53

21

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72

21

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03

Gr

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tributi

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d for

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ting P

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77

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66

19

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17

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10

20

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70

21

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21

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57

22

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22

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23

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97,00

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81

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5

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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

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Ot

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the d

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Total

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152,5

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165,9

91,48

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177,2

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167,2

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7

170,3

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7

174,3

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178,5

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184,5

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189,3

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194,2

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from

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7,193

70,32

8,256

72,51

2,219

74,84

0,374

77,24

1,222

79,44

9,017

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8,719

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Borro

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103,2

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31,11

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2,965

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Ma

terials

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26

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68

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32

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70

30

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31

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32

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176,1

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Opera

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173


Fairf

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t Yea

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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

$$

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T



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



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.


FIT FOR THE FUTURE Fairfield City Council Pitcher Partners Depreciation Expense Report

APPENDIX 2


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 – 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


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.



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:



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.



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.



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


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,



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.



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


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.



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.



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.



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.



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.



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.



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.

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