Agenda of Finance Policy Committee - Tuesday, 2 February 2021

Finance Policy Committee 2 February 2021

2.1 Statement of Investments - December 2020

TRIM REFERENCE: 2021/4

AUTHOR: Julie Murray, Financial Accountant

EXECUTIVE SUMMARY

The purpose of this report is to provide a statement of Council’s investments held as at 31 December 2020.

Link To Delivery/OPerational Plan

The recommendation in this report relates to the Delivery/Operational Plan strategy “17.2 Collaborate - Ensure financial stability and support efficient ongoing operation”.

Financial Implications

Nil

Policy and Governance Implications

Nil

Recommendation

That Council resolves:

1 To note the Statement of Investments as at 31 December 2020.

2 To adopt the certification of the Responsible Accounting Officer.

further considerations

Consideration has been given to the recommendation’s impact on Council’s service delivery; image and reputation; political; environmental; health and safety; employees; stakeholders and project management; and no further implications or risks have been identified.

SUPPORTING INFORMATION

Section 212(1) of the Local Government (General) Regulation 2005 requires that a written report be presented each month at an Ordinary Meeting of the Council detailing all money that Council has invested under Section 625 of the Local Government Act 1993.

As at 31 December 2020, the investments held by Council in each fund is shown below:

	31/12/2020	30/11/2020
General Fund	72,090,110.55	74,191,923.58
Water Fund	60,204,933.64	59,706,595.16
Sewer Fund	54,510,635.20	53,144,050.39

Total Funds	186,805,679.39	187,042,569.13

A reconciliation of Council’s investment portfolio provides a summary of the purposes for which Council’s investments are being held. The summary is as follows:

	31/12/2020	30/11/2020
Externally Restricted
- General Fund	27,248,222.24	28,633,855.13
- Water Fund	60,204,933.64	59,706,595.16
- Sewer Fund	54,510,635.20	53,144,050.39
Internally Restricted	22,639,658.08	21,557,442.57
Unrestricted	22,202,230.23	24,000,625.88
Total Funds	186,805,679.39	$187,042,569.13

The unrestricted cash position movements during the month are normal as projects commence and income is received. Movements may also arise following processing of income received between funds or into restricted assets to appropriately allocate for the purposes Council has determined. Council’s cash flow is monitored on a daily basis and some investments may be redeemed rather than rolled over to support operational requirements.

Portfolio Advice

Council utilises the services of an independent investment advisor in maintaining its portfolio of investments. Council’s current investment advisor is Imperium Markets, an independent asset consultant that works with wholesale investors to develop, implement and manage their investment portfolio. Imperium Markets is a leading provider of independent investment consulting services to a broad range of institutional investors including government agencies, superannuation funds and not-for-profit organisations.

Imperium Markets major services provided to Council include:

· Quarterly portfolio summary reports

· Advice on investment opportunities, in particular Floating Rate Note products

· Advice on policy construction

· Year-end market values for Floating Note Rate products held by Council.

Portfolio Performance

Council’s current Long Term Financial Plan establishes the benchmark for Council’s interest on investments at “75 basis points above the current cash rate”. The cash rate as at 31 December 2021 remained at 0.10 per cent. The weighted average interest rate of Council’s investment portfolio at the same reporting date was 1.13 per cent which continues to exceed Council’s benchmark i.e. the cash rate of 0.10 per cent plus 0.75 per cent (or 85 basis points).

Council has also utilised the AusBond Bank Bill Index to provide a further benchmark focused towards long term investments. As at 31 December 2021, the AusBond rate was 0.90 per cent. The weighted average interest rate of Council’s investment portfolio at the same reporting date was 1.13 per cent.

Council’s Investment Policy establishes limits in relation to the maturity terms of Council’s investments as well as the credit ratings of the institutions with whom Council can invest.

The following tables provide a dissection of Council’s investment portfolio as required by the Policy. The Policy identifies the maximum amount that can be held in a variety of investment products or with institutions based on their respective credit ratings.

Table 1 shows the percentage held by Council (holdings) and the additional amount that Council could hold (capacity) for each term to maturity allocation in accordance with limits established by Council’s Policy.

Table 1: Maturity – Term Limits

Term to Maturity Allocation	Maximum	Holding	Remaining Capacity
0 - 3 Months	100.00%	26.46%	73.54%
3 - 12 Months	100.00%	44.33%	55.67%
1 - 2 Years	70.00%	15.99%	54.01%
2 - 5 Years	50.00%	13.22%	36.78%
5+ Years	25.00%	0.00%	25.00%

Table 2 shows the total amount held, and the weighted average interest rate (or return on investment), by credit rating. The credit rating is an independent opinion of the capability and willingness of a financial institution to repay its debts, or in other words, the providers’ financial strength or creditworthiness. The rating is typically calculated as the likelihood of a failure occurring over a given period, with the higher rating (AAA) being superior due to having a lower chance of default. However, it is generally accepted that this lower risk will be accompanied by a lower return on investment.

The level of money held in the bank accounts has been added to the table to illustrate the ability of Council to cover the operational liabilities that typically occur (for example payroll, materials and contracts, utilities).

Table 2: Credit Rating Limits

Credit Rating	Maximum	Holding	Remaining Capacity	Value	Return on Investment
Bank Accounts	100.00%	5.25%	94.75%	$9,812,646.60	0.10%
AAA	100.00%	0.00%	100.00%	N/A	N/A
AA	100.00%	42.16%	57.84%	$78,756,160.00	1.27%
A	60.00%	24.57%	35.43%	$45,900,000.00	1.04%
BBB & NR	40.00%	28.02%	11.98%	$52,336,872.79	1.00%
Below BBB	0.00%	0.00%	0.00%	N/A	N/A

Certification by Responsible Accounting Officer

I, Jason Cooke, hereby certify that all investments have been made in accordance with Section 625 of the Local Government Act 1993, Clause 212 of the Local Government (General) Regulation 2005 and Council’s Investment Policy.

Finance Policy Committee 2 February 2021

2.2 Quarterly Budget Review and Progress Report - Quarter 2 of 2020/2021

RECORD NUMBER: 2021/22

AUTHOR: Jason Cooke, Chief Financial Officer

EXECUTIVE Summary

This report provides the first quarter review of the 2019-2022 Delivery/Operational Plan, as required under section 403 of the Local Government Act 1993. This report illustrates the progress Council is making on the strategies and tasks identified in its strategic planning documents.

This report also provides a summary of Council’s financial position over the quarter. The Directions (Collaborate, Live, Prosper, Preserve) financial summary tables with the attached Performance Indicators and quarterly review documents have been reviewed and updated and include projects across all three funds (General, Water and Sewer).

Link To Delivery/OPerational Plan

The recommendation in this report relates to the Delivery/Operational Plan strategy “17.2 Collaborate - Ensure financial stability and support efficient ongoing operation”.

Financial Implications

The Quarterly Review has identified favourable variations totalling $1,816,670 to Council’s adopted September 2020 quarterly budget. The effect of these variations results in Council’s projected overall year-end consolidated position becoming a much smaller deficit of $1,550,465 including capital.

Table 1 below presents Council’s projected year-end result by Direction as identified in the Community Strategic Plan and the Delivery/Operational Plan. It is important to note that all red bracketed numbers in Tables 1-3 below indicate a surplus result for Council.

Direction	Adopted Budget	Proposed Variations	Proposed Budget
Collaborate	(24,545,595)	111,000	(24,434,595)
Live	15,583,654	(33,679)	15,549,975
Prosper	1,083,255	72,728	1,155,983
Preserve	11,245,821	(1,966,719)	9,279,102
Total	3,367,135	(1,816,670)	1,550,465

Table 1: Projected year-end position by Direction

Table 2 presents Council’s projected year-end result by Fund, showing Cost to Council (which includes capital expenditure, capital income and funding).

Fund	Adopted Budget	Proposed Variations	Proposed Budget
General	4,341,028	150,049	4,491,077
Water	(105,581)	(1,166,719)	(1,272,300)
Sewer	(868,312)	(800,000)	(1,668,312)
Total	3,367,135	(1,816,670)	1,550,465

Table 2: Projected year-end position by Fund

Table 3 presents Council’s projected year-end Operating Result (before capital) by Fund.

Fund	Adopted Budget	Proposed Variations	Proposed Budget
General	3,691,189	(163,371)	3,527,818
Water	4,975	30,000	34,975
Sewer	(790,125)	0	(790,125)
Total	2,906,039	(133,371)	2,772,668

Table 3: Projected year-end operating result by Fund

Material changes to budget in the December quarterly review

Further information on the individual variations proposed as part of this review, which have a material effect on Council’s financial results, is detailed in Tables 4 to 9 below.

While there are a number of variations detailed in the Tables, the significant contributors to the overall net variation are the deferment of several water and sewer capital projects. Four new positions have been added to the budget with recruitment to happen if this quarterly report is resolved by Council. The new positions are a conversion of casual staff to a permanent part time assistant at the animal shelter, conversion of two temporary roles to permanent part time roles at the Caravan Park and a permanent part time swim schools program coordinator at the aquatic centre. There is minor budgetary impact in the current financial year however the positions are ongoing and included in the structure going forward.

Table 4: General Fund Operating Result

Table 5: General Fund Overall Cost to Council

Table 6: Water Fund Operating Result

Table 7: Water Fund Overall Cost to Council

Table 8: Sewer Fund Operating Result

Table 9: Sewer Fund Overall Cost to Council

Policy and Governance Implications

Nil

Recommendation

That Council resolves:

1 That the information provided in the report on the quarterly budget and performance indicators review for October 2020 to December 2020 be acknowledged.

2 The bank reconciliation statement be acknowledged.

3 To adopt favourable variations in the consolidated overall cost to council arising from the December 2020 quarterly review amounting to $1,816,670.

further considerations

The recommendation of this report has been assessed against Council’s other key risk categories and the following comments are provided:

Service Delivery

The Performance Indicators highlight progress in achieving the strategies and actions set by Council’s Delivery/Operational Plan. The “traffic light” indicators show the status of each task. A green light indicates the task is on track. An amber light suggests some delay and a red light is provided to those tasks that are unable to be achieved. All tasks have a comment that indicates progress.

SUPPORTING INFORMATION

Highlights of the Quarter

· Work began on the Orange Regional Gallery’s $5 million extension after a sod–turning event attended by the NSW Arts Minister Don Harwin. The extension is funded by the NSW Government’s Regional Cultural Fund ($4,052,990) and Orange City Council ($1,000,000) with community contributions.

· There was activity on the FutureCity program:

o A series of community information sessions were held to keep the community in touch with unfolding aspects of the Future City plans to upgrade the CBD. Sessions were held with residents and members of the business community.

o Among the first changes in places were large heritage images fitted to the windows of vacant shops in a bid to revitalise the streetscape and make walking in the centre of town more enjoyable for locals and visitors alike.

o The $1.5 million Future City ‘Whiteway’ project, an upgrade of footpath lighting in Summer Street, was turned on. Council and community leaders were on hand on to see the automatic lights switch on for the first time on 30 October.

o As part of Future City, Council funded up to $50,000 worth of Christmas decorations to beautify the area and brighten people’s sprits. The extra spend on Christmas decorations was in lieu of the annual Carols by Candlelight event which could not go ahead because of Coronavirus restrictions.

· The lack of international holiday options led to increased numbers of tourists in Orange. A record number of travellers entered the Orange Visitors Centre over the October long weekend, more than double the number from the previous year.

· Water Polo returned to the line-up of activities at the Aquatic Centre. COVID safe games were arranged and there was a boost in registrations ahead of its season opening.

· The appointment of an expert consultant and a community survey was part of plans to develop a new guide to the future management of flying foxes.

· Work continued on a number of major road projects:

o Work began on an upgrade of Ploughmans Lane, between Coronation Drive and Escort Way.

o Congestion on the Northern Distributor eased when the $5.5 million roundabout at Hill Street and William Maker Drive opened to traffic.

o Work has begun on the $7.5 million next stage of Orange’s southern feeder road. Community leaders gathered for a brief ceremony to signal the start of work.

· Council supported plans to take the annual NYE celebrations in a new direction, replacing fireworks with a major laser show at Wade Park.

· With total water storage levels hovering around 60 per cent and Orange on Level 2 water restrictions, Council adopted permanent water saving standards, regardless of the city’s water storage level. The permanent water saving standards come into effect when the combined water storage level reaches 80 per cent.

· A new fence was built around the arena at Orange Showground, aimed at making the facility safer and more secure for users. The arena is used for the annual Orange Show, and doubles as a leash-free pet exercise area.

· There were efforts to boost awareness of a system to help curb incidents of vandalism in the city. The Council program aims to reward people for information leading to the conviction of anyone found vandalising.

· Wade Park was boosted by two new upgrades:

o The cutting of a ribbon signalled the completion of the state’s latest ‘Cricket & Community Centre’. The new $3.4 million indoor cricket centre will host training and educational facilities.

o 698 new grandstand seats were installed at Wade Park courtesy of a $100,000 grant from the Australian Government.

· Work began on a major environmental investigation of Mount Canobolas to see if a network of mountain bike tracks can be built that are sympathetic to the environment. The investigation is the latest milestone in a long-running proposal to make Orange a hub for mountain bike enthusiasts.

· The first stage of plan for a new sporting precinct, which includes removing trees on a site alongside Sir Jack Brabham Park, went on-show for community comment. Due to the size of the $25 million dollar development, planning approval for the project is being handled progressively in stages.

Other Expenses

The format of the attached financial reports and the financial statements is prescribed. Council has requested details of the “Other Expenses” element in the statements given the high value of this item. The additional information is provided in Table 9 below. As at the end of December 2020, actual expenses were on track at 48 per cent of the annual budget.

Table 9: Details of other expenses

Review of Income

Figure 1 below provides a snapshot of the split of Council’s income against budget.

Figure 1: Council’s income as a percentage of annual budget as at 31 December 2020

Income streams such as User Charges and Fees and Other Revenues are currently slightly above budget but generally their rate of receipt is consistent throughout the year.

As Council’s annual rates are levied in July of each year, this income is almost fully recognised in the first quarter.

Other income streams are subject to external influences including interest rates, occurrences of development, or the success of grant applications. These income streams are routinely reviewed, and adjusted as appropriate, at each quarterly review.

On the assumption that all income is received at a constant consistent rate over the year, by the end of the December quarter 50 per cent should have been received. However, given the recognition of almost all rates and annual charges in the first quarter, approximately 64 per cent of revenue should have been received. The “all income” bar of Figure 1 shows progress is slightly below this expected figure due mainly to the timing of interest due and grants and contributions not yet received.

Rates and Charges Collection

For the quarter, a total of $5.4 million (13.7 per cent) remained outstanding for rates and annual charges. For the purposes of comparison, for the same quarter last financial year 13.4 per cent of the amount payable remained outstanding.

Figure 2: Outstanding rates Q2 2020/21 vs Q2 2019/20

Review of Operating Expenditure

Figure 3 provides a snapshot of the progress of Council’s operating expenditure.

Figure 3: Details of Council’s expenditure as a percentage of annual budget as at 31 December 2020

In general, Council’s routine operational expenses should be incurred at a consistent rate. These include expense groupings such as Employee Costs, Materials and Contracts, Plant Expenses, Depreciation and Other Expenses. As presented in Figure 3 above, most of these expense groups are slightly below budget.

Council rates for Council-owned properties are paid in full at the start of the year, however these are a minor component of overall expenses.

On the assumption that all expenses are incurred at a constant consistent rate over the year, by the end of the December quarter 50 per cent should have been paid out. The “all expenditure” bar of Figure 3 shows performance is better than budget.

Review of Capital Expenditure

Figures 4 to 6 below provide a snapshot of the progress of Council’s capital expenditure against budget by fund. It is important to note that the first half of the year encompasses a lot of planning and preparation, with many projects not scheduled to be in full swing until Summer, while others are still awaiting confirmation of grants being secured before being able to proceed.

Figure 4: General Fund Capital Projects – Progress by number of projects as at 31 December 2020

Figure 5: Water Fund Capital Projects – Progress by number of projects as at 31 December 2020

Figure 6: Sewer Fund Capital Projects – Progress by number of projects as at 31 December 2020

Financial Performance Indicators

Figures 7 to 9 below represent financial performance against local government industry indicators from the annual financial statements. The charts compare annualised actual performance from 2019/20 against the original 2020/21 budget and the proposed Q1 revised 2020/21 budget.

Figure 7: Operating performance ratio

The purpose of the operating performance ratio is to measure the extent to which Council succeeds in containing operating expenditure within operating revenue (excluding capital grants and contributions). The formula is as follows:

(Total continuing operations revenue excluding capital grants and contributions minus operating expenses) divided by (Total continuing operations revenue excluding capital grants and contributions)

The performance to date indicates Council is tracking below the benchmark due mainly to the forecast operating deficit for the 2020/21 year when compared to the operating surplus achieved in 2019/20.

Figure 8: Own source operating revenue ratio

The purpose of the own source operating revenue ratio is to measure fiscal flexibility by analysing the degree of reliance on external funding sources. The formula is as follows:

(Total continuing operations revenue minus all grants and contributions) divided by

(Total continuing operations revenue inclusive of all grants and contributions)

The performance to date indicates Council is below the benchmark, with a significant increase in the level of funding expected to come from capital grants and contributions for major projects in 2020/21.

Figure 9: debt service cover ratio

The purpose of the debt service cover ratio is to measure the availability of operating cash to service debt including interest, principal and lease payments. The formula is as follows:

(Operating results before capital excluding interest and depreciation) divided by

(Principal repayments from the cashflow statement plus borrowing costs from the income statement)

The performance to date indicates Council is tracking in advance of the benchmark. The budgeted performance is below the 2019/20 ratio due to the surplus operating result achieved in 2019/20 combined with lower loan repayments and interest than is forecast for 2020/21.

Bank Reconciliation

In addition to the information presented in the report, the latest bank reconciliation report is attached for Council’s information.

Report by Responsible Accounting Officer

The following statement is made in accordance with Clause 203(2) of the Local Government (General) Regulation 2005:

As the Responsible Accounting Officer, it is my opinion that the Quarterly Budget Review Statement for Orange City Council for the quarter ended 30 September 2019 indicates that Council’s projected financial position for 30 June 2020 will be satisfactory having regard to the project estimates of income and expenditure, and variations contained therein.

Jason Cooke, Responsible Accounting Officer

Attachments

1 December 2020 Quarterly Bank Reconciliation, D21/3089 ⇩

2 December 2020 Quarterly Review, D21/3085 ⇩

3 Progress Report - 2018/22 Delivery Program (Year 3) - Operational Plan 2020/2021 - First Six Months (1 July 2020 to 31 December 2020), D21/4019 ⇩