Agenda of Finance Policy Committee - Tuesday, 2 November 2021

Finance Policy Committee 2 November 2021

2.1 Quarterly Budget Review and Progress Report - Quarter 1 of 2021/2022

RECORD NUMBER: 2021/2457

AUTHOR: Josie Sanders, Management Accountant

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 unfavourable variations totalling $749,116 to Council’s adopted budget. The effect of these variations results in Council’s projected overall year-end consolidated position becoming a slightly larger deficit of $2,693,251 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	(24,658,662)	229,796	(24,428,866)
Live	17,683,161	444,320	18,127,481
Prosper	(3,191,605)	0	(3,191,605)
Preserve	12,111,241	75,000	12,186,241
Total	1,944,135	749,116	2,693,251

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	3,543,316	709,116	4,252,432
Water	(250,204)	40,000	(210,204)
Sewer	(1,348,977)	0	(1,348,977)
Total	1,944,135	749,116	2,693,251

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	2,224,061	924,761	3,148,822
Water	(140,617)	(126,000)	(266,617)
Sewer	(1,257,235)	0	(1,257,235)
Total	826,209	798,761	1,624,970

Table 3: Projected year-end operating result by Fund

Material changes to budget in the September 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 7 below.

While there are a number of variations detailed in the Tables, the significant contributors to the overall net variation are the reallocation of operating grants and funds to capital projects, capital works in and around the new gallery extension and new positions in corporate and commercial services. Three new positions have been added being the Grants Officer, GIS & Spatial Coordinator and Communications Coordinator. There is a budgetary impact in the current financial year however these positions are proposed as ongoing and if successful will be 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

There were no Sewer fund revisions to report in the September quarter.

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 July 2021 to September 2021 be acknowledged.

2 The bank reconciliation statement be acknowledged.

3 To adopt unfavourable variations in the consolidated overall cost to council arising from the September 2021 quarterly review amounting to $749,116.

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

· A long-term masterplan was adopted during the quarter, which proposes major upgrades to the Lake Canobolas precinct - A draft masterplan which was on exhibition for community comment, attracted seven formal submissions and 192 responses. The most sought after infrastructure upgrade was for more boardwalks and viewing platforms.

· In a long-awaited sign of recovery from the drought, water began flowing over the wall of Orange’s major water storage dam at Suma Park - The landmark event began Sunday afternoon, 18 July. By 9am Monday, 19 July, there was 186 mms of water topping the dam wall.

· Work began with a new Council initiative to attract new customers to CBD businesses through the creation of their own online presence - As part of the Future City initiative, Orange City Council engaged digital experts to develop modern and engaging websites for CBD businesses. Council is funding the development of the websites and more than 20 CBD businesses took up the offer.

· With the onset of prolonged rain, Council doubled the number of crews to fill wet weather potholes in the city’s streets and rural roads - Four crews used 48 tonnes of cold mix asphalt to fill pot-holes in the last week of July, bringing the total to 117 tonnes of cold mix asphalt used to fill pot-holes in July.

· Plans to build a new home for the Orange Regional Conservatorium reached another milestone with work beginning by architectural firm Brewster Hjorth to create detailed designs for the building - Council awarded the $933,000 contract to produce detailed design plans for the conservatorium and planetarium to be built in March Street.

· The Landscape Masterplan for Orange’s new sports precinct was released in August. The proposed site is next to Sir Jack Brabham Park, creating a parkland setting with walking trails, recreation and meeting areas, BBQ spaces and water features - The draft masterplan shows the location of key facilities such as the 1500-seat stadium alongside Forest Road and a specialist athletics track next to Huntley Road.

· The rollout of smart water meters across the city continued during the quarter, with the potential to save millions of litres of wasted water each year - The aim is to better understand water usage and water loss across the city, as well as encouraging users to be more water efficient. The system has been up and running since the end of 2020.

· Work on a major safety upgrade to the intersection of Dalton and Sampson streets will began in late September - The $145,000 project is funded by the Federal Government through its Black Spot Program, and will involve the construction of a raised hot-mix asphalt intersection and pedestrian medians.

· Orange City Council and Maas Group Properties reached an agreement during the quarter for the sale of the west end of the former Orange Base Hospital site - The estimated projected delivery timeframes include 15 Townhouses on the north of the site by 2024, and 61 Apartments in the south of the site by 2025. These works will conclude simultaneously in 2025 with the unveiling of a public park at the centre of the site.

· A new trial was unveiled aiming to boost revenue from the sale of surplus electricity from Council’s three largest solar arrays - The Council signed on for a two-year trial with electricity re-seller, South Street Energy. South Street Energy sells electricity from solar systems of 40kW or greater to the wholesale electricity market, sharing income with their customers.

· A network of more than 100 kilometres of mountain bike trails was unveiled during the quarter, part of the proposal to make Mount Canobolas a world-class centre to attract mountain biking enthusiasts - The new map of bike trails was produced by a firm of environmental consultants (The Environmental Factor) engaged by Orange City Council, who spent months examining areas of the mountain which should be protected and avoided by the new trail network.

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 30 September 2021

Income streams such as User Charges and Fees and Other Revenues are currently on track as 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 September quarter 25 per cent should have been received. However, given the recognition of almost all rates and annual charges in the first quarter, approximately 47 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 operating and capital grants still to be received.

Rates and Charges Collection

For the second quarter, a total of $4.8 million (20.99 per cent) remained outstanding for rates and annual charges. For the purposes of comparison, for the same quarter last financial year 40.90 per cent of the amount payable remained outstanding. The difference between 2020/21 and this year is due to the mandated Covid-19 legislative provisions that allowed ratepayers an extra month to pay their first instalment.

Figure 2: Outstanding rates Q1 2021/22 vs Q1 2020/21

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 30 September 2021

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, Depreciation and Other Expenses. As presented in Figure 3 above, most of these expense groups are slightly below budget. Depreciation ordinarily would be consistent throughout the year, however depreciation is not able to be generated until after the finalisation of the previous year’s financial statements. As at the end of the quarter, these statements were still in the process of being prepared and audited. 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 September quarter 21 per cent should have been paid out. The “all expenditure” bar of Figure 3 shows performance is better than budget.

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 8 below.

Table 8: Details of other expenses

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 three months encompass a lot of planning and preparation, with many projects not scheduled to commence until Spring and Summer, and others awaiting confirmation of grants being secured before being able to proceed.

Figure 4: General Fund Capital Projects – Progress by number of projects

Figure 5: Water Fund Capital Projects – Progress by number of projects

Figure 6: Sewer Fund Capital Projects – Progress by number of projects

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 2020/21 against the original 2021/22 budget and the proposed Q1 revised 2021/22 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 2021/22.

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 2020/21 ratio due to the surplus operating result achieved in 2020/21 combined with lower loan repayments and interest than is forecast for 2021/22.

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 2021 indicates that Council’s projected financial position for 30 June 2021 will be satisfactory having regard to the project estimates of income and expenditure, and variations contained therein.

Jason Cooke, Responsible Accounting Officer

Attachments

1 September 2021 Quarterly Bank Reconciliation, D21/68453 ⇩

2 Council Summary Report - September Review, D21/68454 ⇩