Late Items Agenda of Elected Members' Briefing Session

CITY OF WANNEROO Late Items Agenda OF Elected Members' Briefing Session 03 February, 2020 1

Late Items Agenda

Item 5 Late Reports

5.1 2019/2020 Mid Year Review - Annual Planning and Budget

File Ref: 36171V02 – 20/12358

Responsible Officer: Director Corporate Strategy & Performance

Disclosure of Interest: Nil

Attachments: 4

Issue

To consider the Mid-Year Review (MYR) of the Annual Budget for 2019/20 (Annual Budget) and the Corporate Business Plan 2019/20 to 2022/23.

Background

Regulation 33A of the Local Government (Financial Management) Regulations 1996 requires a local government to carry out a review of its Annual Budget for that year between 1 January and 31 March in each year. Within 30 days after the review is carried out, the review is to be submitted to the Council for consideration. Council is to consider the review and determine whether or not to adopt. The Revised Budgets resulting from the MYR are detailed in Attachments 1, 2 and 3 and are inclusive of endorsed amendments from Council and MYR recommendations.

This review of the Corporate Business Plan (CBP) 2019/20 to 2022/23 was conducted in conjunction with the legislated mid-year budget review to capture any financial implications to proposed changes as outlined in Attachment 4.

Detail

Annual Budget 2019/20

The MYR of the Annual Budget was undertaken during the month of January 2020 based on data as at 31 December 2019. Commentaries on Revised Budgets as a result of the MYR are provided below.

The overall adjustments captured through the MYR reflect an unfavourable impact to the Result from Operations of $918k, with the end of year Result from Operations post MYR reducing from a Budget Surplus of $843k to a Deficit of $75k. With the Capital Program, the Revised Budget post MYR is projected to be $90.4m, representing a $8.4m reduction. Budgeted Net Transfers from Reserves have reduced by $2.1m which is largely due to decreased requirement towards Capital Projects.

Statement of Comprehensive Income (Attachment 1)

Operating Income (-$1.2m)

Rates (-$942k)

The full year forecast has reduced the Rating Income by reducing Interim Rates by $942k to $134.6m. This is due to successful objections by Developers on the Super Lots of $576k and similarly on Residential Properties of $286k. In addition, there have been amended valuations from Landgate for Residential Properties against Base Rates of $124k.

Operating Grants, Subsidies and Contributions (+$941k)

The City is expected to experience an increase in government funded grants and other income of $941k. The major accounts affecting this increase are:

· Operating Grant Income - State Government increased by $601k (7.1%), reflecting an additional $177k of Financial Assistant Grant for general purpose; $147k of Grant due to extension of Department of Communities contract; and $205k for Mitigation Activity Fund.

· Court Fees for Debt Recovery increase of $389k (141.3%) being offset by increase in expenditure. This increase in fees reflects the increase in attention to the long outstanding overdue Rates.

Fees and Charges (-$238k)

The full year forecast is revised down by $238k (-1%) with the major accounts affecting income under this category being:

· Facility Booking Fee Income from Sport Playing Surfaces has been decreased by $450k (10.9%) to reflect in reduction of internal accounting entry for subsidies provided by the City. The contra adjustment is also reflected under materials and contract expenditure as noted below;

· User or Entry Fee Income within Community Facilities has been increased by $492k (25%) to accommodate growth of the membership of Aquamotion as a result of promotions and sales training;

· Land Development Supervision Fee Income has decreased by $200k (57.1%) due to the subdued activity in sub-divisions in the Perth property market.

Interest Earnings (-$1.14m)

The budget forecast is decreased by $1.14m (-13%) as a result of the historically low Cash Rate (currently at 0.75%). The current weighted average interest rates are ranging between 2.61% in July 2019 and 2.03% in December 2019. The interest rates being negotiated on renewals of term deposits is between 1.50% and 1.60% which has been taken into account to amend the expected interest income for the year.

Other Revenue (+$148k)

Key reasons for overall $148k increase is due to a reimbursement of extra Waste Recovery costs from the City’s insurer, Local Government Insurance Scheme (LGIS), for $250k offset by $102k lower Sale of products and Miscellaneous Income which has been reduced due to actual income lower than anticipated.

Operating Expenses (+309k)

Employee Costs (+$954k)

The full year forecast for Employee Costs is a decrease of $954k which allows for vacancies and efficiencies obtained from improved processes of $1.2m offset by slight increase of $226k mainly due to lower project administration recoveries.

This mid-year forecast has been completed after considering increased Capital Works in the second half of the financial year. Once allowances for workers compensation insurance and changes to employee enterprise agreements are factored in, all other Salaries and Wages accounts are tracking as per the Annual Revised Budget with no Mid-Year Adjustments being required.

Materials and Contracts (-$700k)

The full year Materials and Contracts budget is revised to $69.3m, being an increase of $700k (+1.0%) compared to Revised Budget. Explanations of the larger areas of change are outlined below:

· Contract Expenses (+$590k):

Decrease in contract expenses of $590k is mainly attributable to reduction in web and graphic design services of $362k in this financial year and reduction of internal accounting entry for subsidies provided by the City of $450k. The contra adjustment is also reflected under fees and charges as noted above.

These savings are offset by an increase in emergency services expenditure of $100k due to increased Work Orders set up for Yanchep Fire and Volunteer Bushfire Brigade (VBFB) Medicals (not cover by the Emergency Services Levy (ESL).

In addition, there has been an increase in commercial bin hire and managing Customer & Information services of $99k due to unanticipated contract variations.

· Refuse Removal Expenses (-$1.3m):

The key variance relates to increase in Domestic Recycled Refuse Removal expenses of $1.6m driven by the higher rate charged for diverting waste to the Mindarie Regional Council (MRC) as a result of the fire at the Cleanaway site at South Guildford. This is offset by reduction in bulk rubbish collection expenses of $153k, reduced tonnage collected from removing verge and illegal dumping of $66k and reduced expenditure of $99k in Engineering Maintenance services in line with projected decrease in materials to be disposed.

As noted above under “Other Revenue”, the City’s insurer, LGIS will reimburse approximately $250k to offset the additional recycling costs incurred of $1.6m.

Utility Charges (+$64k)

A decrease in utility charges of $64k (1%), being driven by a reduction in telephone costs of $60k and water consumption costs of $35k offset by slight increase in Electricity costs of $28k.

Other Revenues & Expenses (-$5.9m)

Non-Operating Grants, Subsidies & Contributions (+$72k)

The forecast end of year figure represents an overall increase of $72k (0.2%), being the net result of grant upward adjustments as detailed in Attachment 2.

Contributed Physical Assets ($No change)

As at the end of December 2019 $5.2m contributed assets were recorded against the Annual Budget of $16.3m. There have been no indications of changes to the timing of the handover of assets from Developers and as such no amendment to the current year forecast.

Profit/(Loss) on Asset Disposals (+$103k)

A $103k increase (+18%) is identified, attributed to higher than expected sales at Tamala Park due to improving market conditions.

Developer Contribution Plans (DCP) & Town Planning Schemes (TPS) (-$6.1m)

Latest planning activities have indicated developers’ contributions will be lower than the Annual Budget by $6.1m (84%). The main changes are as a result of:

Description	Amount ($)
TPS – Yanchep/Two Rocks Community Facilities – Revised DCP Rate	(841,254)
East Wanneroo Cell 1 - Reduced cash capital contribution	(666,407)
East Wanneroo Cell 9 – Reduced cash capital contribution	(1,694,000)
East Wanneroo Cell 9 – Public Open Spaces (POS) acquisition and development	(2,640,000)
TPS – Alkimos/Eglinton Community Facilities - Reduced cash capital contribution	(368,930)
East Wanneroo Cell 3 – Additional cash capital contribution	112,288
Total	(6,098,303)

Capital Projects (Attachment 2) (+$8.4m)

Review of the Capital Program has produced various adjustments to projects as detailed in Attachment 2. These adjustments have resulted in a net reduction in the capital program of $8.4m, with the post MYR Revised Budget projected to be $90.4m.

With particular attention paid to the timing of the spending on large projects, there have been a number of projects relinquishing funds in 2019/20 for consideration during the 2020/21 Capital Budget development deliberations.

Some of the major deferrals, and the explanations for them, are as follows:

· PR-2955 – Halesworth Park, Butler, New Sports Facilities (+$5.5m)

To be re-budgeted due to delays in the receipt of the clearing permit.

· PR-2664 – Southern Suburbs Library, Landsdale, New Building (+$250k)

Funds to be re-budgeted in 2020/21, due to review of concept design to suit Landsdale site and internal stakeholder requirements. Detailed design as per Council approval is scheduled for 2020/21.

· PR-4071 – Renew Customer Request Management (CRM) System (+$199K)

The City’s focus has been on the delivery of the Financial Management Information System (FMIS) and the development of the Asset Management Information System (AMIS) resulting in deferral of the CRM to be re-budgeted in 2020/21.

In addition, the following new projects have been identified:

· PR-1464 – Purchase New Waste Recyling Bins (-$176k)

This re-classifies the purchase from Operating to Capital expenditure when we buy new bins.

· PR-4243 – Gumblossom Park, upgrade soccer fence (-$17k)

The soccer fence at Gumblossom Park, Quinns Rocks requires modification to provide space for temporary dugout structures during the soccer season. This will improve safety at the site.

· PR-4244 – New centre management system for Aquamotion and

Kingsway (-$100k)

The facilities at Aquamotion and Kingsway Indoor Stadium require a new centre management system to replace the old system (Class) which is no longer supported by the provider. Without IT support for the current system, the City is at risk if any issues were to arise.

· PR-4246 – Wangara Greens Recycling Facility, Wangara, new waste oil storage shed (-$15k)

A new waste oil storage shed is urgently required at the City’s greens recycling facility in Wangara to allow for the increase to the range of products that ratepayers are able to drop off at the facility.

· PR-4247 – Wangara Transfer Station, Wangara upgrade site works (-$200k)

As a result of the recent fire at the Cleanaway recycling facility in South Guildford, the City has had to urgently recommission the facility at Wangara to temporarily store the recycling collected as part of the domestic waste collection service. Works include the construction of a sump.

· PR-4249 – Abbeville Park, Mindarie, Oval extension (-$33k)

An extension to the existing oval is required to allow for two full sized soccer ovals to enable expanded capacity.

· PR-4250 – Edgar Griffiths Park, Wanneroo, New car park (-$10k)

To support the new dog park, an additional car park is required due to capacity issues.

· PR-4251 – St Andrews Park, Yanchep, Upgrade soccer pitch to new

location (-$20k)

Funds required to relocate soccer pitch to suit new school site.

· PR-4252 – Capricorn Esplanade, Yanchep, New traffic management

treatments (-$12k)

Funds required for traffic management improvements as part of the Yanchep Lagoon Masterplan.

Rate Setting Statement (refer to Attachment 3)

The Rate Setting Statement outlined in Attachment 3 represents a composite view of the finances of the City. It is based on the movement of Operations and Capital Works revenue and expenditure providing an indication of the required Rating income. The resultant position identifies a reduction in Rates to be raised of $942k, inclusive of a net decrease from Reserves of $2.1m.

Corporate Business Plan (CBP)

As part of the mid-year review process, responsible officers have had the opportunity to review the adopted initiatives and Key Performance Indicators (KPIs) captured within the CBP and make recommendations for changes.

Mid-year CBP Review Summary of Changes

· 7 changes to initiative descriptions to reflect changes in scope or deliverable

· 1 new initiative added

· 9 initiatives recommended for deferral of completion dates to 2020/21

· 2 new KPIs added

· 10 changes to KPI descriptions

· 4 changes to KPI targets

· 30 KPIs to be removed for monitoring internally by Executive

Consultation

Internal stakeholders.

Comment

Mid-year Annual Budget Review Summary of Changes

Operating

Total operating changes submitted through the MYR equate to an unfavourable movement of $918k which is summarised as:

· A reduction in Rates by $942k as a result of objections to valuations.

· An increase in Operating Grants, Subsidies & Contributions $941k.

· Reduction in Fees & Charges and Interest Income of $238k and $1.1m respectively.

· An increase in Other Income by $148k with the main change being a reimbursement of $250k from LGIS for additional recycling costs incurred;

· A decrease in Employee Costs of $954k, with $1.2m due to vacancies and efficiencies offset by lower project administration recoveries of $226k.

· An increase in materials and contracts by $700k mainly due to higher waste recycling fees offset by lower contract expenditure with deferral of projects.

Capital

Of the $8.4m reduction in the Capital Program budget a large proportion has been deferred for consideration in 2020/21. With regard to the financial impact on Municipal Funds a reduced draw of $2.4m has been identified.

Yanchep/Two Rocks Developer Contribution Plan (DCP) - Loan Extension

The operating period of the Developer Contribution Plan for Yanchep/Two Rocks was approved through Council on 13 November 2018 as part of the Town Planning Scheme amendment 166 (Gazetted on 18 June 2019) from 10 to 16 years. The City’s projections indicate that 16 years will be required to generate adequate funding without significantly increasing the cost per dwelling. As a consequence, the current existing loans with Commonwealth Bank of Australia (CBA) which have a maturity date of 8 September 2024 need to be extended by six years to 2 December 2030 as per preliminary negotiations with CBA (Recommendation 2).

Statutory Compliance

Regulation 33A of the Local Government (Financial Management) Regulations 1996 requires a local government to carry out a review of its Annual Budget for that year between 1 January and 31 March in each year. Within 30 days after the review is carried out, the review is to be submitted to the Council for consideration. Council is to consider the review and determine whether or not to adopt.

Strategic Implications

The proposal aligns with the following objective within the Strategic Community Plan 2017 – 2027:

“4 Civic Leadership

4.2 Good Governance

4.2.2 Provide responsible resource and planning management which recognises our significant future growth”

Risk Management Considerations

The tables below outline the Strategic and Corporate risks within the City's existing risk registers which relate to the issues contained in this report.

Risk Title	Risk Rating
Financial Management	Moderate
Accountability	Action Planning Option
Executive Management Team	Manage

Risk Title	Risk Rating
Integrated Planning and Reporting	Low
Accountability	Action Planning Option
Executive Leadership Team	Manage

The above risks relating to the issues within this report has been identified and considered within the City’s corporate risk register. Action plans have been developed to manage the risks and to improve the existing management systems.

Policy Implications

The MYR has been undertaken in accordance with the requirements detailed in the City’s Accounting Policy and Strategic Budget Policy.

Financial Implications

As outlined above and detailed in Attachments 1, 2 and 3. The CBP initiatives that are proposed for deferral to 2020/21 have been incorporated in the review of the current budget.

Voting Requirements

Absolute Majority

Recommendation

That Council APPROVES by ABSOLUTE MAJORITY:

1. The Mid-Year Review of the Annual Budget for the 2019/20 financial year in accordance with Regulation 33A of the Local Government (Financial Management) Regulations 1996, as shown in Attachments 1, 2 and 3;

2. The extension of the Commonwealth Bank of Australia loans tenure to fund the Yanchep/ Two Rocks Development Contribution Plan to 2 December 2030; and

3. The proposed changes to the Corporate Business Plan 2019/20–2022/23 outlined in the Mid-Year Corporate Business Plan Review report, as shown in Attachment 4.

Attachments:

1 ⇩.	Attachment 1 - Statement of Comprehensive Income MYR 2019-20	20/35786	Minuted
2 ⇩.	Attachment 2 - 2019-20 Capital MYR	20/35802	Minuted
3 ⇩.	Attachment 3 - Rate Setting Statement MYR 2019-20	20/35794	Minuted
4 ⇩.	Attachment 4 - Corporate Business Plan 2019-20 Mid-year Review Report	20/21605	Minuted