Ordinary Meeting



Meeting Date:     Tuesday, 26 September, 2017

Location:            Council Chambers, City Administrative Building, Bridge Road, Nowra

Time:                   5.00pm



Membership (Quorum - 7)

All Councillors





Addendum Agenda


Committee Reports

CL17.270..... Report of the Aboriginal Advisory Committee - 11 September 2017............. 1

AA17.16...... Additional Item - Amend the Terms of Reference and Membership

AA17.17...... Membership Request - Natalie Lloyd


CL17.271..... Investment Report August 2017..................................................................... 8

CL17.272..... Pathways to financial sustainability.............................................................. 11                           




Addendum Agenda - Ordinary Meeting – Tuesday 26 September 2017

Page 1



CL17.270   Report of the Aboriginal Advisory Committee - 11 September 2017


HPERM Ref:       D17/315091


Attachments:     1. Aboriginal Advisory Committee Terms Of Reference - Proposed Amendment





AA17.16     Additional Item – Amendment of the Terms of Reference and Membership



1.    The Terms of Reference be amended to reflect that if members haven’t attended 3 meetings without an apology that a reminder/courtesy letter be sent advising that they have missed 3 meetings and their membership will lapse if they do not confirm their membership in writing;

2.    The Terms of Reference be amended to reflect the membership being a total of 21 members made up of the following:

a.    13 Aboriginal Community members, including 2 youth members

b.    1 NPWS Representative (Valda Corrigan)

c.    3 LALC’s – Nowra LALC, Jerringa LALC and Ulladulla LALC

d.    3 Councillors

e.    General Manager or nominee



AA17.17     Membership Request - Natalie Lloyd


That Council thank Natalie Lloyd for her interest in the Aboriginal Advisory Committee and welcome Natalie to attend the meetings as a non voting participant.






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CL17.271   Investment Report August 2017


HPERM Ref:       D17/307300


Group:                Finance Corporate & Community Services Group  

Section:              Finance


Attachments:     1. Shoalhaven Monthly Investment Report August 2017 (under separate cover)




Purpose / Summary

Under Section 625 of the Local Government Act 1993 and Clause 212 of the Local Government (General) Regulation, it is a requirement to provide a written report to Council on a monthly basis setting out details of all money that Council has invested.



That the Report of the General Manager (Finance Corporate and Community Services Group) on the Record of Investments for the period to 31 August 2017 be received for information.




1.    The report on the Record of Investments for the period to 31 August 2017 be received for information.

Implications: Nil


2.    Further information regarding the Record of Investments for the period to 31 August 2017 be requested.

Implications: Staff will need to prepare a further report to provide any information that is required.


3.    The report on the Record of Investments for the period to 31 August 2017 be received for information with any changes requested for the Record of Investments to be reflected in the report for the period to 30 September 2017.

Implications: Nil



Please refer to the attached monthly report provided by Council’s Investment Adviser – CPG Research and Advisory Pty Ltd.

CPG Research and Advisory Pty Ltd have included a section on Council’s investment in institutions who lend to fossil fuels (see page 12).

The interest earned for the month of August was $466,966, which was $51,961 above budget.


The table below lists the major movements:

Total Cash and Investments

+ $10,788,758


Unrestricted General Fund Cash

+ $5,686,087

Receipt of the first Financial Assistance Grant and rates instalments

Other Internal Reserves

+ $2,281,697

Receipt of the first rates instalments for the special rate variation

Strategic Projects

- $1,256,044

Expenditure on projects

Financial Assistance Grant

+ $4,433,416

Recognition of advance payment less one instalment


- $5,361,175

Correction of opening balance due to new loans in 2016/17 financing the 3 year bullet loan

Waste Disposal

+ $1,655,736

Receipt of rates instalment

Sewer Fund

- $2,970,828

Expenditure on REMS

Water Fund

- $1,022,664

Expenditure on Projects



Certification – Responsible Accounting Officer:

I hereby certify that the investments listed in the attached report have been made in accordance with Section 625 of the Local Government Act 1993, clause 212 of the Local Government (General) Regulations 2005 and Council’s Investments Policy number POL16/186.



Michael Pennisi

Chief Financial Officer


Financial Implications

It is important for Council to be informed in regard to its investments on a regular basis.  Revenue from interest on investments forms a vital part of Council’s revenue stream.



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CL17.272   Pathways to financial sustainability


HPERM Ref:       D17/308897


Group:                Finance Corporate & Community Services Group 

Section:              Finance


Attachments:     1. Budget cut and revenue options

2. New capital works

3. Councillor Presentation: Resources Issues (under separate cover)




Purpose / Summary

To review and determine Council’s financial sustainability strategy (FSS) in light of the IPART decision to only part approve Council’s SRV application.

Council’s FSS must meet the OLG FFTF benchmarks.



That Council adopt Option 1 which will retain existing services, allow modest “new” asset spend, move towards meeting all FFTF benchmarks and stage the further rate increase required over the next three years.




1.    That Council prepare a revised DP/OP to reflect the proposed SRV application, under S508A of the Local Government Act 1993, to retain the 13.2% special variation approved as a one-off increase in 2017/18 as a permanent increase and for additional special variations (inclusive of a rate peg of 2.5% pa) of 5% in 2018/19, 5% in 2019/20 and 5% in 2020/21. (This is the recommended option)

Implications: Council will have the capacity to adequately maintain, renew and replace Council assets and meet community service expectations.  While the application to IPART is for a multi-year special variation, Council is able to adopt lesser rate increases each year according to prevailing conditions.  Council acknowledges there will be an impact on ratepayers and will continue to assist members of the community who experience hardship.  Staff will need to revise the Delivery Program, Operational Plan and Long Term Financial Plan in line with the adopted recommendations and report back to an extra-ordinary meeting of council for endorsement prior to public exhibition.


2.    Council chooses cost-cutting (service reductions) and/or revenue raising options from the lists attached to this report together with a lesser SRV (if needed) in order to achieve Council’s performance benchmarks

Implications: Each $600K improvement to Council’s Operating result is roughly equivalent to a 1% rate increase.  Council will need to consider a target for significant service level adjustments (not related to infrastructure maintenance or renewal) to maintain a pathway to financial sustainability.  Reducing service levels, in consultation with the community, can manage part of the funding gap; however, it is likely that Council will continue to operate with an annual deficit without some form of SRV.


3.    Council adopts SRV levels that will allow it to meet the asset renewal target of 100% by 2026/27 – this requires rate increases to lock in the current 13.2% increase plus addition of 5% p.a. for the next seven years followed by a 3.4% increase in 2025/26.

Implications: This is the optimum level for asset management but is likely to attract substantial public objection because of the higher rate increase required.


4.    Council does not adopt the recommendation (“do nothing”)

Implications: This would be a financially irresponsible pathway.  Council will not meet its operating performance ratio target over the planning horizon and there will be a deterioration in the asset renewal ratio.  The average cash deficit over the period amounts to $2.8M pa. which will quickly deplete council cash reserves. The Operating Deficit starts at $9.2M in 2018/19 and reduces over time to an average of $3.8M over the planned period.  Any decision that does not meet the Fit for the Future targets increases the risk of some form of Ministerial direction and discussions would need to be held with the Office of Local Government to understand the implications.



In February 2017, Council applied to IPART for 13.2% and 14% general rates income increases for 2017/18 and 2018/19, including known and projected rate pegs, to fund new infrastructure investment, reduce infrastructure backlog and improve financial sustainability.  Of the 2017/18 proposed increase, 0.2% was to enable Council to take out a loan of $2M for development of road infrastructure for Verons Estate.  IPART approved a one-year temporary increase of 13.2% for 2017/18 in May 2017.  The one year approval was given as IPART determined Council had not updated and advertised its Integrated Planning & Reporting documents for its special variation proposal.  In its determination, IPART commented “Overall, we consider on balance the community was adequately consulted, despite the IP&R documentation not discussing the full extent of the rate rise.”

As part of the Councillor Budget Workshop held on 31 August 2017, a number of cost cutting and revenue raising initiatives were discussed.  This report provides:

·    a number of cost cutting and revenue options for consideration

·    further details about one of the Long Term Financial Plan scenarios presented at the Workshop to allow Council to adopt a position on its revenue roadmap over the planning horizon.

However, it is up to Council to determine its funding priorities.  At the Councillor Budget Workshop, options were discussed to reduce costs by adjusting service delivery and increase revenue through additional fees and charges.  If adopted, the impact of these changes was estimated to be $600,000 pa, leaving a funding gap of, approximately, $11.2M pa, once expected increases to electricity charges and operational costs associated with the Shoalhaven Indoor Sports Centre are factored into Council’s Base Case scenario from 2019.  While continuation of the 2017/18 special variation as a permanent increase reduces the funding gap to $4.1M pa, it does not allow Council to adequately address asset renewal requirements over the 10 year planning horizon - as can be seen in the following chart:


The operating performance ratio exceeds the target of 0% by 2021/22, a year later than required under Fit for the Future.  The asset maintenance target is 100% and Council moves toward this target over the planning horizon.  An average of $15.5M pa over the planning horizon is needed to bring the Building and Infrastructure Asset Renewal Ratio up to the benchmark level of 100%, all other things being equal.

The Base Case contrasts strongly with a scenario where the 13.2% increase is not retained as a permanent increase to Council’s rate base:

In this case, Council will not meet its operating performance ratio target over the planning horizon and there is a deterioration in the asset renewal ratio.

While this report recommends applying for further special variation increases over the next three years, a list of cost-cutting measures and other revenue raising initiatives is presented in this report for Council’s consideration.

Cost Reduction and Revenue Increase Actions

There are several actions that would reduce the reliance on a SRV.

1.  Operational service reductions and revenue opportunities: These are identified at Attachment 1.  Option 2 (in Options) requests Council to consider cuts to operational budgets and increases in revenue to reduce the need for rate rises.  Council could identify a number of cost reductions and revenue increases from this attachment, however there are some serious outcomes that would arise, particularly relating to reduced services, increased complaints and delays.  Each $600,000 identified will decrease the need for a rate rise by approximately 1% and improve the Operating Performance Ratio.

However, benchmarking from the LG Professionals and PwC report, ‘Local government operational and management effectiveness report’, Office of Local Government comparative data and a range of internal indicators, indicate that:

a.    Total administration costs as a percentage of operating costs; and

b.    Staffing levels in corporate services (finance, customer services, IT & HR) and DA assessment

are already below industry levels, i.e., staff levels should actually increase in some areas to meet workloads and community expectations (see section on Resourcing Issues below).

Further reductions would lead to staff dissatisfaction and increased turnover, adding costs for recruitments, reduced productivity and increased absenteeism.

2.  Reduce capital expenditure by removing new, unfunded asset works, including any budgets to produce masterplans, complete detailed design works and the like.  A list of such works is in Attachment 2 and savings (cuts) up to $750K may be possible. Again, there are serious implications and community expectations will not be met.  By reducing CAPEX for “new works”, such as new community pathways etc., it will free up funds for renewal and maintenance works or simply improve the cash deficit position.

3.  Target further operational productivity improvements.  The LTFP includes a salary savings target of $233,900 in the 2017/18 budget and this is escalated over the forward years in line with projected award increases.  The salary savings target could be increased to, say, $500,000. To achieve this target requires a deliberate delay in replacing/recruitments when a vacancy occurs.  This results in a loss of capacity to undertake works, more pressure on other staff members and potential for service complaints.  In addition, savings in non-salary items (materials and contracts and other expenses) expenditures are budgeted at the rate peg and below CPI.  For the 2016/17 budget, this was quantified at $1.8M in savings.  Substantial “productivity” savings were also factored into the 2014/15 and 2015/16 budgets as part of the Transformation Program and further reductions will have a real impact on operations.

4.  Procurement savings. Continue to budget for savings from procurement. The estimated savings for 2017/18 is $60K.

There are diminishing returns from tendering activities as fewer existing contracts are available to be market tested or negotiated as part of the Illawarra Shoalhaven Joint Organisation (ISJO), together with Council’s existing use of large panel arrangements.  Favourable price reductions may not be achieved due to changes in exchange rate, utility costs, interest rate rises, etc.

5.  Reduce fees paid to Councillors.  Council currently pays the maximum fees allowable for the Regional Rural category ($19,310 pa) but could pay a lesser fee (the lowest fee in the approved range is $8,750 pa) – overall a potential saving of $94,440.  In addition, Council could reduce the travel “mileage” rate allowance to the same level as the LG Award or ATO rate, as the current rate is above these.

However, it is arguable that Councillors are not paid enough in recognition of their workload now, so any reduction would make it more difficult to attract quality Councillor candidates at the next election and existing Councillors are less motivated to work as hard.

6.   In major corporate cost reduction programs other measures have included:

a.   Salary & wage freeze – this is not possible under the existing Award provisions;

b.   New technology – contract negotiations are almost complete with Tech 1 to commence implementation of new systems which will have a two year completion time frame;

c.   Sell underperforming assets – the Ross Report highlights some opportunities however this will be an involved community engagement process and early indications have not been supportive;


Resourcing Issues

At a Councillor Briefing (as part of the senior staff contractual matters committee meeting) on 24 August 2017 (Attachment 3), a number of resource challenges for Council were identified:

·    Increasing community expectations

·    Workload from a growing local economy and increased development

·    Ageing workforce

·    Competitiveness -  ability to attract and retain the right people

·    Performance against service delivery benchmarks

The Briefing identified approximately $3.8M of ongoing resourcing needs.  However, only $2M of additional expenditure (approx. 50% of needs), phased over two years, is included in the financial modelling over the planning horizon.

Revenue Options

At the Budget Workshop on 31st August, three options were explored to increase revenue:

1.         Apply “user pays” principle to a broader range of services provided by Council; for example, paid parking during peak periods, fees and charges for the use of sports grounds, spectator fee to access swim and fitness facilities.  The attachment contains further details about the last two possibilities.  Paid parking requires the development of a business case to ensure that benefits will be greater than the lifecycle cost.

2.         Make a special levy.

The option of an Infrastructure Levy was raised at the Budget Workshop to address the asset renewal shortfall.

It is noted that a fixed annual charge, under section 501 of the Local Government Act 1993, can only be levied for purposes specified in the Act and those prescribed by regulation.  Under the Act, Council may impose annual charges only for water, sewerage, drainage and waste services.  Therefore, a levy can only be made and levied legally as either ad valorem, ad valorem with a base amount or ad valorem and a minimum amount, and is indistinguishable from making a special rate.  A portion of the special levy that was discussed has been included in the proposed rate increase for 2018/19 (+1%).

3.         Make a Special Rate

To limit the impact on the community, address some of the resourcing issues at Council and progress toward the benchmarks for the three key Fit for the Future indicators (operating performance ratio; building and infrastructure asset renewal ratio; maintenance ratio), the following multi-year special variations are proposed:

·    5% rate increase (including the rate peg of 2.5%) in 2018/19

·    5% rate increase(including the rate peg of 2.5%) in 2019/20

·    5% rate increase(including the rate peg of 2.5%) in 2020/21

This means that there will be a cumulative increase of 15.8% over the 2017/18 rate base (assuming the 13.2% special variation is retained as a permanent increase), which is 4% lower than council’s original 14% SRV for 2018/19.  The increase will, however, allow Council to meet its Fit for the Future targets but at a slower rate.

The chart shows the projected impact on the key financial indicators of this proposal:

To achieve the asset renewal target of 100% by 2026/27, requires rate increases of 5% pa for the next seven years followed by a 3.4% increase in 2025/26.


Community Engagement

Community engagement in relation to proposed special variations has been ongoing since November 2016.  If the recommendations in this Report are adopted by Council, a revised Delivery Program and Operational Plan, containing an additional chapter detailing the revisions, together with an updated Long Term Financial Plan, needs to be prepared for Council to adopt by mid-October 2017.

The community will, then, have an opportunity to make submissions to Council regarding the setting of rates for 2018/19 onward as part of the public exhibition of the revised Delivery Program and Operation Plan 2017/18 in October and November 2017.  A report would be prepared for Council by the end of November 2017 and, if adopted, would allow Council to notify IPART of its intentions to lodge a special variations application in December 2017.  Council would then need to make the formal application in February 2018.

The draft DPOP and related documents will be presented to Council in March 2018 and then placed on exhibition for 28 days.  It is planned that Council will need to adopt the final DPOP/budget in June 2018.  IPART are likely to announce its determination sometime in May 2018.


Financial Implications

While some cost-cutting options are possible, many require balancing service delivery levels with community expectations.  Irrespective of the cost-cutting options adopted by Council, there will remain a funding gap that needs to be addressed by:

·    Applying to IPART to have the one-off increase allowed in 2017/18 as a permanent rate increase.  This reduces the funding gap from $11.2M pa to $4.1M pa

·    Pursuing other revenue initiatives to allow Council to better meet the community’s asset and infrastructure expectations, address some of the resourcing issues at Council and progress toward the benchmarks for the three key Fit for the Future indicators (operating performance ratio; building and infrastructure asset renewal ratio; maintenance ratio).

Should the recommended option of additional special variations (inclusive of a rate peg of 2.5%) of 5% over the next three financial years not be adopted, then other ways of bridging the funding gap will need to be determined.


Risk Implications

There are substantial risks to the financial sustainability of Council, if the existing and proposed special variations are not approved as a permanent increase or Council declines to identify how it can make budget (service) cuts or raise extra revenue. These options are set out in Attachments 1 and 2.  It would have a significant detrimental impact on service levels. 

If council continues a pathway of underfunding the identified asset renewal works than the risk of asset failure, inability to repair defects, or likelihood of more liability/accident claims will increase.

If Council choses the “do nothing” option, then the likely intervention from OLG, at some stage in the future, would increase.  


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