1
8.2
ITEM NO:
REPORT NO: 262/07
REPORT TO
AUDIT COMMITTEE
DATE
30 MAY 2007
SUBJECT
DRAFT 2007/08 ANNUAL BUSINESS PLAN
STRATEGIC PLAN/
CORPORATE PLAN
OBJECTIVE/S
STRATEGIC PLAN, OBJECTIVE 3.1: FINANCIAL ACCOUNTABILITY
CORPORATE PLAN, OBJECTIVE 1.1: FINANCIAL RESOURCES
CORPORATE PLAN, OBJECTIVE 2.2: COMMUNITY PARTICIPATION
CORPORATE PLAN, OBJECTIVE 2.4: STRATEGIC DIRECTION
WRITTEN BY
IAN WALKER
EXECUTIVE MANAGER
FINANCE AND CORPORATE
EXECUTIVE SUMMARY
As part of the formulation of its 2007/08 Annual Business Plan, Council has prepared a Draft for
community consultation. It is appropriate that the Audit Committee review and provide advice or
recommendations on the Draft 2007/08 Annual Business Plan to Council prior to its adoption by
Council scheduled for 26 June 2007.
RECOMMENDATION
1.
That Report No: 262/07 be received and items of interest discussed.
2.
That the Committee advise/recommend to Council:
2.1.
……
2.2.
……
REPORT DETAILS
Background
At its meeting on 22 May 2007, Council endorsed the Draft 2007/08 Annual Business Plan (‘Draft
Annual Business Plan’) for community consultation. For purposes of community consultation, the
document is titled ‘Draft 2007/08 Annual Business Plan and Budget’ although it does not contain a
Budget as that term is specifically defined.
Prior to Council adopting its 2007/08 Annual Business Plan and Budget (scheduled for its meeting on
26 June 2007), it is appropriate that the Audit Committee receive and consider the Draft Annual
Business Plan and provide advice or recommendations to Council in relation to the committee’s Terms
of Reference.
Previous reports and decisions
This matter has not previously been considered by the Audit Committee.
2
8.2
ITEM NO:
REPORT NO: 262/07
Key issues discussion
Audit Committee Terms of Reference
The Audit Committee has no authority to act independently of Council. Under Item 6.1 of its Terms of
Reference, its primary role is to “provide suggestions and recommendations to Council about actions in
relation to financial governance”.
More specifically, under Item 6.3 of its Terms of Reference, the Audit Committee shall:
6.3.1
pursuant to section 126 of the Act, propose, and provide information relevant to, a
review of Council’s strategic management plans or annual business plan; and
6.3.2
review and provide recommendations to Council on the sustainability of Council’s
financial performance and proposals with respect to debt levels included in the
strategic management plans and, in particular, the long-term financial plan.
Annual Business Plan and Budget – legislative requirements
The legislative requirements applying to Annual Business Plans and Budget are contained in section
123 of the Local Government Act, as well as regulation 5A and 5B of the Local Government (Financial
Management) Regulations. These are included at Attachment 1.
Refer Attachment 1
The Annual Business Plan is Council’s statement of its intended program and outcomes for the
financial year and includes the following:

a summary of Council’s long term objectives as set out in its Strategic Management Plans;

an outline of Council’s objectives for the financial year against which performance will be
measured;

the activities (ie. services and programs) Council intends to undertake to achieve those
objectives and the measures (financial and non-financial) that Council intends to use to assess
performance against those objectives;

a summary of Council’s proposed operating expenditure, capital expenditure and sources of
revenue;

take into account Council’s Long Term Financial Plan and relevant issues relating to the
management and development of infrastructure and major assets; and

set out Council’s proposed approach to rating and what it means for ratepayers.
The Annual Business Plan is informed by:

Council’s Strategic Plan and Corporate Plan;

Council’s Long Term Financial Plan;

strategic priorities set by Council; and

when completed, Council’s Infrastructure and Asset Management Plan.
The Budget is Council’s statement of:

its proposed revenue sources and allocation of funds to give effect to its Annual Business Plan;
and

its projected financial performance and position.
The Annual Business Plan and Budget are highly inter-related and developed in unison. The Budget is
a much more detailed document comprising revenue and expenditure proposals compared with the
Annual Business Plan which is at a higher ‘strategic’ level.
3
8.2
ITEM NO:
REPORT NO: 262/07
Community consultation and timetable
Council has invited community participation and comment on the Draft Annual Business Plan as
follows:

Notices have been inserted in the local Guardian Messenger on 16 and 23 May advising of
Council’s community consultation program;

Notices have also been placed at the Brighton Civic Centre and both libraries and His Worship
the Mayor has issued a media release;

The Draft Annual Business Plan is available free of charge by download from Council’s
website, by telephoning or emailing Council (for a copy to be sent out), or in person at the
Brighton Civic Centre;

A community information session is scheduled for 7:00pm Wednesday 6 June; and

Interested persons may provide written comments to Council by mail or email on or before
Tuesday 12 June, or may make a presentation to Elected Members at the Council meeting to
be held on Tuesday 12 June
Council will consider community responses at a meeting on 19 June with the aim to adopt its 2007/08
Annual Business Plan and Budget at its meeting on 26 June.
Development of the Draft Annual Business Plan
The Draft Annual Business Plan has been developed having regard to Council’s Strategic Plan,
Corporate Plan, Long Term Financial Plan and following discussion with, and direction from, Elected
Members at a series of informal workshops.
Specifically, it has been developed with regard to:

Council’s commitment to the principles of financial sustainability;

the longer-term projections provided by Council’s current Long Term Financial Plan, particularly
the seven key financial indicators adopted by Council;

the works and strategic capital program endorsed by Council; and

the ongoing development of Council’s Infrastructure and Asset Management Plan due for
completion in the third quarter 2008; and
In developing the Draft Annual Business Plan, Administration has undertaken a comprehensive review
of its 2006/07 Budget which will be reported to Council as Budget Review 3 in June 2007. This review
comprised a detailed examination of revenue and expenditure items to determine reliable forecasts for
2007/08 in relation to continuing services and programs. In addition, the 10-year financial model in
Council’s Long Term Financial Plan has also been amended and projections revised. The results of
these projections are included in the Draft Annual Business Plan.
It is important to note that the Draft Annual Business Plan has been developed on the explicit
assumption that current services will continue to be provided at existing standards, except where
specifically noted.
4
8.2
ITEM NO:
REPORT NO: 262/07
Financial Sustainability
Council has committed to ensuring that the City of Holdfast Bay remains financially sustainable. In
February 2007, Council adopted the following definition of financial sustainability:
“Council’s long-term financial performance and position is sustainable where planned long-term service
and infrastructure levels and standards are met without unplanned increases in rates or disruptive cuts
to services.”
In addition, Council adopted a suite of 7 key financial indicators to guide its financial planning. These
are defined at Attachment 2.
Refer Attachment 2
In developing the Draft Annual Business Plan, Council has applied key financial principles and targets
in relation to its financial indicators.
The primary target is to improve the Operating Result from a current deficit to achieve a breakeven or
modest surplus by 2010/11. To achieve this target, Council is projecting a rate revenue increase of
6½% per annum for each year 2007/08 to 2010/11 inclusive.
The following describes Council’s financial principles and targets, as well as the outcomes projected
from the Draft Annual Business Plan. Further detail, including projections for key financial indicators
through to 2016/17, are contained in the Draft Annual Business Plan which is included at Attachment 3.
Refer Attachment 3
Under Separate Cover
Principle 1: Balanced Budget
The cost of Council’s services, including depreciation of its infrastructure and assets, should be fully
funded to ensure a fair sharing between current and future users. An Operating Deficit of $0.737
million is projected for 2007/08 with the aim of achieving at least a breakeven Operating Result in
2010/11. Thereafter, Council aims to achieve a modest surplus over a rolling 5 year period.
An Operating Deficit means that current users of Council’s services (including infrastructure and
assets) are not paying enough and, over time, will result in future financial shocks such as significant
rate increases and/or material deterioration or reduction in services.
Principle 2: Infrastructure and Asset Management
Infrastructure and assets should be maintained to the requisite standard to ensure continued delivery of
Council’s services to acceptable standards. This means that sufficient funds should be invested in the
renewal and replacement at a similar rate to that at which infrastructure and assets are wearing out and
being consumed (ie. depreciation).
In particular, Council is aiming to improve its Asset Sustainability Ratio to be within the range of 90110% over a 5 year rolling period. The Draft Annual Business Plan projects an improving Asset
Sustainability Ratio approaching Council’s target of 90-110% over a rolling 5 year period.
An investment in renewal and replacement at a rate lower than the depreciation of infrastructure and
assets will, over time, result in a future maintenance backlog which can only be addressed by
significant rate increases and/or a material deterioration or reduction in Council services.
5
8.2
ITEM NO:
REPORT NO: 262/07
Principle 3: Rate Predictability
Ratepayers should be entitled to a reasonable degree of predictability in rate revenue increases.
Predictable rate revenue increases also benefits Council in its medium to long term planning for
delivery of services to the community.
The Draft Annual Business Plan has been developed with an eye on the longer-term projections
contained in Council’s 10 year financial model and the setting of key financial targets. Rate revenue
increases of 6½% per annum for each of the years 2007/08 to 2010/11 inclusive is projected in order to
achieve a breakeven Operating Result in 2010/11.
Principle 4: Net Financial Liabilities
All other things equal, Net Financial Liabilities (broadly defined as what Council owes others less funds
Council has or is owed to Council) should be kept as low as practicable having regard to the principles
of financial sustainability and Council’s key financial indicators. Specifically, Council aims to maintain
an Interest Cover Ratio of between 0 and 100%.
Council’s Net Financial Liabilities are currently modest. Council’s current policy is to take on new
borrowings of $750,000 each year to provide additional funding for its recurrent capital works program.
Debt is an appropriate funding source for investment in infrastructure and assets that deliver a service
to the community. It spreads the cost (in the form of interest) over current and future users of the
underlying services. Despite the additional borrowing each year, Council’s Net Financial Liabilities are
projected to decrease from a projected $14.3 at 30 June 2007 as existing debt is repaid quicker than
new debt is added. This is well within Council’s target of an Interest Cover Ratio of 0-10%.
Financial sustainability impact
Budget
This report does not have any direct impact on Council’s 2006/07 Budget, however the 2007/08 Annual
Business Plan will inform and influence the 2007/08 Budget.
Full life cycle costs
This report does not have any direct full life cycle cost implications.
Conclusion
Council is required to adopt an Annual Business Plan following community consultation on a Draft
Annual Business Plan. The Draft Annual Business Plan has been prepared having regard to the
requirements under the Local Government Act and Regulations, Council’s Long Term Financial Plan
and the principles of financial sustainability
I S WALKER
EXECUTIVE MANAGER
FINANCE AND CORPORATE
Administrative Trim Reference – 1573