Port Macquarie-Hastings Reserves Review
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Port Macquarie- Hastings Reserves Review Institute for Public Policy and Governance Centre for Local Government UTS CRICOS PROVIDER CODE 00099F © University of Technology Sydney: Institute for Public Policy and Governance, 2017 UTS CRICOS Provider Code: 00099F Contents Executive Summary .............................................................................................................. 3 1 Reserves Overview ......................................................................................................... 8 1.1 Purpose and usage of financial reserves ................................................................... 8 1.2 Examination of PMHC’s financial reserves balances ............................................... 11 1.3 Benchmarking councils for comparative purposes ................................................... 13 1.4 Comparing PMHC’s reserves to its peers ................................................................ 15 1.5 Comparing PMHC’s reserves to its peers over time................................................. 17 2 Empirical Analysis ......................................................................................................... 20 2.1 Expected Reserves ................................................................................................. 22 2.1.1 PMHC’s expected level of reserves compared to peers ..................................... 22 2.1.2 Predicting PMHC’s expected level of reserves over medium term ..................... 23 2.2 Development and Reserves .................................................................................... 26 2.3 Development and Capital Expenditure..................................................................... 28 2.4 Development and Operational Expenditure ............................................................. 30 3 Developer Levies: Comparison to Peers ....................................................................... 32 3.1 Port Macquarie-Hastings Council’s development overview ...................................... 34 3.1.1 Comparing developer contributions to reserve holdings ..................................... 34 3.1.2 Comparing the allocation of developer contributions .......................................... 34 3.1.3 Comparison of development applications .......................................................... 35 3.1.4 Comparing section 94 developer contributions and expenditures ...................... 38 3.2 Examining section 94 developer contributions ......................................................... 40 3.2.1 Comparison of scheduled developer contributions ............................................. 40 3.2.2 Comparison of received and expended developer contributions per development 40 3.2.3 Comparison of average projected costs and contributions from developments .. 44 3.2.4 Comparing contributions and expenditures to reserve holdings ......................... 46 3.3 Examining Section 64 contributions ......................................................................... 48 3.3.1 Comparing section 64 contributions and expenditures ....................................... 48 3.3.2 Comparing contributions and expenditures to holdings of reserves ................... 49 4 Reserves: Risks, Opportunities and Adequacy .............................................................. 53 TABLES Table 1. Prediction Based on Seven Year Panel of Data, Derived Econometrically (2009-10 to 2015-16). Table 2. Prediction Based on 2016 Data, Derived Econometrically. Table 3. Council Supplied Data. Table 3.1 Predicting Expected Future Reserves (Total; $’000), Based on Council Supplied Projections, 2018-2022. Table 4. Association Between Variables and Level of Reserves for Peer Group (2009-10 to 2015-16). Table 5. Determinants of Capital Expenditure Per Assessment (2010-11 to 2015-16). Table 6. Determinants of Operational Expenditure Per Assessment (2010-11 to 2015-16). Table 7. Comparison of median contributions by selected item, per current contributions plans. Table 8. Comparison of s94 contribution received and expenditures per net new assessment by major components, average 2009-10 to 2015-16 ($). Table 9. Average projected costs and contributions, 2009-10 to 2015-16. Table 10. Average projected costs and contributions for Port Macquarie-Hastings council, broken down by key components, 2009-10 to 2015-16. Table 11. Average projected costs and contributions for Port Macquarie-Hastings council, broken down by key components, per Net new assessment, 2009-10 to 2015-16. FIGURES Figure 1. Port Macquarie-Hastings Council, Reserve Components (2015-16). Figure 2. Port Macquarie-Hastings Council, Disaggregated Reserves (2009-10 to 2015-16). Figure 3. Port Macquarie-Hastings Peer Group (2015-16). Figure 4. Port Macquarie-Hasting vs Peer Group, Disaggregated Reserves (2009-10 to 2015-16). Figure 5. Average section 94 developer contributions (000s) and section 94 reserves holdings PMHC vs peers, 2009-10 to 2015-16. Figure 6. Breakdown of section 64/94 developer contributions received by major category, PMHC, Average 2009-10-2015-16, (% total contributions received). Figure 7. Comparison of $ value per DA approved, Average 2009-10 to 2014-15. Figure 8. Breakdown of approved development applications, by type. Figure 9. Comparison of total s94 contributions received and expenditures, average 2009- 10-2015-16 ($000). Figure 10. Comparison of total s94 contributions received and expenditures per net new assessment, average 2009-10 to 2015-16 ($000). Figure 11. Ratio of average reserve holdings for Section 94 purposes per net new assessment to average contributions per net new assessment, 2009-10 to 2015-16. Figure 12. Ratio of average reserve holdings for Section 94 purposes per net new assessment to average expenditures per net new assessment, 2009-10 to 2015-16. Figure 13. Comparing average section 64 contributions and expenditures 2009-10 to 2015- 16 ($000). Figure 14. Comparing average section 64 contributions and expenditures 2009-10 to 2015- 16, in net new assessment terms ($000). Figure 15. Ratio of average reserve holdings for Section 64 purposes per net new assessment to average contributions per net new assessment, 2009-10 to 2015-16. Figure 16. The ratio of average expenditures to holdings of reserves assigned to Section 64, 2009-10 to 2015-16. Figure 17. The ratio of average expenditures per net new assessments to holdings of reserves per net new assessments assigned to Section 64, 2009-10 to 2015-16. Executive Summary UTS:IPPG has been engaged to conduct an external independent review of Port Macquarie- Hastings council’s internal and external financial reserves, in response to Council’s Resolution 09.05 from its Ordinary Council Meeting held on 19 April 2017. The objectives that Councillors have set from this Resolution are as follows: To review the extent to which Council’s reserve balances are appropriate in consideration of the size and breadth of the organisation (including benchmarking to similar sized Councils) and various legislation and Council resolutions that apply. In consideration of the externally restricted reserves provide comment on the following: o Whether the Section 64/94 Development Contributions Plans are up to date. o Whether the charges in the Plans are adequate to fund the infrastructure identified. o Whether the Council is maximising its use of development contributions revenue in funding the forward works program. Determine whether further opportunities exist to use reserve balances as a means of funding (including opportunities for borrowing against these reserves and the impact of such a strategy) for other projects not currently funded in the works program. Request the General Manager provide updates on the progress of the financial reserves review to the Finance, Corporate Services and Information Technology Portfolio and to all Councillors via appropriate briefings, prior to a final report being tabled at a future meeting of Council. Undertake public education that explains why the financial reserves have been established, how they receive income and how they relate to Council’s longer-term plans, including future projects that the reserves are likely to be allocated towards. In addition to the objectives set by Council Resolution 09.05, UTS:IPPG was also engaged to examine the financial implications (namely with respect to financial reserve requirements and holdings, as well as to operational and capital expenditures) related to growth in development, with a view to aid in Council’s long term planning and general financial sustainability. EXECUTIVE SUMMARY UTS: PORT-MACQUARIE-HASTING RESERVES IPPG 3 REVIEW Port Macquarie-Hastings Reserves Review In order to address the objectives of Councillors and request for analysis, UTS:IPPG set the following aims in preparing this report: To advise Council of its legislative and reporting requirements and opportunities with respect to its usage of its financial reserves. To test the adequacy of Council’s current level of financial reserves and to project Council’s required level of financial reserves over the medium term. To examine the association between growth in development and the level of actual and required financial reserves. To examine the association between growth in development and the level of expenditures. To determine the adequacy of Council’s developer contributions. In preparing this report, UTS:IPPG has consulted the financial statements of Port Macquarie- Hastings Council and its peers for the period