Long TermFinancial Plan

2016-2026

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Upper Lachlan Shire Council

Long Term Financial Plan2016-2026

TABLE OF CONTENTS

1. Executive Summary 1

2. Introduction 2

3. Financial Objectives 3

4. Current Financial Position of Council 4

5. Long Term Financial Plan and how it will be used 13

6. Key Planning Assumptions 14

7. Detailed Income Forecasts 15

8. Detailed Expenditure Forecasts 21

9. Methods of Monitoring Financial Performance 26

10. Sensitivity Analysis 27

11. Conclusion 28

12. Financial Modelling Scenario 29

10 Year Financial Plan - Scenario Base Case: Consolidated and by Fund- Historical Information- Income Statement- Statement of Financial Position (Balance Sheet)- Equity Statement- Cash Flow Statement- Key Performance Indicators- Financial Performance Indicators- Charts

13. Addendum: NSW Treasury Corporation Financial Assessment Report on UpperLachlan Shire Council 2013

Executive Summary

The Upper Lachlan Shire Council has developed a Community Strategic Plan which identifies thecommunity's priorities and expectations for the next ten years and outlines strategies to achievethose goals.

The Community Strategic Plan is a long term visioning document that expresses community's longterm aspirations. The Community Aspirations are as follows:-

. A built environment enhancing the lifestyle of a diverse community;

. Community liaison to preserve and enhance community facilities;

. A healthy natural environment;

. A prosperous economy with the balanced use of our land;

. People attaining health and wellbeing;

. Resilient and adaptable communities;

. Responsible and efficient use of resources; and

. Transparent and accountable governance.

In working towards delivering these long term aspirations for our community, sufficient resourceswill need to be provided by Council and asset management will become a critical component inensuring service delivery success. Council will address each of these community aspirationsthrough the five identified integrated Strategic Objective areas. The Strategic Objective areas are:-

1. Social;

2. Environmental;

3. Economic;

4. Infrastructure, Access and Transport; and

5. Governance (Civic Leadership).

To ensure that Upper Lachlan Shire Council addresses the community aspirations, as identified inthe Community Strategic Plan, a Resourcing Strategy has been prepared. The ResourcingStrategy is a key part of the integrated planning and reporting framework for Council's long termplanning. Council's Resourcing Strategy includes the following integrated documents:-

. Long Term Financial Plan (LTFP);

. Workforce Plan; and

. Infrastructure Plan (incorporates Asset Management Plan).

The Long Term Financial Plan sets out Council's projected income and expenditure, statement offinancial position and cash flows for the coming 10 years and outlines methods of monitoringfinancial performance.

The Long Term Financial Plan will assist Council to make informed decisions with regard to thefuture sustainability and efficiency of Council operations.

Introduction

The creation of a Long Term Financial Plan is a requirement under the Integrated Planning andReporting framework for NSW local government and forms part of the Resourcing Strategy.

The Long Term Financial Plan is a 10 year plan that tests the community's aspirations against itsfinancial capacity. The Long Term Financial Plan will be used as a decision-making tool and is notset in concrete and will continue to evolve and change as circumstances change and Councildecisions are implemented.

A Long Term Financial Plan provides a framework for Upper Lachlan Shire Council to assess itsrevenue building capacity to deliver upon the key performance indicators for all the principal activityareas and provide suitable level of services outlined in the Community Strategic Plan.

The Long Term Financial Plan also aims to:-

. Establish greater transparency and accountability of Council to the community;

. Provide an opportunity for early identification of financial issues and any likely impacts inthe longer term;

. Provide a mechanism to solve financial problems and understand the financial impact ofCouncil decisions; and

. Provide a means of measuring Council's success in implementing strategies.

The Long Term Financial Plan is a living document and will change as the community's aspirationschange, and as the underlying principles and key assumptions and Council's financial positionchange over time.

Council has identified a number of strategic performance measures that are incorporated into theassessment of Council's financial performance and financial position. Council will be vigilant inreviewing each performance measure to gauge how Council is progressing to achieve itscommunity aspirations and strategic objectives.

The community engagement period, which informed the development of the Community StrategicPlan, identified local and regional roads and bridges infrastructure as priority number one. "Inresponse, Council jias allocated the largest proportion of funds to this purpose annually over thelife of the Long Term Financial Plan. Roads infrastructure projects will be implemented inaccordance with Council's Infrastructure Plan and associated services levels will be reviewed inconjunction with the community.

Treasury Corporation Financial Assessment of NSW Councils

An addendum to the Upper Lachlan LTFP is the "Financial Assessment, Sustainability andBenchmarking Report" prepared by NSW Treasury Corporation (TCorp) for Upper Lachlan' ShireCouncil, the Office of Local Government and Independent Local Government Review Panel.

The TCorp March 2013 Report reviewed the Councils consolidated Financial Statements andactual results for the periods of 2008/2009 to 2011/2012 and also conducted a detailed review ofUpper Lachlan's 10 year financial forecasts from our LTFP.

The TCorp report assessed Upper Lachlan as being in a "Sound" Financial Sustainability Ratingposition and the Outlook for the Council was Neutral. This assessment is vindication for thedecisions made by the Council over the past 12 years that Upper Lachlan has been in existence.

Financial Objectives

Council wilt pursue the following financial objectives for the term of the Long Term Financial Plan:-

1. Maintain Council's sound financial performance and sound financial position for the next tenyear period. Ensure Council's TCorp Financial Sustainability Rating remains as Sound;

2. Continue to provide a fair and equitable rating structure and revenue policy;

3. Attract and maximise government grants, contributions and subsidies as an externalfunding source to assist in delivering Council services;

4. Budget for and achieve a surplus Net Operating Result (before capital grants andcontributions) each year to ensure financial viability and stability in Council's core operatingactivities;

5. Budget for and achieve a minor cash flow surplus each financial year (unless repaying longterm debt and/or Council matching infrastructure grants through internal transfer" fromreserves funds) to maintain an unrestricted current ratio of at minimum 2:1; therebyensuring access to adequate working funds on a continual basis;

6. Annually fund the asset renewal program in line with Council's Infrastructure Plan andAsset Management Plan for all of its assets classes. To maintain a Building, Infrastructureand Other Structures Asset Renewal Ratio of equivalent to or greater than 100%;

7. Continue to benchmark Upper Lachlan's financial performance against the Office of LocalGovernment and TCorp ratios. The goal is to reach the benchmark performance level in allcategories;

8. Report to Council the Quarterly Budget Review Statements (QBRS) and to review programactivities each quarter;

9. Report to Council and monitor the six monthly Delivery Program implementation reviews;

10. Continually review all operating expenditure and improve efficiency in service deliverywhere possible;

11. Reduce Council-owned assets which do not align with Council's adopted strategicobjectives, and place an unnecessary ongoing maintenance burden on Council and thecommunity;

12. Implement user-pay principles on service provision and assets, excluding known andCouncil approved community service obligations. Full cost recovery pricing principles to beimplemented where appropriate.

Current Financial Position of Council

Operating Result

The benchmark is a Net Operating Result Surplus each year. Upper Lachlan Shire Council hasachieved an operating surplus for the past seven financial years. The Operating Result (includingbefore and after capital grants and contributions) for the past four financial years from 2011/2012to 2014/2015 is seen in the below graph:-

Consolidated Operating Result

$'000

10,0008,0006, 0004, 0002, 000

Before Capital

After Capita I

Operating Performance Ratio

This ratio is intended to measure Council's ability to contain its operating expenditure within theconfines of its operating income. The benchmark is greater than 0%.

10. 00

^ 5. 00

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Operating Performance Ratio

OPR

2012

8. 83

2013

8. 98

2014

6. 20

2015

2. 92

Other Financial Position Information

Financial Performance Measures Indicator 20152014 2013 2012 20V\ 2010

Unrestricted Current Ratio Ratio 5. 66 5. 62 4. 48 4.25 3. 44 3. 28

Debt Service Ratio Percentage 1. 72% 1.90% 2. 15% 4.68% 3. 56% 3. 30%

Total Cash and Investments ($000) $20.8 $18.4 $17.1 $15.1 $12.1 $10.7Own Source Operating RevenueRatio Percentage 65. 81 57.03 52. 53 59.05 48. 10 47.90Rates and Annual ChargesOutstanding Percentage 2. 17% 3. 21% 2. 79% 3. 07% 2. 86% 2.65%Building, Infrastructure and OtherStructures Asset Renewals Ratio Percentage 122% 105% 93% 79% 100% 107%Operating Result Surplus (beforecapital grants and contributions) ($000) 858 1, 412 2, 350 2, 448 437 1, 562

Cash and Investments

Cash and investments totals $20. 8 million (2014 - $18. 4 million) and is divided into unrestrictedcash, internally restricted cash by Council, and externally restricted cash by fund (i. e. water supply,sewerage, and domestic waste funds, external grants unexpended and developmentcontributions).

Cash & Investments

ExternallyRestricted

InternallyRestricted

Unrestricted

Own Source Operating Revenue Ratio

This ratio measures the degree of reliance on external funding sources such as operating grantsand contributions. The Benchmark is greater than 60%. A comparison of Council's Own" SourceOperating Revenue Ratio for the past four financial years from 2011/2012 to 2014/2015 is seen inthe below graph:-

Own Source Operating Revenue Ratio

Building, Infrastructure and Other Structures Asset Renewals Ratio

This ratio measures the rate at which assets are being renewed relative to the rate at which theassets are depreciating. The Benchmark is greater than 100%. A comparison of Council's Building,Infrastructure and Other Structures Asset Renewals Ratio for the past four financial years from2011/2012 to 2014/2015 is seen in the below graph:-

Building, Infrastructure & OtherStructures Asset Renewals Ratio

140.0%

2012 2013 2014 2015

Borrowings and External Debt

A comparison of Council's External Debt outstanding for the past four financial years from2011/2012 to 2014/2015 is seen in the below graph. The Council Benchmark is less than 10% oftotal continuing operating income:-

External Debt

4, 000

3, 000

$'000 2,000

Debt Service Cover Ratio

The Debt Service Cover Ratio is a new ratio that measures the availability of operating cash toservice debt including interest, principal and lease payments. Unlike its predecessor, the DebtService Ratio (this data is included in Other Financial Position Information), in this measure thehigher the number, the greater the ability to service debt. The benchmark is greater than 2%.

17. 00

16. 00

15. 00^

14. 00

13. 00

12. 00

sP

DSCR

Debt Service Cover Ratio

Rates and Annual Charges Outstanding Percentage

This performance measure assesses the impact of uncollected rates and annual charges onliquidity and reflects the adequacy of recovery efforts by Council. The past 8 financial years in thebelow graph display efficiency in debt recovery procedures:-

%

4R^3

2

2

1

1

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tes^SjSmhual Charges Outstanding

2013-14 Group Average - 7.27%, StateAverage 6. 25%

2008

2. 67

2009

2. 67

2010!2011

2. 65 I 2. 86

2012

3. 07

2013

2. 79

2014

3. 21

2015

2. 17

Unrestricted Current Ratio

This is a commonly used measure of liquidity. This is a ratio of current assets to current liabilities(excluding external restrictions). This ratio assesses the adequacy of working capital and the abilityof Council to satisfy financial obligations in the short term for unrestricted activities. A ratio ofgreater than 2 indicates healthy liquidity.

Unrestricted Current Ratio

Total Current Assets (excludes Infrastructure, Property and Plant and Equipment)

Council current assets for the past four years are detailed in the below graph:-

Assets excluding IPP&E

$'000

25, 00020, 00015, 00010,000

5, 0000

2014 2015

OtherAssetsi 517 342 89 67

H Inventories | 1, 259 1,043 1,364 1/052Sl Receivables

Cash &Investments

2, 199 4, 000 1,790 1,865

15, 161 17,078 18,366 20, 758J_

Total Liabilities

Council liabilities, by category, for the past four years are detailed in the below graph:-

Liabilities

$'000

10,0008,0006/0004, 0002/000

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Income from Continuing Operations by Source % - 2015

2014/2015 Total Income - $27, 223 ($'000)

I Rates & Annual Charges

lUscrCharges&Fees

l Interest & Investment Revenue

1 Other Revenues

. Grants & Contributions providedfor Operating Purposes

. Grants & Contributions providedfor Capital Purposes

r Net Gain from Disposal of Assets

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Expenditure from Continuing Operations by Source % - 2015

2014/2015 Total Operating Expenditure - $24, 363 ($'000)

. Employee Benefits & On-Costs

. Borrowing Costs

. Materials & Contracts

. Depreciation & Amortisation

. Other Expenses

40%

-39%-

22%

Employee Borrowing Materials & Depreciation & OtherBenefits & On- Costs Contracts Amortisation Expenses

Costs

1 Seriesl

Long Term Financial Plan and how it will be used

Council's Long Term Financial Plan model consists of linked spreadsheets that use the 2016/2017budget, information contained in the Delivery Program and Operational Plan, as well as long termkey planning principles and assumptions to generate 10 year forecasts of income and expenditure.

Council's Long Term Financial Plan covers all areas of Council operations; including GeneralFund, Domestic Waste Fund, Water Supply and Sewerage Funds. The plan considers the highdegree of infrastructure renewal required particularly in the General Fund and Water Supply Fund.

The Long Term Financial Plan will be subject to review and adjustment annually or as prioritieschange to align with the Community Strategic Plan and Resourcing Strategy components. The tenyear plan presents an Income Statement, Statement of Financial Position, Equity Statement andCash Flow Statement.

The Long Term Financial Plan also draws on Council's Infrastructure Plan (incorporating the assetmanagement plan) which defines the service levels, intervention thresholds and capitalmaintenance and renewal expenditure requirements for their respective asset classes.

The 10 year Long Term Financial Plan has been developed by Upper Lachlan Shire Council inaccordance with the Office of Local Government, Integrated Planning and Reporting Guidelines.The plan will be further refined and developed in future years.

The Purpose of the Long Term Financial Plan

. Provide a transparent account of Council's financial situation to the community;

. Set out the assumptions upon which Council's financial budgets have been structured;

. Provide methodology for strategic decision making that is in the community's best interests;

. Identify Key Performance Indicators upon which Council can benchmark its financialperformance against other NSW Councils of a similar size with comparable resources;

. Evaluate the impact of future scenarios upon Council's financial position;

. Provide a basis for future decision making particularly when the Infrastructure Plan and assetmanagement strategy are further refined and developed;

. Identify issues which impact upon the financial sustainability of Council including knownopportunities and threats;

. Achieve a consolidated funds cash flow surplus result annually and achieve an operationalbudget surplus result annually acknowledging that minimum service delivery may need to bereviewed while attempting to reduce operating costs in real terms;

. Achieve a working fund surplus result annually; and

. Assist with planning for major capital infrastructure renewal program and specific capitalprojects.

13

Key Planning Assumptions

A Long Term Financial Plan is dependent on a number of planning assumptions. In preparing thisplan it was necessary to consider a range of matters and make appropriate assumptions. Theseassumptions have been used to model and formulate the plan.

In developing the Long Term Financial Plan Council has considered and made assumptions withregards to demographics of the Shire, projected economic growth and industrial developmentwithin the Shire, service delivery standards, and all other major influences on Council's incomestreams and expenditure patterns and projects.

In summary the Long Term Financial Plan sets out the following key planning assumptions used todevelop the long term forecasts of income and expenditure for Council:

Income Forecasts

Income Source

. General (Ordinary) Rates Income

. Domestic Waste Charges

. Sewerage Charges

. Water Supply Charges

. Water Supply User Pay Charges

. Interest Rate on Investments

. Interest Rate on Overdue Rates

. Operating General Purpose Grants

. Capital Grants

. Development Contributions

. Net Gain from Disposal of Assets

. Other Revenues

. User Charges and Fees

. Population Growth

. Service Levels

Expenditure Forecasts

Expenditure Source

. Salaries and Wages

. Superannuation Guarantee Contribution

. SASS Defined Benefit Plan Contribution

. Workers Compensation

. Consumer Price Index

. Interest Rate for Borrowings

. Depreciation Expense

. Insurances

. Electricity and Gas

. Materials and Contracts

. Major capital works projects

Projected Annual Increase3%3% - full cost recovery2% - full cost recovery4. 50% - full cost recovery5% - full cost recovery4. 50% return over 10 year period8%3. 20%2.50%3%Variable % based on plant schedule2. 50%2. 50% - full cost recovery and withinStatutory limitations2. 30% to 2017, then 1% annuallyRefer to Infrastructure Plan

Projected Annual I ncrease3. 15%0.50% increase from 2019 up to 12%Double contribution rate until 20213%2.40%6. 50%1. 90% recurrent only4%2.40%3. 75%Varies according to projects fundingstatus and other factors

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Detailed Income Forecasts

General (Ordinary) Rates Income

Historically there is minor change in the number of rateable assessments from year to year. Thetotal number of rateable assessments in 2005/2006 was 5,604. The number of rateableassessments for 2016/2017 is 6, 009. There has been an average increase in total rateableassessments annually of 0. 64%. This increase equates to minimal additional general rates incometo Council.

Council will continue to apply the maximum annual rates increase allowable by IPART and Officeof Local Government. The maximum permissible rates increase in 2015/2016 was 2. 40% and in2016/2017 the maximum increase is 1. 80%. Council has projected the annual rate pegging limitincrease to be 3% annually. This is based on historical data (past ten years) of a 2.9% increase inmaximum rate cap for general rates income. A 3% increase equates to an additional $195, 000general rates income. Further details for each individual rating category are available in Council'sOperational Plan.

No special variation to general rates income is included in the Council Long Term Financial Planprojections for the Base Case Scenario, however this will continue to be assessed based oncommunity feedback and on the need for additional income to continue to deliver services.

A number of wind farms have been constructed and a number of proposed wind farms and may beconstructed in the future however the legal rateability status for these large scale industrialdevelopments is not clear. Council has a Section 94A Development Contributions Plan to apply tostate significant projects and has also established a Community Enhancement Program (CEP).These plans are designed to mitigate negative aspects of these projects on the community and toensure the developments make a reasonable contribution with respect to community infrastructure.

Domestic Waste Management Charges

The Domestic Waste Management (DWM) service is provided by Council to the residentialproperties in townships and the immediate surrounding area of towns within the Shire. The DWMservice provides garbage and recycling collection services. The basis of the DWM annual charge ison a full cost recovery basis to allow for the future upgrade of the DWM plant fleet, garbage bins,and partial allocation for the rehabilitation of the waste centres (rubbish tips) in the Shire.

The DWM charge is projected to increase annually by 3% over the next ten year period. Councilwill continue to complete and publish in the Operational Plan a comprehensive domestic wastereasonable cost calculation in accordance with the Local Government Act requirements and toensure any service changes are consulted with and conveyed to the community.

Sewerage Charges

Council operates and manages sewerage systems and services within three towns in the Shire,being Crookwell, Gunning and Taralga. Council intends to maintain the sewerage services andimprove the sewerage infrastructure in the coming ten year period.

Upper Lachlan Shire Council has progressively implemented the former Department of Water andEnergy Best Practice Management Guidelines and pricing principles for sewerage services andcomply with the National Performance Framework as advocated by the NSW Office of Water.

The average annual increase for sewerage charges of 2% is projected over the next ten yearperiod based on full cost recovery principles. Also, Council aims to achieve an economic real rateof return on the sewerage services of greater than 2%.

15

Water Supply Charges

Council operates and manages water supply systems within four towns in the Shire, beingCrookwell, Gunning, Dalton and Taralga. Council intends to maintain the water supply services andimprove the infrastructure for these reticulated water supply systems. Council, in partnership withthe Federal and State Government, has recently completed in May 2014, significant capitalupgrade works to increase reliability and improve water quality and water treatment operations forthe Gunning and Dalton water supply schemes. The Crookwell water supply scheme willcommence a $7 million upgrade project to the water treatment operations in 2016/2017.

The average annual increase for water supply annual charges of 4. 50% is projected over the nextten year period based on full cost recovery principles. Also, Council aims to achieve an economicreal rate of return on the water supply services of 1.5%.

Water Supply User Pay Charges

Water supply user pay charges are highly volatile due to the impact from seasonal conditions.Council has implemented initiatives, such as water bore installations to supplement existing waterstorages to assist in drought proofing water resources necessary for the towns in the Shire. UpperLachlan Shire Council has implemented the former Department of Water and Energy Best PracticeManagement Guidelines and pricing principles for water supply and comply with the NationalPerformance Framework as advocated by the NSW Office of Water. Council will continue togenerate greater than 50% of total water supply revenue from water supply user charges.

The water supply user charges are projected to increase a nnually by 5% over the next ten yearperiod. A[l water supply users pay a dollar amount per kilolitre charge with a two tiered tariff pricingsystem. The water supply user charges are based on full cost recovery of the service.

Interest Rate on Investments

Interest rates on investments have been variable in recent years. The Reserve Bank of Australiaofficial cash interest rate has fallen from a high of 7. 25% in March 2008 to a low of 2% in May2015. The average interest rate on term deposits held by Council at February 2016 is 2. 75%. Withthe global economic volatility interest rates will remain low in the short term and the cash rate willbe at 2% to 3% range over the next twelve months. Term deposit interest rates are anticipated tobe in the vicinity of 3% to 3. 5% for the next two years with the interest rate increasing to thehistorical average of 4. 50% for the ten year period. Council's total cash investment portfolio isestimated to range from $20 - $28 million up to 2026. Future changes or volatility in interest rateswill have an impact on Council's long term financial outlook.

In accordance with Council's Investment Policy and Ministerial Investment Order, Council nowinvests only in term deposits, with varying maturity timeframes, with Australian authorised deposittaking institutions.

Interest Rate on Overdue Rates

Council has sustained a remarkably low rates and annual charges outstanding percentage of 3%or lower for the past eight years. Council staff have enforced Council's Debt Recovery Policy andremained vigilant in assuring regular cash flow from rates and annual charges.

Council has projected an average overdue interest rate of 8% over the ten year period. The currentoverdue interest rate is 8. 5% in 2015/2016. The total interest revenue from outstanding rates andannual charges will not be materially affected by any changes in the maximum interest rate asdetermined each year by the Office of Local Government.

16

Operating General Purpose Grants

Council's most important and material recurrent operating grant is the untied Financial AssistanceGrants (FAG) received from the Federal Government and administered by the NSW LocalGovernment Grants Commission. The FAG grant accounts for around 35% of Council's totaloperating grants and contributions received annually. The FAG grant has a general and roadscomponent totalling $4. 2 million in 2015/2016. The Federal Government has freezed the indexationof FAG grant for 3 years to 30 June 2017. This is incorporated into the LTFP; however Council hasestimated a 2.40% increase annually for the FAG over the ten year period which is based on theCommonwealth's annual Consumer Price Index (CPI) estimates.

There are two other material operating grants received by Council annually. The operating grantsreceived from the Roads and Maritime Services (RMS) for the Regional Roads Block Grant andRepair Program total $1. 6 million annually. The Federal Government program Roads to Recoveryis classified as an operating grant and is used solely for capital works projects and programs. TheRoads to recovery is a 5 year program equivalent to $840K per year for the life of the existingprogram. The Roads to Recovery program continues through until 2019 and in 2016/2017 there isan additional $1.9 million supplementary funding.

Council has assumed that all recurrent grants and contributions for operating purposes wilt alsoincrease annually by a projection of 3. 20%.

Capital Grants

Capital grants are by their nature highly variable from year to year depending on the need andcommunity support for major capital works projects and the availability of capital grant programs toassist in funding major capital improvement projects.

Council's Delivery Program details the road reconstruction and sealing programmed works to2020. A significant project is the RMS Repair program which will be utilised for the MR52Gundaroo to Gunning Road reconstruction. In the two years following, road reconstruction underRMS Repair program will centre on MR248E Crookwell to Laggan Road.

Council has also made allowance in the LTFP for timber bridges replacement program utilisingloan funds matched against capital grant funding.

Grant funding has been secured from the State Government for the purpose of reconstructingsections of Grabine Road, which predominantly services the Wyangala Dam State RecreationArea. An amount of $1. 5 million will be received over 8 years with a matching contribution byCouncil for a total capital expenditure of $3 million. A total expenditure of $400, 000 per annum hasbeen included in the LTFP until the works are completed in 2020.

A major project due for commencement in 2016 is the new Crookwell Water Treatment Plantconstruction for the water supply scheme with a total project cost of $7 million. Council is sourcing$3 million funding from the Federal Government under the National Stronger Regions program andalso $3 million from the NSW State Government, through the Infrastructure NSW - Restart NSWprogram, with the remaining project funding from Council reserve funds.

Council has projected an average increase in general fund capital grants income of 2. 50% for theten year period.

17

Development Contributions

The Upper Lachlan Local Environment Plan 2010 encourages development around the existingtowns and potential growth centres in the Shire. Council development contributions will beimpacted by any increased economic development and subdivision activities over the coming tenyears. The population and industrial development growth expectations are categorised in the low tomoderate range by Council in our long range forecasts.

Council has a Section 94 Development Contributions Plan that allows Council to collectcontributions from developers where it is considered that additional demand will be placed onexisting public facilities and amenities. Council's Plan contains the following developmentcontributions; Roads Open Space, Community Facilities, Waste Management, EmergencyServices and Plan Administration. Council has projected an annual increase in developmentcontributions of 3% for the ten year period.

Council has implemented a Section 94A Development Contributions Plan in 2012 and this plan isdesigned to collect contributions from developments of regional and state significant developmentsand energy, wind and power station developments. The affect of this Plan is unknown at this pointin time and no detailed income projections are included in Council's long range forecasts.

Council has a Section 64 Development Contributions Plan for the Upper Lachlan Shire Councilarea for water supply and sewerage services. Council has projected an annual increase in Section64 development contributions of 3% for the ten year period.

Net Gain from Disposal of Assets

Council has developed a detailed ten year motor vehicle, plant and equipment replacementprogram and has a Disposal of Assets Policy. The Council Delivery Program provides furtherdetailed information on projected motor vehicle, plant and equipment replacement. There are noreal estate assets classified as available for sale and no sales are planned over the ten yearperiod. The annual increase % is variable and is subject to plant replacement schedule. There isno set % increase or decrease on the net gain from the disposal of assets.

User Charges and Fees

Council has numerous user charges and fees that are statutory fees determined by regulation orby another government agency, for example Development Application fees and Section 149Certificate fees and Section 603 Certificate fees. In most cases there is no annual increase inthese user charges and fees provided in the relevant legislation. Therefore, no increase isestimated in statutory fees.

For discretionary fees, the most material fees are for private works (contracted work) undertakenby Council on private properties. The Roads and Maritime Services (RMS) Routine MaintenanceCouncil Contract (RMCC) and Works Orders on State Road MR54 are also a discretionary fee.The State Road MR54 Junction Point section road reconstruction upgrade and bitumen sealingworks program is estimated to be contract works with RMS for $2 million each year for a three yea'rperiod until completion.

For all discretionary fees an annual increase of 2. 50% is projected over the next ten year periodbased on full cost recovery principles and profit component where applicable.

18

Other Revenues

Other Revenues are relatively immaterial in Council's operating budget these items include;property rental income, Agency fees (Service NSW Motor Registry and Australia Post Agency),fuel tax credits and other recoverable charges. An annual increase of 2. 5% is projected over thenext ten year period based on full cost recovery principles and profit component where applicable.

Population Growth

The Long Term Financial Plan takes into consideration any potential growth in population withinthe Upper Lachlan local government area.

The Community Strategic Plan and Delivery Program are informed by the Australian Bureau ofStatistics (ABS) census and the ABS National Regional Profile 2014 for population growth in

Upper Lachlan. The ABS Estimated Resident Population for Upper Lachlan in 2014 was 7, 761which are a 2. 10% increase (or 161 people) in 2013/2014. Council estimates a 2. 30% populationincrease to 2017 and an increase of 1% annually onwards to 2019/2020.

The cost of Council's services is not particularly sensitive to population growth for the towns andvillages within the Shire. At the projected increased population levels, the Long Term FinancialPlan model assumes that the population growth will not have a significant impact on the incomeand expenditure projections contained therein.

Services Levels

Council will endeavour to continue maintaining the existing level of services for all the principalactivities undertaken by Council as detailed in Councils Delivery Program and Operational Planunder each Community Strategic Plan Strategic Objective Area. Also, Council will meet the servicelevels in relation to infrastructure maintenance and renewal as detailed in the Infrastructure Planand Asset Management Strategy.

The service levels delivered at present may not necessarily meet with the community expectationshowever Council is attempting to address the backlog of roads, bridges and associatedinfrastructure work in a planned and coordinated manner.

Other Economic Factors

There are a number of economic factors that may potentially adversely affect the long termflnancial projections and assumptions used by Council in formulating the current Long" TermFinancial Plan. These include the following items:-

Volatility in the Consumer Price Index

In recent years, the Consumer Price Index (CPI) has been relatively stable. The FederalGovernment and Reserve Bank of Australia target inflation range is currently between 2% to 3%.The Australian Bureau of Statistics reported that the eight capital cities weighted average CPI inDecember 2014 was 1. 70%, in December 2013 was 2. 70%, in December 2012 was 2. 20%, inDecember 2011 was 3. 10% and December 2010 was 2. 70%.

Council's operating budget is particularly sensitive to changes in the CPI, particularly where pricesfor major consumption items such as transport and petroleum products increase in excess of theaverage CPI. Council has projected an annual CPI increase of 2. 40% over the life of the LongTerm Financial Plan.

19

Cost Shifting from State Government

The issue of cost shifting is of significant concern to all NSW Councils. The estimated annual costshift expense for Upper Lachlan in 2013/2014 was $972, 300 or equivalent to 4% of total Councilincome (excluding capital grants and contributions). The cost shift activities include Rural FireServices, pensioner rates concessions, public libraries, noxious weeds control, animal control, andState Emergency Services (SES). If this situation is not addressed Council's financial position isweakened.

20

Detailed Expenditure Forecasts

Salaries and Wages

Upper Lachlan employs 133 full-time equivalent employees. The Workforce Plan identifies humanresources key performance areas, goals and strategies and how they interact with Council'sStrategic Objectives and Aspirations from the Community Strategic Plan to assist in deliveringCouncil's programs. Council's single largest expense relates to employee costs.

Council reviews each position upon a vacancy and assesses the need for changes to a position orto the position parameters. Council does not anticipate any decrease in the number of employees.Council does have an ageing workforce and have allocated 39% of total leave entitlements to aninternally restricted cash reserve for this purpose and budgets annually for projected staffretirements, based on an age profile, this is incorporated in the Council Operational Plan.

All staff members are employed by Council under the NSW Industrial Relations System. Theemployment terms and conditions are set out in the Local Government (State) Award 2014. TheAward includes, in effect, provision for annual salary increases. The increases mandated are 2. 6%from July 2014, 2. 7% from July 2015, and 2. 8% from July 2016 respectively. Historically, over thepast 10 years, the average annual Award salary increase has been 3. 20%.

Salary costs are also affected by individual staff progressing in Council's Salary Structure byachieving productivity and skill step improvements related to their grading and salary steps.Council provides a modest allowance for these additional impacts. Council has forecast an annualincrease in total salaries and wages of 3. 15% over the term of the Long Term Financial Plan.

Superannuation Guarantee Contribution

The Superannuation Guarantee is required to be paid by Council to nominated superannuationfunds as employer contributions on behalf of individual employees. The Superannuation Guaranteewas set at 9% of employee's salary for a long period, however the Federal Government announcedthe % contribution rate will increase from 9% to 12% by 1 July 2022. The incremental increasesare set out below:-

Financial Year

2012/20132013/20142014/20152015/20162016/20172017/20182018/20192019/20202020/20212021/2022

Future years

Rate

9. 00%9. 25%9. 50%9. 50%9. 50%9. 50%10. 00%10.50%11.00%11.50%12. 00%

The Long Term Financial Plan assumes that the Superannuation Guarantee expense will increaseby the increment amounts and also increase in line with forecast increases in salaries and wages.

21

SASS Defined Benefit Plan Contribution

Council is involved in an industry defined benefits superannuation scheme, known as the LocalGovernment SASS Superannuation Retirement Scheme. This superannuation scheme is a mutti-employer fund where assets accumulate in the fund to meet member's benefits as defined in aTrust Deed consisting of all NSW Councils.

In 2009, the SASS scheme advised that as a result of the global financial crisis it had a significantdeficiency of assets over liabilities. As a result the Scheme has imposed increased contributionsfrom 2009/2010 for a period of up to 10 years to recover the deficit. SASS has confirmed toCouncil that the increased contribution will remain in place until 30 June 2021. Council has 36employee members, and the total employer contribution expense in 2014/2015 was $488, 740.

The SASS scheme actuary monitors the financial position each year, however despite there beinga minor recovery in the financial markets since the global financial crisis; there still exists a deficitin the scheme of at 30 June 2015 of which Council's liability is estimated to be $550,548.

Workers Compensation

Council's Workers Compensation Insurance premium is a significant employee expenditure oncost.The premium is calculated based on 3 years of workers compensation claims experience,estimated increases in salaries and wages and various multiplier factors used by StateCoverMutual. Workers Compensation insurance costs peaked in 2012/2013 at $548,267, in 2014/2015premium costs were $180, 946 and estimate cost in 2015/2016 is $198, 938.

It is extremely difficult to calculate an appropriate inflationary index to forecast likely future WorkersCompensation premiums. The Long Term Financial Plan estimates a 3% increase annually overthe next 10 years. It is anticipated that based on the improvement in claims experience, injuryprevention methods and changes to NSW legislation that large increases will not eventuate goingforward into the future. Implementation of an effective return to work and rehabilitation program hasassisted Council in reducing the amount of workers lost time due to injury.

Interest Rate for Borrowings

Council has a Loans/Borrowings Policy that details the objectives and criteria for external fundingprograms. Council will not borrow to finance annual operating and maintenance activities. Councilwill borrow for the acquisition of income producing assets or for asset renewal and upgradeprograms. All Council loans are for fixed term periods and fixed interest rates to reduce the risk ofexposure to variable repayment amounts.

Council has further capacity to borrow within all Funds, in particular within the General Fund. Thecurrent consolidated Council debt service ratio is 1. 72% as at 30 June 2015. There are futureborrowings forecast in the General Fund for the replacement of timber bridges commencing from2017/2018 in the LTFP. Council anticipates $5. 4 million total general fund borrowings for the entire10 year period.

Any future upward movement in the official cash rate by the Australian Reserve Bank (current cashrate is at 2%) has the potential to increase the borrowing interest rates available from financialinstitutions for any new loans taken out.

The current borrowing rates from financial institutions for loans covering a ten year period are inthe vicinity of 5. 50%. However, Council's Long Term Financial Plan estimates an average interestrate of 6. 50% for any new borrowings to 2026.

22

Consumer Price Index

See comments in economic factors outlined earlier titled "Volatility in Consumer Price Index". Theannual CPI is estimated at 2. 40% annually for 10 years in Council's Long Term Financial Plan.

Depreciation Expense

Depreciation of Council's major infrastructure assets is determined within their respective assetmanagement strategies and this is reflected in the Long Term Financial Plan. Council'sInfrastructure Plan, including the Asset Management Plan details the useful lives and depreciationperiods for each class of asset.

The depreciation expense is calculated using the straight line method to allocate their cost overtheir estimated useful lives. All assets classes are re-valued at "fair value" every 5 years.

Council has completed the asset valuations at "fair value" for all asset classes; this entails watersupply, sewerage, land, buildings, stormwater, plant and equipment, roads, bridges and footpaths.Total depreciation projected in 2016/2017 is $5. 75 million. Depreciation expense has risensignificantly following the completion of Taralga water supply and Gunning and Dalton water supplycapital improvement projects / asset additions as well as roads and bridges revaluation in 2015.

In calculating depreciation an annual provision for revaluation and recurrent depreciation expenseincrease of 1. 90% has been included in the Long Term Financial Plan over the entire ten yearperiod.

Other Expenses

The Long Term Financial Plan estimates a 3% increase annually for all other expenses, excludingInsurances expenses. Other Expenses includes Councillors Allowances, electricity and gas, streetlighting, printing and stationary, valuation fees, telephones and communications expenses. Theincrease is largely based on historical data in relation to these expenses.

Council projections are also based on our contract with Telstra Countrywide for telephony, mobiletelephones, and internet and Wide Area Network (WAN) services. Also, increases in CouncillorAllowances are determined by the Local Government Remuneration Tribunal annually and for thepast four years the annual increase has been capped at 2. 5%.

Insurances

Insurance expenses are the single largest expense categorised as an Other Expense. The annualinsurance cost is $650, 000. The insurance expense is projected to increase annually by 4% overthe next ten year period. This projection is based in part on historical data and claims history.

The significant increase in natural disaster events and severity of property damages in the past fiveyears highlights the potential for increased property protection claims. In Upper Lachlan ShireCouncil there has been significant recent property damage and motor vehicle damage claims froma hail damage incident in 2009, the 2015 snow incident property damage claim, and a 2011 publicliability case relating to a trip fall incident.

Also, factored into the 4% increase is annual updating of Council's buildings and contents declaredinsurance valuations. These valuations generally increase which in turn leads to higher insurancepremiums as building replacement valuations continue to escalate.

23

Electricity and Gas

Electricity and Gas price increases were a focal point of Federal Government debate surroundingcarbon taxes and meeting carbon credit targets and timeframes. The Coalition FederalGovernment abolished the carbon tax in 2014 which in turn has led to a reduction in electricityexpense on an average user account by 7%.

In 2014/2015 the increase in electricity costs as determined by the Independent Pricing andRegulatory Tribunal (IPART) was a price increase of 2. 50%. Analyst projections of future electricitycosts vary, however Council has estimated an average annual increase of 2.40% over the next tenyear period.

Emergency Management Contributions

Emergency Management Contributions are imposed on local Councils by the NSW StateGovernment to assist with funding the Rural Fire Service (RFS), NSW Fire Brigades and StateEmergency Services (SES). The contributions are a significant Other Expense item for Councilwith an annual contribution of $350, 000 in 2015/2016. The projected increase for thesecontributions is 3% annually over the next ten year period.

Materials and Contracts

For the ten years to 2026, the Long Term Financial Plan estimates a 3. 75% increase annually inMaterials and Contracts expense. The increase projected for total materials and contracts expenseis above the projected CPI due to specific purpose Council operations related to gravel pits,rubbish tips, waste centres, fuels, parks and gardens maintenance activities where costs aresignificantly higher than CPI.

Private works activities will fluctuate from year to year based on private development projectswithin the Shire. Council anticipates the continued construction of State Government approvedwind farm developments in the next five year period. Council anticipates one significant privateworks each year, to be undertaken by Council under a contract arrangement in a five year period.Council does utilise a mix of Council employees and contracted plant hire operators and equipmentwhen undertaking private works.

Also, Council has contract arrangements related to the maintenance of State Road MR54,Goulburnto Crookwell to Bathurst Road. This Routine Maintenance Council Contract (RMCC) iswith the Roads and Maritime Services (RMS). The budget forward estimate is for $2 millionexpense each year under the RMCC contract and Works Orders in the LTFP. In 2016/2017 to2018/2019 it is anticipated the Junction Point RMS State Road MR54 construction project willexceed $1. 5 million annually for the three year period.

There are no significant (greater than $50, 000) legal costs projected by Council related to planningand development legal costs.

24

Major Capital Works Projects

The number and type of major capital works expenditure programs will depend upon a variety offactors not least of which is external funding arrangements. There is a $7 million capital project ofthe Crookwell Water Supply Treatment Plant upgrade which is a significant capital works project inthe Infrastructure Plan on a scale comparable to the Taralga sewer scheme constructioncompleted in 2012.

The roads and bridges infrastructure maintenance and asset renewal is the largest challengefacing the Council in the medium to long term. Council is committed to local road capitalimprovements, especially in allocating additional resources to gravel resheeting programs.

Council annually commits a funding allocation of $840,000 ($640,000) of the Federal GovernmentRoads to Recovery Program to gravel resheeting of the local road network. The remaining$200,000 this funding has been allocated to the improvement and reconstruction of sections ofGrabine Road. Local weather and environment factors continue to exacerbate the deterioration ofgravel surfaces on local roads. Council intervention is continually necessary to restore and improveroad surfaces.

Council recently completed the number one priority project being the reconstruction and bitumensealing of the entire unsealed sections of Crookwell to Taralga Road MR248E.

Council's Delivery Program details the road reconstruction and sealing programmed works to2020. A significant project is the RMS Repair program which will be utilised for the MR52Gundaroo to Gunning Road reconstruction. In the two years following, road reconstruction underRMS Repair program will centre on MR248E Crookwell to Laggan Road.

Council, in the Delivery Program, has listened to the community and has outlined their intention toinvestigate provision of new recreational buildings and facilities, such as skate parks in Crookwelland Gunning, and the Goulburn to Crookwell rail trail project. Council will only proceed with theseprojects if there is a strong business case supporting their development and there are minimalcapital construction costs to be borne by Council.

Council's annual capital expenditure program from 2017 to 2026 will range from $8 million to $14million per annum.

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25

Methods of Monitoring Financial Performance

The financial sustainability of local government has been the subject of various independentreviews, the latest review being the Treasury Corporation report in 2013.

The Long Term Financial Plan opens the way for Council to address issues such as constraints onrevenue growth (such as rate capping), ageing infrastructure, ageing population, legislative changeand cost shifting and, in consultation with the community, set funding priorities and service levelsthat set Council on a path to a more sustainable future.

Council will annually monitor, report, and assess its financial performance using thefollowing measures:-

Performance Measures Performance Indicator

. Unrestricted Current Ratio of Assets to Liabilities >2:1

. Net Operating Result (Operating Performance Ratio) Achieve operating surplus annually

Consolidated Debt Service Ratio for all Funds

Rates and Annual Charges Outstanding Ratio

Own Source Revenue Ratio

Building and Infrastructure Asset Renewal Ratio

Total Unrestricted Cash Reserves (Minimum)

Employee Leave Entitlements Cash Reserve

Working Capital Result

Each Fund (Water Supply, Sewerage and DWM)

Completion of Capital Budget

Budget Revote works carryovers

Investment Returns

Utilisation of Section 94 Development Plans funds

<=10% of Operating Revenue

<5%

>60%

>=100%

>$500, 000 at financial year end

>=33% of total liability

Surplus maintained annually

Full cost recovery and annual operatingsurplus>=80% completion rate each year

<2% of original operating budget

>90 day BBSW Rate

Minimum $250,000 annual expenditure

In addition to the above mentioned performance measures, Upper Lachlan Shire Council willcontinue to use local government financial and governance health check benchmarks and otherappropriate efficiency indicators in measuring Council's long term financial sustainability.

Upper Lachlan Shire Council will not borrow to fund ongoing operating expenditure requirementsand will not borrow for the acquisition of non income producing assets. Council has further capacityto borrow within the General Fund, however Council has 19 timber bridges on local roads whichwill need to be replaced and / or upgraded within the next 20 years. Council Works and OperationsDepartment have completed the asset condition assessment for fair valuation for this asset classand has developed a bridge replacement program which will be implemented into the Long TermFinancial Plan and asset management plan.

26

Sensitivity Analysis

Long term financial planning is inherently uncertain. This Long Term Financial Plan is based on arange of principles and key assumptions to forecast Council's income and expenditure for the 10years of the Plan. Variations in these assumptions over the life of the Plan may have a significantimpact on the projections in the Plan.

The Long Term Financial Plan assumes the continuation of all current operational grants andsubsidies. Council does have a strong reliance on grants and subsidies and any withdrawal of agrant or subsidy would require Council to reconsider the forecast service levels of expenditure andpotentially review staffing levels.

Ultimately any variations to the underlying assumptions will impact on income and expenditureforecasts. Using a reliable basis for the assumptions should minimise the potential for significantmaterial variations. Council has used the most recent publicly available and reliable informationfrom a variety of sources in formulating the forecasts used in the Long Term Financial Plan model.

A major variable to the Long Term Financial Plan process is the projected capital expenditure andincome required for future asset renewals and new asset and infrastructure projects. A number ofCouncil projects are significantly dependent on matching or full grant funding for a project toproceed. Also, the change in Council direction or changes in Council strategic objectives is apossibility with an election cycle of four years.

The table below summarises the Long Term Financial Plan's sensitivity to operational activitiesvariations from the various underlying key assumptions:-

Operating Income andExpenditure Categories

Income

Rates and Annual ChargesUser Charges and FeesOperating GrantsInterest and Investments

Other Income

ExpenditureEmployee Benefits and OncostsMaterials and Contracts

Borrowing CostsDepreciationOther Expenses

2016/2017Base Year(Rounded

$'000)

$29,183$10,124

$8,506_$9, 390

$603$560

$27, 082$10,351

$7,776$207

$5,751$2,997

Likelihoodof Variation

variation

UnlikelyPossiblePossible

Unlikely

Unlikelyvariation

UnlikelyPossible

UnlikelyUnlikelyUnlikely

Sensitivity to5% variationin the key

assumptions(Rounded

$'000)$1,459

+/-$506+ / - $425+ / -$470+/- $30+/- $28

$1,354_+/-$517+ / -$389+/- $10+ / -$288+, -$150

The Sensitivity^Analysis above indicates Council's financial exposure to changes in the underlyingassumptions. The 2016/2017 base year for projecting operating income and expenditure is soundand has been developed over several budget preparation cycles. In the context of the Long TermFinancial Plan the projections are considered to be reliable estimates.

Projections of capital expenditure are based on the Upper Lachlan Shire Council InfrastructurePlan This Plan identifies an optimal level of service delivery based on an assets age profile andcondition assessment. These projections will be accurate in the context of the assumed serviceand asset intervention levels identified in the Infrastructure Plan.

27

Conclusion

The Long Term Financial Plan has confirmed that these are changing and financial challengingtimes. In spite of these challenges, Upper Lachlan Shire Council has prepared a 10 year analysisprojections of a Net Operating Surplus, before capital grants and contributions, for the entire periodto 2026. However, Council will continue to monitor all business units and functional cost centres totry to achieve efficiencies and productivity improvements.

Council has completed the revaluation of assets at fair valuation for alt the following asset classes;operational land, buildings, property, plant and equipment, office equipment, stormwater, roads,bridges, footpaths, water supply, and sewerage assets. Since the revaluation of assets Councilnow recognises an additional annual amount of $300, 000 for building depreciation expense andhas recognised an additional $400, 000 annually for roads and bridges depreciation expense. Largeinfrastructure capital works projects were completed in 2012 to 2014; including the Taralga SewerScheme ($6. 9 million) and Taralga Water Supply Upgrade $1. 9), and a major upgrade of theGunning Water Supply infrastructure ($10. 8 million). These major projects will "result In significantincreases in depreciation expense for future years, which commenced in the Water Supply Fundfrom 2014/2015. The increase in depreciation expense shows the challenge Council will have infunding asset renewal programs into the future.

Further obligations imposed upon Councils (cost shifts) by other tiers of government continue tohave negative impacts upon Councils' Long Term Financial Plan modelling and financial position.The Local Government and Shires Association have demonstrated that the impact of cost shiftingupon NSW Councils equates to 4% (or $938, 000) of total income before capital amounts forCouncil each year. The Long Term Financial Plan model projects overall Council expenses tocontinue to increase faster than revenue. The outcome from this analysis will have a negativeimpact on Council's financial position and may adversely affect the level of services that may beprovided to our community.

Consideration by Council of a special rates variation application by 2020/2021 may be necessaryto maintain the existing standard of services to the Shire community. In particular, additionalrevenue source from a special rates variation would assist in funding the backlog of gravelresheeting and asset renewal programs for the Council's unsealed local road network.

The Long Term Financial Plan does not incorporate any new services or new buildings to beconstructed and provided by Council to the community in the next ten year period.

While grant funding from the other tiers of government is available from time to time this additionalfunding source has not been included in the Long Term Financial Plan as these sources areirregular and largely unpredictable. However, Council continues to endeavour to apply for andmaximise access to State and Federal grants through our Grants Officer.

The Long Term Financial Plan clearly illustrates the need for constitutional recognition of localgovernment to pave the way for additional direct funding from the Federal Government.

Also, the Independent Review Panel Report "Revitalising Local Government" released in 2013recommends that the methodology for distribution of Financial Assistance Grants be amended.This recommendation if implemented will be large step in the right direction to allow Council's toachieve financial sustainability.

28

Financial Modelling Scenario

The Long Term Financial Plan has outlined a financial model for a Base Case Scenario.

Base Case Scenario

The Base Case Scenario is the Status Quo operating model which has depicted the operatingsurplus result for base year 2016/2017 and the entire 10 year period and projects forward basedon all the assumptions outlined on Pages 14 to 25 of this document. The capital expenditureprogram and cash flow statement in this Scenario are heavily influenced by the capital grants andcontributions budgeted to be received in years one to four of the Long Term Financial Plan.

The Base Case Scenario capital works expenditure program is anticipated to deliver significantimprovements to Council infrastructure in particular roads and timber bridge replacements, watertreatment and storage facilities upgrades for future security and improved potable water quality,lower ongoing operating and maintenance costs.

Council will continue to deliver the same services based on the principal activities as outlined inCouncil's Integrated Planning and Reporting documents. The variable component will be thecapital expenditure and capital grants program.

Council will continue to annually review the Long Term Financial Plan and key assumptionscontained therein to ensure validity and currency of long term forward projections.

(The Long Term Financial Plan statements for this scenario are rounded to whole dollarsand whole percentages and this means there are minor immaterial rounding balance errorsto the Operational Plan budget. Also, there are assumptions in the cash flow statement forvariable % of receipts related to prior year charges and receivables.)

29

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2.42

%

0.01

^ -

1.12

y -

1.22

^i-

108.

93%

0.01

1.13

^ -

1,26

~y~

~10

2.43

%

w0.

01

1.14

1.17

Upper

Lach

lan S

hire

Cou

ncil

10 Y

ea

r Fin

anci

al P

lan

for t

he

Years

endin

g 3

0 J

un

e 2

026

CH

AR

TS -

AL

L F

UN

DS

(CO

NS

OLI

DA

TED

)S

ce

na

rio

: Ba

se

Case

New

No

te 1

3 R

atio

s C

hart

s

Opera

ting P

erfo

rman

ce R

atio

- C

onso

lidat

ed8.

00%

7.00

%

6.00

%

5.00

%

4.00

%

3.00

%

2.00

%

1.00

%

0.00

% -

I2

01

6

20

17

2

018

2019

20

20

20

21

2022

20

23

2024

2025

2026

Unre

str

icte

d C

urr

ent

Ra

tio

- C

on

so

lida

ted

7.00

6.00

5.00

4.00

3.00

2.00

1.00 -

I

0.00

2016

2017

2018

2019

20

20

20

21

2022

2023

2024

2025

2026

80.0

0%

70.0

0%

60.0

0%

50.0

0%

40.0

0%

30.0

0%

20.0

0%

10.0

0%

0.00

%

Ow

n S

ou

rce

Opera

ting R

eve

nu

e R

atio

- C

on

solid

ate

d

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

De

bt

Se

rvic

e C

ove

r R

atio

- C

on

so

lida

ted

20.0

0

18.0

0

16.0

0

14.0

0

12.0

0

10.0

0

8.00

6.00

4.0

0 -I

2.00

0.00

~77

-^s

^:

2016

20

17

2018

2019

2020

2021

2022

2023

2024

2025

2026

Min

imum

Am

be

rM

inim

um G

reen

Ma

xim

um

Gre

enM

axi

mu

m A

mb

er

Upp

er L

ach

lan S

hire C

ounc

il10 Y

ea

r Fin

an

cia

l Pla

n fo

r th

e Y

ears

endin

g 3

0 J

un

e 2

026

CH

AR

TS -

AL

L F

UN

DS

(CO

NS

OLI

DA

TED

)S

ce

na

rio

: Ba

se

Case

Ne

w N

ote

13

Rat

ios

Chart

s (c

ontin

ued)

12.0

000%

10.0

000%

8.00

00%

6.00

00%

4.00

00%

2.00

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0.00

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Ra

tes,

Annual C

ha

rge

s, In

tere

st &

Ext

ra C

harg

es

Ou

tsta

nd

ing

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eeflt

age-G

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eM

ate

d-

20

16

2

01

7

2018

20

19

2

02

0

2021

2022

20

23

2024

2025

2026

Cash

Exp

ense

Co

ver

Ratio

- C

onso

lidat

ed16

.00

14.0

0

12.0

0

10.0

0

8.00

6.00

4.00

2.00 -

I

0.00

xs

2016

2017

20

18

2019

2020

2021

2022

20

23

2024

2025

2026

Min

imu

m A

mb

er

Min

imum

G

reen

Maxim

um

Gre

en

Maxi

mum

Am

be

r

Upp

er L

ach

lan

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ounc

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0 Y

ear F

inanci

al P

lan fo

r th

e Y

ea

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ndin

g 3

0 J

un

e 2

026

CH

AR

TS -

AL

L F

UN

DS

(CO

NS

OLI

DA

TED

)S

ce

na

rio

: Ba

se

Case

Ne

w S

pe

cia

l Sch

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Rat

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Cha

rts

Bu

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g &

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uctu

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enew

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atio

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onso

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120.

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100.

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80.0

00%

-j

60.0

00%

40.0

00%

20.0

00%

0.00

0%20

16

2017

20

18

2019

20

20

2021

20

22

2023

20

24

2025

20

26

Ass

et

Main

tenance

Ratio

- C

onso

lidat

ed1.

20

1.00 -

I

0.8

0 -I

0.60

0.40

0.20

0.00

2016

20

17

20

18

20

19

2020

20

21

2022

20

23

2024

20

25

2026

Infr

ast

ruct

ure

Back

log R

atio

- C

onso

lidat

ed0.

04

0.03 -

I

0.03

0.02

0.02

0.01

0.01

0.00

2016

20

17

2018

2019

2020

2021

2022

20

23

2024

2025

2026

Cap

ital E

xpen

ditu

re R

atio

- C

onso

lidat

ed

3.00

0.50

0.00

2016

20

17

2018

20

19

2020

20

21

2022

20

23

2024

20

25

2026

Min

imum

Am

be

rM

inim

um

Gre

en

Max

imum

Gre

enM

axi

mum

Am

be

r

Upper

Lach

lan S

hire

Counci

l1

0 Y

ear F

ina

nci

al P

lan fo

r th

e Y

ea

rs e

ndin

g 3

0 J

un

e 2

026

CH

AR

TS -

AL

L F

UN

DS

(CO

NS

OLI

DA

TED

)S

ce

na

rio

: Ba

se

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Incom

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tate

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s

To

tal I

nco

me (

pe

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25,0

00,0

00

20,0

00,0

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15,0

00,0

00

10,0

00,0

00

5,00

0,00

0 0 -I

2016

20

17

20

18

20

19

2020

20

21

2022

20

23

2024

20

25

2026

9,00

0,00

0

8,00

0,00

0

7,00

0,00

0

6,00

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0

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2016

20

17

2018

20

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2021

2022

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To

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20

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2018

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2021

2022

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2025

2026

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2016

20

17

2018

20

19

2020

20

21

2022

20

23

2024

20

25

2026

Upper

Lach

lan S

hire

Cou

ncil

10 Y

ea

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xpe

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solid

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2016

20

17

2018

2019

2020

2021

2022

20

23

2

02

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2025

2026

-.-T

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me

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ciatio

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r P

&L

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onso

lidat

ed

2016

20

17

2018

20

19

2020

20

21

2022

20

23

2024

20

25

2026

-.-T

ota

l Ope

ratin

g In

com

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To

tal O

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0 -

I

3.00

2.00

1.0

0 -

I

0.00

2016

20

17

2018

20

19

2

02

0

2021

2022

20

23

2024

2025

2026

Rat

es &

Annual

Ch

arg

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Cov

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e R

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ed40

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25.0

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20.0

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10.0

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5.00

00%

0.00

00%

.

^y

2016

2017

2018

20

19

2

02

0

2021

2022

2023

20

24

2025

2026

Debt S

erv

ice

Ra

tio

- C

on

so

lida

ted

2.50

0%

2.00

0%

1.50

0%

1.00

0%

0.50

0%

0.00

0%2016

20

17

2018

2019

2020

2021

2022

20

23

2024

2025

2026

12.0

000%

Rat

es, A

nnual

Cha

rges

, In

tere

st &

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ted

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-I

8.00

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6.00

00%

4.00

00%

2.00

00%

0.00

00%

2016

20

17

2018

2019

20

20

20

21

2022

20

23

2024

2025

2026

Min

imum

Am

be

rM

inim

um G

reen

Max

imum

Gre

enM

axi

mu

m A

mb

er

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er L

achl

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hire

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ncil

10 Y

ear F

inan

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n fo

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e Y

ears

end

ing

30 J

une 2

026

CH

AR

TS

- A

LL

FU

ND

S (C

ON

SO

LID

AT

ED

)S

ce

na

rio

: B

ase

Case

Ca

sh

Re

str

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ns

Chart

s

Unr

estri

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men

ts (in

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solid

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6,00

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0

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00

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3,00

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020

16 2

017

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2 20

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2024

20

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Inte

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ly R

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6,00

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019

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2022

20

23

2024

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25

2026

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18,0

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00

16,0

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00

14,0

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00

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AR

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(CO

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na

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se

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0

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solid

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2016

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20 '

2021

20

22

2023

20

24 2

025

2026

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400,

000

350,

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300,

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18 ' 2

019 '

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2023

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0

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0

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rais

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solid

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2016

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17 '

2018

20

19

2020

20

21

2022

20

23

2024

20

25

2026

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000

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l Loa

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100,

000

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50,0

00

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, 2016

20

17

2018

20

19

2020

20

21

2022

20

23

2024

20

25

2026

Upp

er L

achl

an S

hire

Cou

ncil

10

Ye

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cte

d

Ye

ars

20

20

12

1

2021/2

2

20

22

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2

02

3(2

4

20

24

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2025/2

6

Ne

w N

ote

13

Ra

tio

s

Op

era

ting

Per

form

ance

Ra

tio 1

)O

wn S

ourc

e O

pe

ratin

g R

even

ue R

atio

1)

Unr

estr

icte

d C

urr

en

t Rat

ioD

eb

t Serv

ice C

ove

r Ra

tio 1

)R

ates

, An

nu

al C

harg

es, I

nte

rest

& E

xtra

Charg

es

Out

stan

ding

Per

cent

age

Ca

sh E

xpe

nse

Cove

r Ra

tio 1

)

9.60

%53

.70% 1.84 N/A

2.51

%N

/A

6.70

%53

.26% 4.20

22.2

82.

33%

7.98

4.60

%67.

13%

5.62

19.5

72.

73%

9.39

3.90

%62

.70% 5.66

19.4

31.

40%

11.7

3

5.13

%57

.79% 5.86

19.4

62.

22%

11.6

2

7.73

%0.

18%

59.4

1%

65.2

8%5.

41

5.46

24.8

4 21

.91

2.2

0%

2.

20

%

10.1

8 9.

05

0.98

%65

.97% 5.80

15.9

62.

20%

10.1

0

0.72

%65

.99%

5.38

12.2

92.

20%

9.41

0.68

%66

.47%

4.80

12.4

62.

20%

8.44

0.53%

66.0

2%4.

53

13.6

12.

20%

8.02

0.38%

66.0

3% 4.51

11.9

02.

20%

8.08

0.2

5%

66.0

4% 4.13

10.5

92.

20%

7.30

0.07

%0.

05%

66.0

5%

66.0

6%

4.01

3.

6611

.15

11.7

32.

20

%

2.2

0%

7.0

9

6.50

1) d

iffe

ren

t C

alcu

latio

n to

TC

orp'

s ca

lcul

atio

n fo

r sam

e ra

tio

New

Spe

cial

Sch

edul

e 7

Rat

ios

Bui

ldin

g &

Inf

rast

ruct

ure

Ren

ewal

s R

atio

Infr

astr

uctu

re B

ackl

og R

atio

Asset M

ain

tenance R

atio

Cap

ital E

xpenditu

re R

atio

87.7

0%

107.

34%

12

8.93

%

138.

75%

15

1.54

%

183.

00%

15

2.69

%

146.

79%

14

6.35

%

157.

26%

14

3.87

%

155.

10%

15

8.82

%N

/A

0.09

0.

06

0.03

0.

01

0.01

0.

01

0.01

0.

01

0.01

0.

01

0.01

0.

010.

87

1.10

0.

90

1.07

1.

09

1.11

1.

02

1.05

1.

08

1.09

1.

10

1.11

1.

12N

/A

1.56

1.0

9

1.32

1.8

1

1.84

1.5

1

1.4

3

1.40

1.48

1.33

1,4

1

1.42

169.

66%

15

8.26

%0.

01

0.

01

1.13

1.

141.

49

1.

36

Old

Note

13

Ratio

s (n

ot i

ncl. in

ne

w N

ote

13

or S

pe

cia

l Sch

edule

7)

Debt

Serv

ice R

atio

Rat

es S

An

nu

al C

ha

rge

s C

ove

rage R

atio

1.50

%28

.50%

1.26

%29

.10

%1.

36%

33.2

1%

1.18

%32

.42%

1.41

%31

.64%

1.1

8%

28.5

8%

0.94

%3

1.4

1%

1.40

%31

.81%

1.82

%31

.88

%1.

77%

32.

18

%1.

59%

32.0

2%

1.81

%32

.09

%2.

01%

32.

16%

1.88

%32

.23

%1.

75%

32.3

0%

Up

pe

r Lach

lan S

hire C

ounc

il10 Y

ear F

ina

nci

al P

lan

for th

e Y

ea

rs e

ndin

g 3

0 J

une 2

026

KE

Y P

ER

FO

RM

AN

CE

IN

DIC

AT

OR

S -

GE

NE

RA

L F

UN

DS

cenario: B

ase C

ase

Curr

ent

Ye

ar

2015

/16

Pro

ject

ed

Yea

rs2

01

6/1

7

20

17

/18

2

01

8/1

9

20

19

/20

20

20/2

1 2

02

1/2

2

20

22

/23

2

02

3/2

4

20

24

/25

20

25/2

6

Co

un

cil's

Ta

rge

t B

ench

mar

ks

New

No

te 1

3 R

atio

s

Ope

ratin

g P

erfo

rman

ce R

atio

1)

Ow

n S

ourc

e O

pera

ting

Rev

enue

Rat

io 1

)

Un

rest

rict

ed

Cu

rre

nt

Ra

tio

De

bt S

erv

ice

Co

ver R

atio

1 )

Rat

es, A

nnua

l Cha

rges

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tere

st &

Ext

ra C

harg

esO

uts

tan

din

g P

erce

ntag

e

Cas

h E

xpen

se C

over

Rat

io 1

)

Sna

psho

t

Act

ual

Ratio

Sna

psho

tA

ctu

al R

atio

Sna

psho

t

Act

ua

l R

atio

Sna

psho

t

Act

ua

l R

atio

Sna

psho

t

Act

ua

l R

atio

Sn

ap

sho

t

Act

ua

l R

atio

,1) d

iffe

ren

t C

alcu

latio

n to

TC

orp'

s ca

lcul

atio

n fo

j^sa

me

ratio

^-7

5.13

% M

57.7

9%

Q _

5.86

~w

^~^

19.4

6

2.22

%

11.6

2

With

in gr

een

benc

hmar

k (gr

een

min

and

/or g

reen

max

)

! ^

With

in am

ber b

ench

mar

k (am

ber m

in an

d/or

ambe

r max

)

0

Not

with

in be

nchm

ark (

ambe

r min

and/

or am

ber m

ax)

0 -

7.73

%

i » \

59.4

1%

5.41

^24

.84

^j-^

2.20

%

^

--10

.18

With

in g

ree

n b

ench

mar

k

7 ab

ove

gree

n m

axim

um a

nd b

elow

am

ber m

axim

um

''»

belo

w gr

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min

imum

and

abo

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mbe

r min

imum

4*'

abov

e am

ber m

axim

um

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belo

w a

mbe

r min

imum

0.18

%

0 -

65.2

8%

^^

5.46

^~

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^r^

2.20

%

^ -

9.05

^ _

0.98

%

^ -

65.9

7%

5.80

0 -

15.9

6

^^-

2.20

%

<^ -

10.1

0

^ -

0.72

%

e -

65.9

9%

^^

5.38

12.2

9

2.20

%

^ _

9.41

(^ -

0.68

%

e -

66.4

7%

4.80

^12

.46

0 2.20

%

0 -

8.44

0.53

%

0 66.0

2%

4.53

w13

.61

2.20

%

y -

8.02

0.38

%

v -

66.0

3%

4.51

^ -

11.9

0

0 -

2.20

%

08.

08

0.25

%

^ -

66.0

4%

4.13

^ -

10.5

9

0 2.20

%

7.30

(^ -

0.07

%

v -

66.0

5%

4.01

^ _

11.1

5

^ 2.20

%

7.09

^ -

0.05

%

(^ -

66.0

6%

3.66

w -

11.7

3

^ -

2.20

%

® -

6.50

Ne

w S

pe

cia

l Sch

ed

ule

7 R

atio

sB

uild

ing

& In

fras

truc

ture

Re

ne

wa

ls R

atio

Infr

astr

uctu

re B

ack

log

Rat

io

Asse

t Main

tenance

Ratio

Ca

pita

l Exp

endi

ture

Rat

io

Sna

psho

tA

ctu

al

Ra

tio

Sn

ap

sho

t

Act

ua

l R

atio

Sn

ap

sho

t

Act

ua

l R

atio

Sna

psho

tA

ctu

al

Ratio

^ -

151.

54%

w -

0.01

1.09

1.81

\T^

183.

00%

0.01

-Q

^ _

1.11

1.84

^ -

152.

69%

0.01

1.02

1.51

^ -

146.

79%

^ -

0.01

v -

1.05

w1.

43

^ -

146.

35%

o _ 0.01

^ _

1.08

^r-

1.40

v -

157.

26%

0.01

y -

1.09

1.48

9 -

143.

87%

0.01

^ _

1.10

1.33

® -

155.

10%

0.01

1.11

1.41

i> -

158.

82%

0

0.01

^>

-1.

12

0 -

1.42

yl -

169.

66%

0.01

1.13

w1.

49

158.

26%

0.01

^ -

1.14

1.36

Upp

er L

ach

lan

Shire C

ounc

il10 Y

ea

r Fin

an

cia

l Pla

n fo

r th

e Y

ears

endin

g 3

0 J

un

e 2

026

CH

AR

TS

- G

EN

ER

AL F

UN

DS

ce

na

rio

: Ba

se

Case

New

No

te 1

3 R

atio

s C

hart

s

Opera

ting P

erf

orm

ance

Ratio

- G

ener

al F

und

2016

20

17

2018

2019

20

20

20

21

2022

20

23

2024

2025

2026

Un

rest

rict

ed

Curr

ent R

atio

- G

en

era

l Fu

nd

7.00

6.00

5.00

4.00

3.0

0 -I

2.00

1.00 -

I

0.00

2016

20

17

2018

2019

2020

2021

2022

20

23

2024

2025

2026

Ow

n S

ou

rce

Op

era

ting

Re

ven

ue

Ratio

- G

en

era

l Fu

nd

70.0

0%

60.0

0%

-I

50.0

0% -

I

40.0

0%

30.0

0%

20.0

0%

10.0

0%

0.00

%2

01

6

20

17

2018

20

19

2

02

0

20

21

2

02

2

20

23

2024

20

25

2026

Debt

Se

rvic

e C

ove

r R

atio

- G

en

era

l F

un

d

30.0

0

25.0

0

20.0

0

15.0

0

10.0

0

5.00

0.00

"Y

2016

20

17

2018

20

19

2020

2021

2022

2023

2024

2025

2026

Min

imum

A

mber

Min

imu

m G

ree

nM

axi

mum

Gre

en

Maxim

um

A

mber

Upp

er L

ach

lan

Shire C

ounc

il10

Ye

ar F

ina

nci

al P

lan fo

r the Y

ears

en

din

g 3

0 J

un

e 20

26C

HA

RT

S -

GE

NE

RA

L F

UN

DS

ce

na

rio

: B

ase

Ca

seN

ew

Spe

cial

Sch

edul

e 7

Rat

ios

Cha

rts

Bu

ildin

g &

Infr

astr

uctu

re R

enew

als R

atio

- G

ener

al F

und

200.

000%

180.

000%

160.

000%

140.

000%

120.

000%

100.

000%

80. 0

00%

60.0

00%

40.0

00%

20.0

00%

0.00

0%

zs

2016

20

17

2018

2019

20

20

20

21

2022

2023

2024

2025

2026

Ass

et M

ain

tenance

Ra

tio -

Ge

ne

ral F

un

d1.

20

1.00

0.8

0 -I

0.60

0.40

0.20

0.00

20

16

2

01

7

2018

2019

20

20

20

21

2022

20

23

2024

2025

2026

Infr

ast

ruct

ure

Back

log R

atio

- G

ener

al F

und

0.04

0.03 -

I

0.03

0.02

0.02

0.01

-I

0.01

0.00

2016

2017

2018

20

19

2020

2021

2022

2023

2024

2025

2026

Capita

l E

xpe

nd

iture

Ratio

- G

ener

al F

und

2.00

1.80

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

s

2016

20

17

2018

2019

2020

2021

2022

2023

2024

2025

2026

Min

imu

m A

mb

er

Min

imu

m G

reen

Maxim

um

Gre

en

Maxim

um

Am

be

r

Upp

er L

ach

lan

Sh

ire

Cou

ncil

10

Year F

inanci

al P

lan fo

r th

e Y

ea

rs e

ndin

g 3

0 J

un

e 2

026

CH

AR

TS

- G

EN

ER

AL

FU

ND

Sce

na

rio

: Ba

se

Case

Ne

w N

ote

13

Rat

ios

Chart

s (c

ontin

ued)

Rat

es, A

nnua

l Cha

rges

, Int

eres

t & E

xtra

Cha

rges

Out

stan

ding

12.0

000%

T-P

ere

en

tag

e-G

en

eM

d-E

un

d-

10.0

000%

-I

8.00

00%

6.00

00%

4.00

00%

2.00

00%

0.00

00%

2016

20

17

2018

20

19

2020

20

21

2022

20

23

2024

20

25

2026

14.0

0

12.0

0

10.0

0

8.00

6.00

4.00

2.0

0 -

]

0.00

Cash

Exp

ense

Co

ver

Ratio

- G

ener

al F

und

20

16

2

01

7

2018

2019

2020

2021

2022

20

23

2

02

4

2025

2026

Min

imum

Am

be

rM

inim

um

G

reen

Maxi

mum

Gre

en

Ma

xim

um

Am

ber

Upper

Lach

lan S

hire

Counci

l1

0 Y

ear F

ina

nci

al P

lan fo

r th

e Y

ea

rs e

ndin

g 3

0 J

un

e 2

026

CH

AR

TS

- G

EN

ER

AL

FU

ND

Sce

na

rio

: Ba

se

Case

Old

No

te 1

3 R

atio

s C

hart

s

Unre

str

icte

d C

urr

ent

Ra

tio

- G

enera

l F

un

d7.

00

6.00

5.00

4.00

3.00

2.00

1.0

0 -

I

0.00

2016

20

17

2018

20

19

2020

20

21

2022

20

23

2024

20

25

2026

Rate

s &

Annual C

harg

es

Cove

rage R

atio

- G

en

era

l Fu

nd

20

16

2017

2018

2019

20

20

20

21

2022

20

23

2024

2025

2026

De

bt S

erv

ice

Ratio -

Genera

l Fu

nd

2.50

0%

2.00

0%

1.50

0%

1.00

0%

0.50

0%

0.00

0%20

16

2017

20

18

2019

20

20

2021

20

22

2023

20

24

2025

20

26

12.0

000%

10.0

000%

8.00

00%

6.00

00%

4.00

00%

2.00

00%

0.00

00%

Ra

tes,

Annual C

ha

rge

s, In

tere

st &

Ext

ra C

ha

rge

s O

uts

tandin

gP

erc

en

tag

e -

Ge

ne

ral F

un

d

2016

20

17

20

18

20

19

2020

20

21

2022

20

23

2024

20

25

2026

Min

imum

A

mber

Min

imu

m G

reen

Maxim

um

Gre

en

Ma

xim

um

Am

be

r

Upper

Lach

lan S

hire

Counci

l1

0 Y

ear F

inanci

al P

lan fo

r th

e Y

ea

rs e

ndin

g 3

0 J

un

e 2

026

CH

AR

TS

- G

EN

ER

AL

FU

ND

Sce

na

rio

: B

ase

Case

Inco

me

Sta

tem

en

t C

hart

s

35,0

00,0

00

30,0

00,0

00

25,0

00,0

00

20,0

00,0

00

15,0

00,0

00

10,0

00,0

00

5,00

0,00

0 0

Tota

l In

com

e (

pe

r P

&L

) - G

ener

al F

und

2016

20

17

2018

2019

20

20

20

21

2022

2023

20

24

2025

2026

4,50

0,00

0

Net

Ope

ratin

g R

esul

t (pe

r P&

L) a

fte

r Cap

ital G

rant

s &

Con

trib

utio

ns -

Genera

l Fu

nd

4,00

0,00

0

3,50

0,00

0

3,00

0,00

0

2,50

0,00

0

2,00

0,00

0 -H

1,50

0,00

0

1,00

0,00

0

500,

000 0

2016

20

17

2018

20

19

2

02

0

2021

2022

20

23

2

02

4

2025

2026

Tota

l E

xpen

ses

(pe

r P

&L

) - G

ener

al F

und

2016

20

17

2018

20

19

2

02

0

2021

2022

20

23

2024

2025

2026

2,00

0,00

0

Ne

t Opera

ting R

esu

lt (p

er

P&

L) b

efo

re C

ap

ital G

rants

an

d C

ontr

ibut

ions

-G

enera

l F

un

d

1,80

0,00

0

1,60

0,00

0

1,40

0,00

0

1,20

0,00

0

1,00

0,000

-H

800,

000

600,

00

0 -H

400,

00

0 -H

200,

000 0

2016

20

17

2018

20

19

2020

2021

2022

20

23

2

02

4

2025

2026

Upper

Lach

lan S

hire

Cou

ncil

10 Y

ea

r Fin

anci

al P

lan fo

r the Y

ears

endin

g 3

0 Ju

ne

2026

CH

AR

TS

- G

EN

ER

AL

FU

ND

Sce

na

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0 r p

New South Wales

Treasuiy Corporation

Upper Lachlan Shire Council

Financial Assessment, Sustainability and Benchmarking Report

11 March 2013

Prepared by NSW Treasury Corporation for Upper Lachlan Shire Council, the Division of LocalGovernment and the Independent Local Government Review Panel.

Upper Lachlan Shire Council COMMERCIAL-IN-CONFIDENCE Page 1

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New South Wales

Treasury CorporationDisclaimer

This report has been prepared by New South Wales Treasury Corporation (TCorp) in accordance withthe appointment of TCorp by the Division of Local Government (DLG) as detailed in TCorp's letters of22 December 2011 and 28 May 2012. The report has been prepared to assist the DLG and theIndependent Local Government Review Panel in its consideration of the Sustainability of each localgovernment area in NSW.

The report has been prepared based on information provided to TCorp as set out in Section 2.2 of thisreport. TCorp has relied on this information and has not verified or audited the accuracy, reliability orcurrency of the information provided to it for the purpose of preparation of the report. TCorp and itsdirectors, officers and employees make no representation as to the accuracy, reliability orcompleteness of the information contained in the report,

In addition, TCorp does not warrant or guarantee the outcomes or projections contained in this report.The projections and outcomes contained in the report do not necessarily take into consideration thecommercial risks, various external factors or the possibility of poor performance by the Council all ofwhich may negatively impact the financial capability and sustainability of the Council. The TCorp reportfocuses on whether the Council has reasonable capacity, based on the information provided to TCorp,to take on additional borrowings, and Council's future Sustainability, within prudent risk parameters andthe limits of its financial projections.

The report has been prepared for Upper Lachlan Shire Council, the DLG and the Independent LocalGovernment Review Panel. TCorp shall not be liable to Upper Lachlan Shire or have any liability toany third party under the law of contract, tort and the principles of restitution or unjust enrichment orotherwise for any loss, expense or damage which may arise from or be incurred or suffered as a resultof reliance on anything contained in this report.

Upper Lachlan Shire Council COMMERCIAL-IN-CONFIDENCE Page 2

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New South Wales

Traasuiy CorporationIndex

Section 1

Section 2

2. 1:

2. 2:

2. 3:

Section 3

3. 1:

3. 2:

3. 3:

3.4:

3. 5:

3. 6:

3. 6(a):

3, 6(b):

3. 6(c):

3, 7:

Section 4

4. 1:

4. 2:

4. 3:

4. 4:

4. 5:

4.6:

Section 5

Section 6

Appendix

Appendix

Executive Summary......................................................................................................^

Introduction....................................................................................................................6

Purpose of Report............................................................................................................6

Scope and Methodology..................................................................................................6

Overview of the Local Government Area.........................................................................8

Review of Financial Performance and Position..............................................................9

Re venue...........................................................................................................................9

Expenses....................................................................................................................... 10

Operating Results.......................................................................................................... 12

Financial Management Indicators.................................................................................. 13

Statement of Cashflows................................................................................................. 14

Capital Expenditure........................................................................................................ 15

Infrastructure Backlog.................................................................................................... 15

Infrastructure Status....................................................................................................... 16

Capital Program............................................................................................................. 16

Specific Risks to Council................................................................................................ 18

Review of Financial Forecasts..................................................................................... 19

Operating Results......................................................................................................... 19

Financial Management Indicators.................................................................................. 20

Capital Expenditure........................................................................................................ 24

Financial Model Assumption Review.......................................................................... 24

Borrowing Capacity........................................................................................................ 26

Sustainability.................................................................................................................. 27

Benchmarking and Comparisons with Other Councils................................................. 28

Conclusion and Recommendations............................................................................. 34

A Historical Financial Information Tables.................................................................... 35

B Glossary................................................................................................................ 38

Upper Lachlan Shire Council COMMERCIAL-IN-CONFIDENCE Page3

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Treasury Corporation Section 1 Executive Summary

This report provides an independent assessment of Upper Lachlan Shire Council's (the Council)financial capacity, and its future Sustainability. The analysis is based on a review of the historicalperformance, current financial position, and long term financial forecasts. It also benchmarks theCouncil against its peers using key ratios.

TCorp's approach has been to:

. Review the most recent four years of Council's consolidated financial results

. Conduct a detailed review of the Council's 10 year financial forecasts

The Council has been well managed over the review period based on the following observations:

. Council has reported an operating surplus, excluding capital grants and contributions, overthe four year period

. Council's underlying operating performance (measured using EBITDA) has increased by$3. 0m since 2009 to $7.6m in 2012

. Council's Own Source Revenue Ratio has been below benchmark in all review yearsindicating Council's reliance on external funding

The Council reported $15. 7m of infrastructure backlog in 2012 which represents 10.0% of itsinfrastructure asset value of $155.3m. Other observations include:

. Council's infrastructure backlog has increased by $5. 8m since 2009 to $15. 7m in 2012

. Council is underspending the required amount to maintain their existing assets at anacceptable level

The key observations from our review of Council's 10 year forecasts for its General Fund are:

. The forecast shows a surplus position is expected, when capital grants and contributions areexcluded, for the entire forecast period

. When investment revenues are included in calculating Council's Own Source Revenue Ratio,it is above benchmark for the entire forecast period

. Council's capital expenditure is above benchmark in nine of the 10 years forecast

In our view, the Council has the capacity to undertake additional borrowings of up to $13.4m. This isbased on the following analysis:

. Based on a benchmark of DSCR>2x, $13.4m could be borrowed in addition to the existingborrowings of $3. 2m

pb insert summary comments about the benchmarking.]

Upper Lachlan Shire Council COMMERCIAL-IN-CONFIDENCE Page 4

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Trsasuiy CorporationIn respect of the long term Sustainability of the Council our view is that overall, Council is in a soundposition. Our key observations are:

. Council's operating result, excluding capital grants and contributions, has shown a surplusresult for the past four years

. Council's current LTFP forecasts operating surpluses for the entire period without theassistance of an SRV

. Council has maintained conservative levels of borrowings which is reflected in their DSCRand Interest Cover however they may need to consider borrowing to help reduce their backlog

. Council is reliant on external funding sources as indicated by an Own Source Revenue Ratiothat is below benchmark in both the past and in the forecast. Any changes in grant funding,particular the state's financial assistance grants can place the council's financial sustainabilityat risk

. Council needs to increase its expenditure on asset maintenance and renewals in order toreduce its infrastructure backlog

In respect of the Benchmarking analysis TCorp has compared the Council's key ratios, on aconsolidated basis, with other councils in DLG group 10. The key observations are:

. Council's financial flexibility is reasonably sound as indicated by the Operating Ratio beingwell above benchmark and the group's average, and Own Source Operating Revenue Ratioimproving in the medium term

. Council was in a sufficiently liquid position which is forecast to be above the group's averageliquidity level over the medium term

. Council's DSCR and Interest Cover Ratio while below the group's average were abovebenchmark over the review period which indicates Council is more highly geared whencompared to other Councils.

. Council has low levels of Infrastructure Backlog compared to its peer group. The AssetMaintenance Ratio is below benchmark but tracks the group's average over the reviewperiod. The Building and Infrastructure Asset Renewal Ratio generally tracked benchmarkover the review period. Council's Capital Expenditure Ratios has been above benchmark andoutperformed the group's average over the review period. The ratio is forecast to improvemarginally in line with the group's average in the medium term.

Upper Lachlan Shire Council COMMERCIAL-IN-CONFIDENCE Page 5

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Treasury CorporationSection 2 Introduction

2.1: Purpose of Report

This report provides the Council with an independent assessment of their financial capacity,Sustainability and performance measured against a peer group of councils which will complement theirinternal due diligence, and the IP&R system of the Council and the DLG, together with the work beingundertaken by the Independent Local Government Review Panel.

The report is to be provided to the DLG and the Independent Local Government Review Panel.

The key areas focused on are:

. The financial capacity of the Council

. The long term Sustainability of the Council

. The financial performance of the Council in comparison to a range of similar councils andmeasured against prudent benchmarks

2.2: Scope and Methodology

TCorp's approach was to:

. Review the most recent four years of the Council's consolidated audited accounts usingfinancial ratio analysis. In undertaking the ratio analysis TCorp has utilised ratio'ssubstantially consistent with those used by Queensland Treasury Corporation (QTC) initially inits review of Queensland Local Government (2008), and subsequently updated in 2011

. Conduct a detailed review of the Council's 10 year financial forecasts including a review of thekey assumptions that underpin the financial forecasts. The review of the financial forecastsfocused on the Council's General Fund

. Identify significant changes to future financial forecasts from existing financial performanceand highlight risks associated with such forecasts, including those that could impact Council'sSustainability

. Conduct a benchmark review of a Council's performance against its peer group

. Prepare a report that provides an overview of the Council's existing and forecast financialposition and its capacity to meet increased debt commitments and achieve long termSustainability

. Conduct a high level review of the Council's IP&R documents for factors which could impactthe Council's financial capacity, performance and Sustainability

In undertaking its work, TCorp relied on:

. Council's audited financial statements (2008/09 to 2011/12)

. Council's financial forecast model

. Council's IP&R documents

. Discussions with Council officers

. Other publicly available information such as information published on the I PART website

Upper Lachlan Shire Council COMMERCIAL-IN-CONFIDENCE Page6

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Treasury CorporationDefinition of Sustainabilitv

In conducting our reviews, TCorp has relied upon the following definition of sustainability to provideguidance:

"A local government will be financially sustainable over the long term when it is able to generatesufficient funds to provide the levels of service and infrastructure agreed with its community."

Benchmark Ratios

In conducting our review of the Councils' financial performance, forecasts and Sustainability we havemeasured performance against a set of benchmarks. These benchmarks are listed below.Benchmarks do not necessarily represent a pass or fail in respect of any particular area. One-offprojects or events can impact a council's performance against a benchmark for a short period. Otherfactors such as the trends in results against the benchmarks are critical as well as the overallperformance against all the benchmarks. As councils can have significant differences in their size andpopulation densities, it is important to note that one benchmark does not fit all.

For example, the Cash Expense Ratio should be greater for smaller councils than larger councils as aprotection against variation in performance and financial shocks.

Therefore these benchmarks are intended as a guide to performance.

The Glossary attached to this report explains how each ratio is calculated.

Ratio

Operating Ratio

Cash Expense Ratio

Unrestricted Current Ratio

Own Source Operating Revenue Ratio

Debt Service Cover Ratio (DSCR)

Interest Cover Ratio

Building and Infrastructure Backlog RatioAsset Maintenance Ratio

Building and Infrastructure Asset Renewal Ratio

Capital Expenditure Ratio

Benchmark

. (4. 0%)> 3. 0 months

>1.50x

> 60. 0%

> 2.00x

> 4.00x

< 0. 02x

>1.00x

>1.00x

>1.10x

Upper Lachlan Shire Council COMMERCIAL-IN-CONFIDENCE Page 7

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Treasury Corporation2.3: Overview of the Local Government Area

Upper Lachlan LGA

Locality & Size

LocalityArea

DLG Group

Demographics

Population as at 2011

% under 18

% between 18 and 59

% over 60

Expected population 2021

Operations

Number of employees (FTE)Annual revenue

Infrastructure

Roads

Bridges

Infrastructure backlog value

Total infrastructure value

Southern NSW

7, 128km2

10

7, 19325%

46%

29%

7,625

132

$25. 8m

1, 772km

65

$15. 7m

$155. 3m

Upper Lachlan Shire Local Government Area (LGA) is located in the Southern Tablelands, 45km westof Goulburn, 60km north of Canberra and 130km south-east of Bathurst.

Despite its proximity to major cities Upper Lachlan Shire is rural in its character with agriculture a mainfeature of its economy.

The current population of 7, 193 is expected to increase by a minimum of 6% by 2021 to 7, 625.

Council had 132 full time equivalent employees at 30 June 2012.

Upper Lachlan Shire Council COMMERCIAL-IN-CONFIDENCE Page8

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New South Wales

Treasury CorporationSection 3 Review of Financial Performance and Position

In reviewing the financial performance of the Council, TCorp has based its review on the annualaudited accounts of the Council unless otherwise stated.

3. 1: Revenue

Figure 1 - Revenue Sources for 2008/09 to 2011/1 2 ($'OOOs)

30, 000

25,000

20,000

.^66-

10, 376 .S+9-

6, 615 5, 523

2012

1 Rates and annual chargesInterest and investment revenue

1 Other revenues

2011 2010 2009

1 User charges and feesGrants and contributions for operating purposes

Key Observations

Council's total revenue, excluding capital grants and contributions, increased by 26, 4%($5. 4m) over the four year period to $25. 7m in 201 2.Rates and annual charges increased by 4.5% in 2011 and 4.2% in 2012. The increases in2012 were due to rate peg increases and an increase in sewerage service fees following thecompletion of the Taralga Sewerage Scheme. The 2011 increases were due to rate pegincreases and increases in charges for domestic and rural waste management services.User fees and charges increased by 53. 1% ($2.0m) in 2012 partly due to $1.0m of privateworks revenue from the construction of roads to access Gunning Wind Farm.User fees and charges peaked in 2009 because of private works undertaken for Transgridwhich contributed $2. 0m to total private works compared to only $0.7m in 2010. Thedecrease in 2011 was due to a $1.Om reduction in RMS charges due to reduced worksundertaken.

Grants and contributions for operating purposes have been increasing each year with a totalincrease of 87. 8% ($4. 8m) since 2009 to $10. 3m in 2012. In 2012 grants and contributionsincreased by 26.6% ($2.2m). The financial assistance grant increased by $1. 1m as a result oftwo advance payments received in 2012. 2012 also saw an increase of $1,4m in naturaldisaster funding following the flooding early in 2012.

Upper Lachlan Shire Council COMMERCIAL-IN-CONFIDENCE Page 9

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New South Walas

Treasury Corporation. In 2011 Council was awarded $1. 3m in natural disaster funding following the December 2010

flooding while 2010 saw increases in transportation grants.

3.2: Expenses

Fiaure2-ExDensesfor2008/09to2011/12($'OOOs)

25,000

20,000

15,000

10, 000

5, 000

5, 043

7, 227

4, 6733, 770

5,611

0

2012. Employees

Depreciation and amortisation

2011I Borrowing costs1 Other expenses

2010 2009. Materials and contract expenses

Key Observations

Council's expenses increased by 18.8% ($3. 7m) since 2009 to $23. 5m in 2012.In 2012 employee costs decreased by 4.8% ($0.4m). Salaries and wages fell by almost$1 .Om primarily due to a system error identified in 2012. The error had previously resulted insome salaries and wages overheads being consolidated into salaries costs rather thanmaterials and contracts expenses. This error was rectified in 2012 and resulted in a re-allocation of expenses. The decrease in salaries and wages in 2012 was partly offset by anincrease in superannuation. In 2010 employee costs increased by 11.8% ($0. 9m) driven byincreases in salaries and wages, employee leave entitlements and workers compensationinsurance costs.

Following a decrease of 32. 7% ($1.9m) in 2010, materials and contracts expenses increasedby 27. 0% ($1.0m) in 2011 and 50. 8% ($2. 2m) in 2012. The 2012 increase was due to acombination of unscheduled works carried out due to flood damage, work undertaken for theRMS and Gunning Wind Energy and the system error noted above. The 2011 increase wasmainly due to an increase in the number of external contractors used for unscheduled urgentworks caused by flood damage.Materials and contracts expenses peaked in 2009 due to the completion of private worksundertaken for Transgrid.

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Treasury Corporation Council's depreciation charge has increased by 33.7% ($1.3m) since 2009 to $5.0m in 2012.The Asset Revaluations process has resulted in the value of Council's roads, bridges,footpaths and other structures increasing by $17. 1m since 2009 to $155.3m in 2012. Thisresulted in the 2011 depreciation charge increasing by 21.0% ($0.8m). Depreciation alsoincreased due to the extensive works undertaken on the Taralga Sewage Scheme.

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New South Wales

Treasury Corporation3.3: Operating Results

TCorp has made some standard adjustments to focus the analysis on core operating council results.Grants and contributions for capital purposes, realised and unrealised gains on investments and otherassets are excluded, as well as one-off items which Council has no control over (e.g. impairments).

TCorp believes that the exclusion of these items will assist in normalising the measurement of keyperformance indicators, and the measurement of Council's performance against its peers.

All items excluded from the income statement and further historical financial information is detailed inAppendix A.

Figure 3-Operating Resultsfor 2008/09 to 2011/12 ($'OOOs)

7, 209

4, 937

2012 2011 2010

r Operating result (excluding capital grants and contributions)

. Operating result (including capital grants and contributions)

2009

Key Observations

Council has posted a net operating surplus, excluding capital grants and contributions, eachyear for the last four years. The lower 2011 result was primarily due to the decrease in userfees and charges that year.Council expenses include a non-cash depreciation expense ($5.0m in 2012), which hasincreased by $1.2m since 2009 following the Asset Revaluations process. Whilst the non-cash nature of depreciation can favourably impact on ratios such as EBITDA that focus oncash, depreciation is an important expense as it represents the allocation of the value of anasset over its useful life.

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Treasury Corporation3.4: Financial Management Indicators

Performance Indicators

EBITDA ($'OOOs)Operating Ratio

Interest Cover Ratio

Debt Service Cover Ratio

Unrestricted Current Ratio

Own Source Operating Revenue Ratio

Cash Expense Ratio

Net assets ($'OOOs)

Year ended 30 June

2012

7, 6098.8%

24.62x

7. 91x

4.25x

50. 1%

1. 1 months

401, 784

2011

5, 3881.8%

16. 13x

8.75x

3.44x

48. 1%

3. 6months

401, 355

2010

5, 646

7. 3%

18.95X

9.77x

3. 28x

47.9%

3.6months

395, 191

2009

4, 6232. 9%

18.35X

9. 38x

3. 34x

56. 5%

4. 6months

204,649

Key Observations

Council's underlying operating performance (measured using EBITDA) has increased by$2. 9m since 2009 to $7. 6m in 2012.

The Operating Ratio has been above benchmark in all four years. The 2011 result reflects thelower user charges that year.Council's Interest Cover Ratio and DSCR are both well above benchmark each yearindicating Council has flexibility in regard to carrying more debt.The Unrestricted Current Ratio has been well above the benchmark of >1.5x in all four yearsindicating Council had sound liquidity.The Own Source Operating Ratio has been below the benchmark of >60% each yearindicating Council do not have sufficient financial flexibility and rely on external fundingsources.

The Cash Expense Ratio has been above benchmark in three of the four years. The ratio fellsignificantly below benchmark in 2012 due to decreased cash balances following an increasein the purchase of investments in 2012.Council's Net Assets have increased by approximately $197.1m between 2009 and 2012 dueto Asset Revaluations which have increased the value of Council's roads, bridges anddrainage infrastructure.When the Asset Revaluations are excluded, the underlying trend in each year has been anincrease in the infrastructure, property, plant and equipment (IPP&E) asset base with assetpurchases being greater than the combined value of disposed assets and annualdepreciation. Over the three years this amounted to a $13. 9m increase in IPP&E assets.Council has total borrowings of$3. 2m representing 0.8% of Net Assets.

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Treasury Corporation3.5: Statement of Cashflows

Fiaure 4 - Cash and Cash Eauivalentsfor 2008/09 to 2011/12 ($'OOOs)

Key Observations

Cash and cash equivalents have fluctuated over the period decreasing 71. 8% ($4.4m) to$1.7m in 2012 driven by a $5. 3m increase in the purchase of investments. Council received a$1.9m prepayment of the financial assistance grant and $1.8m for the Gunning watertreatment plant both of which were invested in term deposits of more than 90 days.The cash balances along with the Unrestricted Current Ratio indicate Council had asatisfactory level of liquidity.Of the $15. 1m in cash, cash equivalents and investments, $8.6m is externally restricted,$6.3m is internally restricted and $0.2m is unrestricted.Council's cash and investment portfolio comprises $1.7m in cash, $12. 6m in term deposits,$0. 3m in FRN's and $0. 5m in CDOs.

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Treasury Corporation3.6: Capital Expenditure

The following section predominantly relies on information obtained from Special Schedules 7 and 8 thataccompany the annual financial statements. These figures are unaudited and are therefore Council'sestimated figures.

3. 6(a): Infrastructure Backlog

Figure 5 - Infrastructure Backlog for 2008/09 to 2011/12($'OOOs)

Buildings and otherstructures

Public roads (inc.footpaths and car

parks)

. 2012

Water

2011 12010

Sewerage

» 2009

Drainage works

Figure 6 - Infrastructure Backlog Composition for 2011/12

.

-- - ^1»

/ 14%. Buildings and other structures

. Public roads (inc. footpaths and car parks)

. Water

Sewerage

.Drainage works

Council reported a $15. 7m Infrastructure Backlog in 2012, of which 52. 0% ($8. 1m) relates to buildingsand other structures, 31.0% ($4. 9m) relates to public roads and 14.0% ($2. 3m) relates to water assets.

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Treasury Corporation3. 6(b): Infrastructure Status

Infrastructure Status

Bring to satisfactory standard ($'OOOs)

Required annual maintenance ($'OOOs)

Actual annual maintenance ($'OOOs)

Total value of infrastructure assets ($'OOOs)

Total assets ($'OOOs)

Building and Infrastructure Backlog Ratio

Asset Maintenance Ratio

Building and Infrastructure Asset Renewals Ratio

Capital Expenditure Ratio

Year ended 30 June

2012

15, 696

10,702

9,403

155,342

410,200

0. 10x

0. 88x

0. 77x

1. 22x

2011

8, 354

9, 738

8, 331

159,801

409,950

0.05x

0. 86x

1. 00x

1.51x

2010

7, 013

7, 002

5,835

155, 584

403, 855

0.05x

0.83x

1.07x

2. 73x

2009

9, 910

6,972

5, 810

138,254

211, 953

0. 07x

0. 83x

1, 84x

1.99x

The Building and Infrastructure Backlog Ratio and Asset Maintenance Ratio have been above thebenchmark of <0.02x for the past four years as Council is spending at below required levels to maintaintheir assets at satisfactory levels.

Council's Building and Infrastructure Asset Renewals Ratio was at or above benchmark in three of thepast four years. The ratio fell below benchmark in 2012 due to the completion of infrastructure workson bridges and the Taralga Sewerage Scheme.

The Capital Expenditure Ratio, which takes into account assets which improve performance orcapacity, was above benchmark each year however the ratio is decreasing due to reduced capitalworks following the completion of the Taralga Sewerage System in 2011.

In the 2012/13 LTFP Council advise that they will endeavour to maintain existing levels of service forall services and activities undertaken by Council as detailed in Council's Delivery Program andOperational Plan. Roads and bridges infrastructure maintenance and asset renewal is Council'sbiggest challenge in the medium to long term however Council is committed to local roads capitalimprovements and especially allocating additional resources to gravel resheeting programs.

Council also plans to meet service levels in relation to infrastructure maintenance and renewal asdetailed in the Infrastructure Plan and Asset Management Strategy. While current service levelsmay not necessarily meet community expectations, Council is attempting to address the backlog ofroads, bridges and associated infrastructure work in a planned and coordinated manner throughcapital works programs for roads and bridges. Current service levels are fully funded for the entire10 year program and some backlog projects are funded, however some backlog projects have notyet been funded. Council will review potential grant programs for future works.

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Treasury Corporation3. 6(c): Capital Program

The following figures are sourced from the Council's Annual Financial Statements at Special ScheduleNo. 8 and are not audited. New capital works are major non-recurrent projects.

Capital Program ($'OOOs)

New capital works

Replacement/refurbishment of existing assets

Total

Year ended 30 June

2012

12, 600

N/A

12, 600

2011

10,200

N/A

10,200

2010

10, 700

N/A

10, 700

2009

4, 900

N/A

4,900

Completed Capital Projects

Taralaa Sewerage Scheme

The NSW Government and the Upper Lachlan Shire Council jointly funded the $7.5m TaralgaSewerage Scheme project which provides reticulated sewerage services to the 350 people of Taralga.The scheme saw the construction of 12km of sewer mains throughout the village.

Gunning Dalton Water Security ImDrovement Proiect

Council has received funding for the Gunning and Dalton Water Supply Augmentation project with atotal cost of $10. 8m. Upper Lachlan Shire has received $10.0m of State and Federal funds for theproject and construction is estimated to take 12 to18 months to complete. The project aims to improvewater quality, reduce water losses and improve security in the supply of water to Gunning and Dalton.This will be achieved by replacing the old water supply infrastructure with modern, efficient equipmentthat will even out water harvesting from the Lachlan River and minimise waste. The work involvesconstruction of an off river storage, a water treatment plant and an interconnecting pipeline.

Other Completed Capital Proiects

Reconstruction and sealing of Taralga to Crookwell Regional Road $4. 8m

Timber Bridge replacements $3. 1m

Future Capital Proiects

Road reconstruction and renewal including completion of the MR248E project. $20.0m

(This project is for the reconstruction and bitumen sealing of the remaining 8.5km of the Crookwell toTaralga Road MR248E)

Bridge renewals

Taralga Water Supply Augmentation

$2. 8m

$1. 7m

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Treasury Corporation3.7: Specific Risks to Council

. Climate Change. Upper Lachlan LGA is subject to climate change and its impacts. Floodingand drought are concerns for Council which can lead to deterioration of assets and addunplanned and unbudgeted expenses. Recent flooding has resulted in considerable damageto Council's road network. This is being addressed by grant funding from the RMS and workhas commenced on the creation of a Floodplain Mapping Plan to help mitigate these risks.The need to maintain a reliable water supply in some areas is also a concern and has led tothe implementation of the Gunning Dalton Water Security Improvement Plan.

. Cost Shifting. The issue of cost shifting is considered by Council to be a significant risk.While the shift expense for 2012 is not yet available the cost of shift expense for 2011 isestimated by Council to have totalled $0.9m. The main contributors to this expense in 2011were compulsory contributions to State Government agencies to State Emergency Services,Rural Fire Service, Fire Services, Pensioner Rebates and public libraries. If this situation isnot addressed Council feel their financial position will deteriorate.

. Operating Grants. Grants and contributions for operating purposes remains Council's largestsource of revenue at 40. 3% of total revenue, excluding capital grants and contributions in2011. Operating grants revenue is greater than rates revenue, and is forecast to remain atthis level. The primary source of Council's operating grants is financial assistance grants.Council has conservatively forecast grant assistance in their LTFP however any furtherdecrease in operating grants will have a significant negative impact on the overall operatingresult.

. Ageing Workforce. Council has an ageing workforce which if left unaddressed may lead toskills shortage in the future. With over 30% of Council's current workforce over the age of 50and many considering retirement over the next 10 years the skills gap will grow unless theycan be replaced with suitably skilled staff. Council's Human Resources department hasidentified a need to implement an effective workforce training and succession plan to addressfuture shortfalls.

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Treasury CorporationSection 4 Review of Financial Forecasts

The financial forecast model shows the projected financial statements and assumptions for the next 10years. We have focused our financial analysis upon the General Fund as although Council'sconsolidated position includes both a Water and Sewer Fund these are operated as independententities, which unlike the General Fund are more able to adjust the appropriate fees and charges tomeet all future operating and investing expenses.

4. 1: Operating Results

Figure 7-Operating RatioforGeneral Fund

12. 0%10.0%

8.0%6. 0%4. 0%2.0%

0.0%10,.(2.0%)

(4.0%)(6. 0%)

?nii ?ni9 ?ni? ?ni4 9015 ?nifi ?ni7 ?ni8 9019 _2Q20__202l___2Q22_

. Operating Ratio . Benchmark

Council's Operating Ratio is forecast above benchmark for the entire period. The ratio spiked in 2012due to increases in user fees and charges and operating grants. Decreased user fees and charges in2013 and decreased operating grants in 2014 following completion of the natural disaster fundingprogram from the 2012 floods causes the ratio to fall.

From 2015 operating revenue is forecast to increase at a slightly higher rate than operating expenseswhich causes the ratio to rise over the forecast period.

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Treasury Corporation4.2: Financial Management Indicators

Liguiditv Ratios

Figure 8 - Cash Expense RatiQ_for General Fund

4. 5 months

4. 0 months

3.5 months

3.0 months

2.5 months

2. 0 months

1. 5 months

1. 0 months

0.5 months

0. 0 months

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

--Cash Expense Ratio ^^Benchmark

The Cash Expense Ratio falls below benchmark in 2012 and continues to decrease until 2014.Council is undertaking large infrastructure works between 2013 and 2015 which includes theGunning/Dalton water supply treatment plants and Taralga water supply augmentation. Council is notsourcing external funding for these works and will instead transfer cash reserves to fund the projects.Council also plans to use $1.8m from their internally restricted and unrestricted cash to fund theMR248E and the timber bridge replacement program.

The Cash Expense Ratio does not take into account Council's level of investments. When Council'scurrent investments are considered the Cash Expense Ratio will remain above benchmark over theforecast period and will not face liquidity issues.

Figure 8(a) - Cash Expense Ratio for General Fund

8.0 months

7.0 months

6. 0 months

5. 0 months

4.0 months

3. 0 months

2.0 months

1, 0 months

0. 0 months

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

^^Cash Expense Ratio ^^Benchmark

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Trsasury Corporation Figures- Unrestricted CurrentRatio for General Fund

6.00x

S.OOx

4. 00x

3. 00x

2. 00x

1. 00x

O.OOx

T-5r59x-

^S^sas^as^as^a.̂ ^^2.91x

-i-B-B-B-B-i-i-B-B.-i. -B.

liiliiiiiiii2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

^^ Bench mark

Council's Unrestricted Current Ratio is well above benchmark for the entire forecast period indicatingCouncil will have sufficient liquidity.

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Treasury CorporationFiscal Flexibility Ratios

Figure 10-Own Source Operating Revenue Ratio for General Fund

65%

60%

55%

50%

45%

40%2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

-Own Source Operating Revenue Ratio ^-Benchmark

Council's Own Source Operating Revenue Ratio is below benchmark for the entire forecast period.This indicates that Council is reliant on external revenue sources in particular operating grants whichmake up an average of 36.0% per annum of Council's overall revenue. The ratio improves in 2014 asoperating grants decrease due to the anticipated completion of road remediation work relating to theNatural Disaster Program.

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Treasury CorporationEoyreJ 1 - DSCR for General Fund

35.00x

30. 00x

25. 00x

20.00x

15. 00x

10.00x

5.00x

O.OOx

-3124x-

-27-33T2R52x 29. 13x

24. 15x

11 iiii n11111111

-B_B . _B_B_-_1.1111

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

^^ Benchmark

Council's DSCR is well above the benchmark of 2.00x for the 10 year forecast. This indicates thatCouncil has the financial capacity to manage their existing debt. Council has not forecast anyadditional borrowing over the period.

FiQure 12- Interest Cover Ratio for General Fund

25.27x 3977X 3S-13X 37-10X 39-24X 37-27X 4t:>-iux

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Benchmark

Similar to the DSCR Council's Interest Cover Ratio is above benchmark in each year of the forecast.The ratio increases over the period as Council pay down their existing debt.

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New South Wales

Treasury Corporation4.3: Capital Expenditure

Figure 13-Capital Expenditure Ratio for General Fund

1.60x

1.00x

0.80x

0.60x

0.40x

0.20x

O.OOx2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

-Capital Expenditure Ratio -"Benchmark

Council's Capital Expenditure Ratio is above benchmark in nine of the 10 years forecast. Council hasanticipated a large capital works program for 2013 and 2014 due to successful funding from theFederal Government for the Gunning and Dalton Water Supply Augmentation project improvements.

In 2016 capital expenditure decreases due to the completion of a number of infrastructure projects.Post 2016 Council's capital expenditure forecast reflects an average infrastructure works program.

Upper Lachlan Shire Council has adopted a borrowing/loans policy on the principal of using loanmonies to fund the replacement and creation of infrastructure assets which have a long life expectancyonly. Council do not borrow funds for recurrent expenditure or to fund operating budget expenditure ormaintenance activities. Therefore Council will not borrow for works such as road grading or patching,bridge maintenance, resealing works or footpath upgrades. They see borrowing only as an alternativeto fund major capital expenditures such as asset renewal.

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Treasury Corporation4.4: Financial Model Assumption Review

Council has used their own assumptions in developing their forecasts.

In order to evaluate the validity of the Council's forecast model, TCorp has compared the modelassumptions versus TCorp's benchmarks for annual increases in the various revenue and expenditureitems. Any material differences from these benchmarks should be explained through the LTFP.

TCorp's benchmarks:

. Rates and annual charges: TCorp notes that the LGCI increased by 3.4% in the year toSeptember 2011, and in December 2011, IPART announced that the rate peg to apply in the2012/13 financial year will be 3. 6%. Beyond 2013 TCorp has assessed a general benchmarkfor rates and annual charges to increase by mid-range LGCI annual increases of 3.0%

. Interest and investment revenue: annual return of 5.0%

. All other revenue items: the estimated annual CPI increase of 2.5%

. Employee costs: 3.5% (estimated CPI+1.0%)

. All other expenses: the estimated annual CPI increase of 2. 5%

Key Observations and Risks

. Rates and annual charges are forecast to increase by 5.0% p.a. between 2014 and 2019,Council has forecast full recovery on their annual charges in the LTFP and given the overallincreases of 4. 2% in 2011 and 4. 5% in 2012 Council consider a 5. 0% p. a. increase prudent.From 2020 rates and annual charges are forecast at 3. 6% p. a. only, as Council feels thecompletion of infrastructure upgrades will reduce costs and as a result reduce charges.Council will need to monitor this revenue stream in order to maintain the proposed increases.

. User fees and charges are forecast to decrease by 27. 0% in 2013 following the one offincreases in 2012. They are forecast to increase by 2. 6% p. a. for the remainder of the periodin line with CPI.

. Employee expenses are forecast to increase by 10. 0% in 2013. The LTFP forecast submittedwas based on Council's 2012 budget figures, however as we have used 2012 actual figures inour assessment and employee costs in 2012 were below budget, the percentage increasefrom 2012 actual figures to 2013 is higher.

. Materials and contracts expenses are forecast to decrease until 2015 as the additional RMSnatural disaster remediation works are completed. Materials and contracts expenses areforecast to increase by 2.0% p.a. for the remainder of the period and Council will have tomonitor these costs closely to maintain these levels.

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Treasury Corporation4.5: Borrowing Capacity

When analysing the financial capacity of the Council we believe Council will be able to incorporateadditional loan funding in addition to its existing debt facilities. Some comments and observations are:

. Based on a benchmark of DSCR>2x, $13.4m could be borrowed in addition to their existingborrowing of $3.2m

. This scenario has been calculated by basing borrowing capacity on a 10 year amortising loan ata rate of 7.5% p.a.

Figure 14-DSCR for General Fund

30.00x

25. 00x

20.00x

24. 15x

TTgxZQ6xZOOx2Tlx2?12xZ29x2-5Tx2^7x-2-62X-ZTT'-I-X-

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

^^ Benchmark

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New South Wales

Treasury Corporation4. 6 Sustainability

TCorp believes Council is in a sound Sustainability position. Council has reported surplus results for thepast four years and has forecast a surplus position for the 10 year forecast period.

In considering the longer term financial sustainability of the Council we make the following comments:

Council's current LTFP shows operating results improving over the periodOperating grants make up approximately 34.0% of Council's operating revenue per annum.While no change is anticipated, any adverse change to this revenue source would negativelyimpact Council's ability to remain sustainableCapital expenditure is above what is required to maintain assets at an acceptable standard overthe forecast periodCouncil's DSCR and Interest Cover Ratio are above benchmark for the entire forecast periodwhich indicates Council has the capacity to take on additional borrowingsCouncil has maintained very conservative levels of borrowing and forecast no additionalborrowing for the next 10 years. The use of borrowing may assist Council to reduce itsinfrastructure backlog and to fund asset renewal programsCouncil's long term Sustainability is also dependent on maintaining the forecast LTFP levels ofrates revenue and materials and contracts expenses

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Treasury CorporationSection 5 Benchmarking and Comparisons with Other Councils

As discussed in section 2 of this report, each council's performance has been assessed against ten keybenchmark ratios. The benchmarking assessment has been conducted on a consolidated basis (that is,for councils that operate more than one fund, the results of all funds are included). This section of thereport compares the Council's performance with its peers in the same DLG Group. The Council is inDLG Group 10. There are 25 councils in this group and at the time of preparing this report, we have datafor all of these councils.

In Figure 15 to Figure 24, the graphs compare the historical performance of Council with the benchmarkfor that ratio, with the average for the Group, with the highest performance (or lowest performance in thecase of the Infrastructure Backlog Ratio where a low ratio is an indicator of strong performance), and withthe forecast position of the Council as at 2016 (as per Council's LTFP). Figures 22 to 24 do not includethe 2016 forecast position as those numbers are not available.

Where no highest line is shown on the graph, this means that Council is the best performer in its groupfor that ratio. For the Interest Cover Ratio and Debt Service Cover Ratio, we have excluded from the

calculations, councils with very high ratios which are a result of low debt levels that skews the ratios.

Financial Flexibility

Figure 15 - Operating Ratio Comparison

20. 0%

15. 0%

(5, 0%)

(10. 0%)

(15.0%)

---JOJ2. ----JU16

-- Benchmark

' Average

. Highest

. Upper Lachlan Shire Council

Council's Operating Ratio is above benchmark and the group's average over the review period. While itremains above benchmark, the ratio is forecast to decrease over the medium term, in line with its peergroup.

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Treasury Corporation Figure 16 - Own Source Operating Revenue Ratio Comparison

80. 0%

70. 0%

30. 0%2009 2010

--- Benchmark

'Average

2011 2012 2016

. Highest

. Upper Lachlan Shire Council

Council's Own Source Operating Revenue Ratio, while below benchmark for the review period, generallytracks its peer group. The proportion of own sourced revenue is forecast to improve over the mediumterm consistent with other councils in the group however it remains below benchmark levels.

Overall, Council's financial flexibility reasonably sound.

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New South Wales

Treasury Corporation Figure 17 - Cash Expense Ratio Comparison

25.0 months

20.0 months

15.0 months

10.0 months

5.0 months

0.0 months2009

--- Benchmark

. Average

2010 2011 2012 2016

. Highest

. Upper Lachlan Shire Council

Figure 18 - Unrestricted Current Ratio Companson

9.008. 007. 00

6. 005.004.003. 002. 001. 00

zz

2009 2010 2011 2012 2016

Benchmark

. Average

. Highest

. Upper Lachlan Shire Council

Council's Cash Expense Ratio was below the group's average over the review period. It generallytracked benchmark levels until 2012 when it declined due to an increase in the purchase of investments.The ratio is forecast to improve marginally above benchmark in the medium term.

The Unrestricted Current Ratio was marginally below the group's average until 2012 but abovebenchmark levels, indicating Council's ability to meet its debt payments is sufficient in the short-term.The ratio improves above the group's average in 2012 and while a slight decrease is forecast over themedium term it remains above the group average.

Overall, Council's liquidity position is reasonably sound.

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Treasury Corporation

Debt Servicing

Figure 19- Debt Service Cover Ratio Comparison

140.00

120.00

100.00

80.00

60.00

40.00

20. 00

zs

zz7^^

sss

2009 2010

. - Benchmark

. Average

2011 2012 2016

Highest

. Upper Lachlan Shire Council

Figure 20 - Interest Cover Ratio Comparison

450.00400.00350.00300.00250.00200.00150.00100. 00

50. 00

2009 2010 2011 2012 2016

Benchmark

. Average

Highest

. Upper Lachlan Shire Council

Council's debt servicing capacity was sound over the review period, as indicated by above benchmarkDSCR and Interest Cover Ratios. Overall, Council's debt servicing ratios for the consolidated fund areforecast to remain acceptable over the medium term.

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Treasury Corporation

Asset Renewal and Capital Works

Figure 21 - Capital Expenditure Ratio ComDanson

4. 00

3. 503. 002. 50

2.C

2009 2010

. -- Benchmark

. Average

2011 2012 2016

Highest. Upper Lachlan Shire Council

Figure 22 - Asset Maintenance Ratio Comparison

2. 50

2. 00

1. 50

1. 00

0. 50

2009 2010

- Benchmark

. Average

2011 2012

Highest

' Upper Lachlan Shire Council

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Traasury Corporation Figure 23 - Infrastructure Backlog Ratio Comparison

0. 20

0. 15 4

0. 10

0.05 4

2009

. - Benchmark

. Average

2010 2011 2012

. Lowest

Upper Lachlan Shire Council

Figure 24 - Building and Infrastructure Asset Renewal Ratio

4.504. 003. 503.002. 502. 001. 50 -)1.00 -{0. 50

-T-I-I-I

2009 2010 2011 2012

Benchmark

. Average

. Highest

. Upper Lachlan Shire Council

Council's Infrastructure Backlog has been below the group's average in the past four years, but hasremained above benchmark over the same period. Council's Asset Maintenance Ratio has generallytracked along the group average but has remained below benchmark. The Building and InfrastructureAsset Renewal Ratio has tracked at benchmark levels since 2010. While it decreased slightly in 2012, itslightly outperformed its peer group.

Council's Capital Expenditure Ratio was above benchmark and outperformed the group's average overthe review period. The ratio fell in 2012 due to reduced capital works following the completion of theTaralga Sewerage System in 2011. The ratio is forecast to improve marginally in the medium term in linewith its peer group.

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Treasury CorporationSection 6 Conclusion and Recommendations

Based on our review of both the historic financial information and the 10 year financial forecast withinCouncil's LTFP we consider Council to be in a sound Sustainability position.

We base our recommendation on the following key points:

. The majority of Council's performance indicators were above benchmark between 2009 and2012

. Council's Operating Ratio is forecast above benchmark for the entire forecast period

. Council's capital expenditure while decreasing has been above benchmark for the past fouryears and is forecast to be above benchmark over the 10 years of the LTFP forecast period

. Council has minimal borrowings as reflected in the Interest Cover and DSCR Ratios

. Council plans to address their infrastructure backlog through an extensive program of worksand existing funding

However we would also recommend that the following points be considered:

. Council's policy of not borrowing for asset renewal could be reconsidered to assist in reducingthe current backlog

. Council is reliant on external funding and any changes in State and Federal grants could placethe Council's Sustainability at risk

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Treasury CorporationAppendix A Historical Financial Information Tables

Table 1- Income Statement

Income Statement ($'OOOs) Year ended 30 June % annual change2012 | 2011 | 2010 | 2009 2012 2011 2010

Revenue

Rates and annual charges 8,408 8, 067 7, 723 7, 489 4. 2% 4. 5% 3. 1%User charges and fees 5, 885 3, 843 4, 834 6,474 53. 1% (20. 5%) (25.3%)Interest and investment revenue 740 872 959 582 (15. 1%) (9. 1%) 64.8%Grants and contributions for operating purposes 10, 376 8, 196 6, 615 5, 523 26.6% 23. 9% 19.8%Other revenues 368 433 352 319 (15. 0%) 23.0% 10.3%Total revenue 25,777 21,411 20,483 20, 387 20. 4% 4.5% 0.5%ExpensesEmployees 8,653 9, 091 8, 973 8, 027 (4. 8%) 1.3% 11.8%Borrowing costs 309 334 298 252 (7. 5%) 12. 1% 18.3%Materials and contract expenses 7,227 4, 793 3,775 5, 611 50.8% 27.0% (32. 7%)Depreciation and amortisation 5, 043 4, 673 3, 862 3, 770 7. 9% 21.0% 2.4%Other expenses 2, 288 2, 139 2,089 2, 126 7. 0% 2. 4% (1. 7%)Total expenses 23,520 21, 030 18,997 19, 786 11. 8% 10.7% (4.0%)Operating result (excluding capital grants andcontributions) 2,257 381 1,486 601 492.4% (74. 4%) 147.3%

Operating result (including capital grants andcontributions)

5, 002 3,738 7, 209 4,937 33.8% (48. 1%) 46.0%

Table 2 - Items excluded from Income Statement

Excluded items

Grants and contributions for capital purposesNet Share of Interests in Joint Ventures and Assoc. usingequities method

2, 745 3, 357 5, 723 4, 336

N/A N/A N/AInterest and Investment losses N/A N/A N/A 641

Net gain/(loss) from the disposal of assets N/A N/A 83 N/A

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Treasury Corporation Table 3 - Balance Sheet

Balance Sheet ($'OOOs) Year.Ended 30 June % annual change2012 2011 2010 2009 2012 2011 2010

Current assets

Cash and cash equivalents 1, 719 4, 813 4,468 6, 105 (64. 3%) 7. 7% (26.8%)Investments 13,442 6,478 5, 103 2, 597 107. 5% 26. 9% 96.5%Receivables 1, 747 1, 912 2, 062 918 (8. 6%) (7. 3%) 124. 6%Inventories 1, 259 959 908 925 31.3% 5.6% (1.8%)Other 316 297 317 374 6.4% (6. 3%) (15. 2%)Total current assets 18, 483 14,459 12,858 10, 919 27. 8% 12. 5% 17. 8%Non-current assets

Investments N/A 859 1, 087 1, 070 N/A (21. 0%) 1. 6%Receivables 452 59 47 52 666. 1% 25. 5% (9.6%)Inventories N/A N/A N/A N/A N/A! N/A N/A

Infrastructure, property, plant & equipment 391, 265 394,573 389,684 199, 727 (0. 8%) 1.3% 95. 1%Investments accounted for using theequities method 0 0 179 185 N/A (100. 0%) (3. 2%)Total non-current assets 391,717 395,491 390,997 201, 034 (1. 0%) 1. 1% 94.5%Total assets 410, 200 409,950 403,855 211, 953 0. 1% 1.5% 90. 5%Current liabilities

Payables 1,426 1,667 1, 569 1,489 (14. 5%) 6. 2% 5.4%

Borrowings 188 1,499 496 256 (87. 5%) 202.2% 93. 8%Provisions 3, 105 2, 737 2, 615 2,499 13. 4% 4. 7% 4. 6%Total current liabilities 4, 719 5,903 4,680 4, 244 (20. 1%) 26. 1% 10. 3%Non-current liabilities

Borrowings 3, 020 2,362 3, 647 2,736 27.9% (35. 2%) 33.3%Provisions 677 350 337 324 93. 4% 3. 9% 4. 0%Total non-current liabilities 3, 697 2, 712 3,984 3, 060 36. 3% (31. 9%) 30.2%Total liabilities 8,416 8, 615 8, 664 7, 304 (2. 3%) (0. 6%) 18.6%Net assets 401,784 401,335 395, 191 204, 649 0.1% 1. 6% 93.1%

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Treasury Corporation Table 4-Cashflow

Cash Flow Statement ($'OOOs) Year ended 30 June

2012 2011 2010 2009

Cash flows from operating activities 9, 634 8,497 9, 698 9, 143

Cash flows from investing activities (12, 076) (7, 871) (12, 485) (7, 546)

Proceeds from borrowings and advances 1, 431

Repayment of borrowings and advances (653) (282) (280) (241)Cash flows from financing activities (653) (282) 1, 151 (241)Net increase/(decrease) in cash and equivalents (3, 095) 344 (1, 636) 1, 356

Cash and equivalents 1, 719 4, 813 4, 468 6, 105

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Treasury CorporationAppendix B Glossary

Asset Revaluations

In assessing the financial sustainability of NSW councils, IPART found that not all councils reportedassets at fair value. 1 In a circular to all councils in March 20092, DLG required all NSW councils torevalue their infrastructure assets to recognise the fair value of these assets by the end of the 2009/10financial year.

Collateralised Debt Obligation (CDO)

CDOs are structured financial securities that banks use to repackage individual loans into a product thatcan be sold to investors on the secondary market.

In 2007 concerns were heightened in relation to the decline in the "sub-prime" mortgage market in theUSA and possible exposure of some NSW councils, holding CDOs and other structured investmentproducts, to losses.

In order to clarify the exposure of NSW councils to any losses, a review was conducted by the DLG withrepresentatives from the Department of Premier and Cabinet and NSW Treasury.

A revised Ministerial investment Order was released by the DLG on 18 August 2008 in response to thereview, suspending investments in CDOs, with transitional provisions to provide for existing investments.

Division of Local Government (DLG)

DLG is a division of the NSW Department of Premier and Cabinet and is responsible for localgovernment across NSW. DLG's organisational purpose is "to strengthen the local government sector"and its organisational outcome is "successful councils engaging and supporting their communities".Operating within several strategic objectives DLG has a policy, legislative, investigative and programfocus in matters ranging from local government finance, infrastructure, governance, performance,collaboration and community engagement. DLG strives to work collaboratively with the local governmentsector and is the key adviser to the NSW Government on local government matters.

'IPART "Revenue Framework for Local Government" December 2009 p. 83

2 DLG "Recognition of certain assets at fair value" March 2009

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Treasury CorporationDepreciation of Infrastructure Assets

Linked to the asset revaluations process stated above, IPART's analysis of case study councils foundthat this revaluation process resulted in sharp increases in the value of some council's assets. In somecases this has led to significantly higher depreciation charges, and will contribute to higher reportedoperating deficits.

EBITDA

EBITDA is an acronym for "earnings before interest, taxes, depreciation, and amortisation". It is oftenused to measure the cash earnings that can be used to pay interest and repay principal.

Grants and Contributions for Capital Purposes

Councils receive various capital grants and contributions that are nearly always 100% specific in nature.Due to the fact that they are specifically allocated in respect of capital expenditure they are excluded fromthe operational result for a council in TCorp's analysis of a council's financial position.

Grants and Contributions for ODeratin.q_Pyrposes

General purpose grants are distributed through the NSW Local Government Grants Commission. Whendistributing the general component each council receives a minimum amount, which would be theamount if 30% of all funds were allocated on a per capita basis. When distributing the other 70%, theGrants Commission attempts to assess the extent of relative disadvantage between councils. Theapproach taken considers cost disadvantage in the provision of services on the one hand and anassessment of revenue raising capacity on the other.

Councils also receive specific operating grants for one-off specific projects that are distributed to be spentdirectly on the project that the funding was allocated to.

Independent Commission Against Corruption (ICAC)

ICAC was established by the NSW Government in 1989 in response to growing community concernabout the integrity of public administration in NSW.

The jurisdiction of the ICAC extends to all NSW public sector agencies (except the NSW Police Force)and employees, including government departments, local councils, members of Parliament, ministers,the judiciary and the governor. The ICAC's jurisdiction also extends to those performing public officialfunctions.

Independent Pricing and Reoulatory Tribunal (IPART)

IPART has four main functions relating to the 152 local councils in NSW. Each year, IPART determinesthe rate peg, or the allowable annual increase in general income for councils. They also review anddetermine council applications for increases in general income above the rate peg, known as "SpecialRate Variations". They approve increases in council minimum rates. They also review councildevelopment contributions plans that propose contribution levels that exceed caps set by theGovernment.

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Treasury Corporation

Infrastructure Backloa

Infrastructure backlog is defined as the estimated cost to bring infrastructure, building, other structuresand depreciable land improvements to a satisfactory standard, measured at a particular point in time. It isunaudited and stated within Special Schedule 7 that accompanies the council's audited annual financialstatements,

Integrated Planning and Reporting (IP&R) Framework

As part of the NSW Government's commitment to a strong and sustainable local government system, theLocal Government Amendment (Planning and Reporting) Act 2009 was assented on 1 October 2009.From this legislative reform the IP&R framework was devised to replace the former Management Planand Social Plan with an integrated framework. It also includes a new requirement to prepare a long-termCommunity Strategic Plan and Resourcing Strategy. The other essential elements of the new frameworkare a Long-Term Financial Plan (LTFP), Operational Plan and Delivery Program and an AssetManagement Plan.

Local Government Cost Index (LGCI)

The LGCI is a measure of movements in the unit costs incurred by NSW councils for ordinary councilactivities funded from general rate revenue. The LGCI is designed to measure how much the price of afixed "basket" of inputs acquired by councils in a given period compares with the price of the same set ofinputs in the base period. The LGCI is measured by IPART.

Net Assets

Net Assets is measured as total assets less total liabilities. The Asset Revaluations over the past yearshave resulted in a high level of volatility in many councils' Net Assets figure. Consequently, in the shortterm the value of Net Assets is not necessarily an informative indicator of performance. In the medium tolong term however, this is a key indicator of a council's capacity to add value to its operations. Over time,Net Assets should increase at least in line with inflation plus an allowance for increased population and/orimproved or increased services. Declining Net Assets is a key indicator of the council's assets not beingable to sustain ongoing operations.

Roads and Maritime Services (RMS)

The NSW State Government agency with responsibility for roads and maritime services, formerly theRoads and Traffic Authority (RTA).

Section 64 Contribution

Development Servicing Plans (DSPs) are made under the provisions of Section 64 of the LocalGovernment Act 1993 and Sections 305 to 307 of the Water Management Act 2000.

DSPs outline the developer charges applicable to developments for Water, Sewer and Stormwater withineach Local Government Area.

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Treasury CorporationSection 94 Contribution

Section 94 of the Environmental Planning and Assessment Act 1979 allows councils to collectcontributions from the development of land in order to help meet the additional demand for communityand open space facilities generated by that development.

It is a monetary contribution levied on developers at the development application stage to help pay foradditional community facilities and/or infrastructure such as provision of libraries; community facilities;open space; roads; drainage; and the provision of car parking in commercial areas.

The contribution is determined based on a formula which should be contained in each council's Section

94 Contribution Plan, which also identifies the basis for levying the contributions and the works to beundertaken with the funds raised.

Special Rate Variation (SRV)

A SRV allows councils to increase general income above the rate peg, under the provisions of the LocalGovernment Act 1993. There are two types of special rate variations that a council may apply for:

. a single year variation (section 508(2)) or

. a multi-year variation for between two to seven years (section 508A).

The applications are reviewed and approved by IPART.

Sustainabilitv

A local government will be financially sustainable over the long term when it is able to generate sufficientfunds to provide the levels of service and infrastructure agreed with its community

Ratio Explanations

Asset Maintenance Ratio

Benchmark = Greater than 1 .Ox

Ratio = actual asset maintenance / required asset maintenance

This ratio compares actual versus required annual asset maintenance, as detailed in Special Schedule 7.A ratio of above 1.Ox indicates that the council is investing enough funds within the year to stop theinfrastructure backlog from growing.

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Treasury CorporationBuilding and Infrastructure Renewals Ratio

Benchmark = Greater than 1. Ox

Ratio = Asset renewals / depreciation of building and infrastructure assets

This ratio compares the proportion spent on infrastructure asset renewals and the asset's deteriorationmeasured by its accounting depreciation. Asset renewal represents the replacement or refurbishment ofexisting assets to an equivalent capacity or performance as opposed to the acquisition of new assets orthe refurbishment of old assets that increase capacity or performance.

Cash Expense Cover Ratio

Benchmark = Greater than 3.0 months

Ratio = current year's cash and cash equivalents / (total expenses - depreciation - interest costs)*12

This liquidity ratio indicates the number of months a council can continue paying for its immediateexpenses without additional cash inflow.

Capital Expenditure Ratio

Benchmark = Greater than 1. 1x

Ratio = annual capital expenditure / annual depreciation

This indicates the extent to which a council is forecasting to expand its asset base with capitalexpenditure spent on both new assets, and replacement and renewal of existing assets.

Debt Service Cover Ratio (DSCR)

Benchmark = Greater than 2. 0x

Ratio = operating results before interest and depreciation (EBITDA) / principal repayments (from thestatement of cash flows) + borrowing interest costs (from the income statement)

This ratio measures the availability of cash to service debt including interest, principal and leasepayments

Building and Infrastructure Backlog Ratio

Benchmark = Less than 0.02x

Ratio = estimated cost to bring assets to a satisfactory condition (from Special Schedule 7) / totalinfrastructure assets (from Special Schedule 7)

This ratio shows what proportion the backlog is against total value of a council's infrastructure.

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Treasury CorporationInterest Cover Ratio

Benchmark = Greater than 4.0x

Ratio = EBITDA/ interest expense (from the income statement)

This ratio indicates the extent to which a council can service its interest bearing debt and take onadditional borrowings. It measures the burden of the current interest expense upon a council's operatingcash.

Operating Ratio

Benchmark = Better than negative 4%

Ratio = (operating revenue excluding capital grants and contributions - operating expenses) / operatingrevenue excluding capital grants and contributions

This ratio measures a council's ability to contain operating expenditure within operating revenue.

Own Source Operating Revenue Ratio

Benchmark = Greater than 60%

Ratio = rates, utilities and charges / total operating revenue (inclusive of capital grants and contributions)

This ratio measures the level of a council's fiscal flexibility. It is the degree of reliance on external fundingsources such as operating grants and contributions. A council's financial flexibility improves the higher thelevel of its own source revenue.

Unrestricted Current Ratio

Benchmark = 1.5x (taken from the IPART December 2009 Revenue Framework for Local Governmentreport)

Ratio = Current assets less all external restrictions / current liabilities less specific purpose liabilities

Restrictions placed on various funding sources (e.g. Section 94 developer contributions, RMScontributions) complicate the traditional current ratio because cash allocated to specific projects arerestricted and cannot be used to meet a council's other operating and borrowing costs. The UnrestrictedCurrent Ratio is specific to local government and is designed to represent a council's ability to meet debtpayments as they fall due.

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