JENNY ARCHIBALD has just been returned to Freo council unopposed. She reckons she’s getting a bit frustrated by some of the misinformation about the council’s finances.
IN recent months, questions have been raised and allegations made about the status of the City of Fremantle’s finances, in particular for the 2019/2020 financial statements.
In 2020, the Covid shutdown and border closures severely impacted many Fremantle businesses, including the revenue generating activities of Council.
For a council, “Cash is King” – this is the principal basis on which it operates. The forecast revenue for 2019/2020 was $76M. The actual revenue was $72M at June 30th 2021. This revenue included rates ($47M), fees and charges ($18.5M), operating grants ($3.5M) and interest ($1.3M). In addition, we received capital grants of $4.4M. There was a $4M COVID related revenue reduction, mostly from reduced parking, lease and licence payments.
To bring expenditure in line with our revised revenue expectations, non-essential programs were deferred, costs curtailed, delivering an actual expenditure of $72.4M. Overall, Council achieved a balanced budget despite the challenges of COVID.
Another issue raised about the 2019/2020 financial statements has been the asset re-valuation.
Every 3 years, the council must appoint an independent valuer to undertake an independent, arms-length review of the fair value of our capital assets. This year we engaged a new valuer, and there were changes to some of the rulings of the State Government and Accounting Standards that had to be taken into account. As a result, the valuations were very different to previous years.
The value of many heritage and other buildings went up due to increased replacement cost. Some other assets went up because of market changes. The total building assets increase was $35M.
The valuers also downgraded the value of many community parks and public land because they are a community asset that will not be sold, and so should not have normal market values, as applied by the previous valuer. Asset decreases totalled $59m.
In addition, $6.8m of other assets were written off in 2019/2020. One of the biggest changes was for the Leighton Surf Club, which had been added to our asset portfolio by the state government in previous years. It is now deemed to have nil value because it is a state asset not Fremanlte’s. The club alone was a $4.87m write-off. Other values written off were for buildings demolished, including the Old Men’s Shed and the disused childcare centre on Quarry Street.
In three years these values may look different again due to changing market conditions and changes in regulatory and accounting rules.
The important thing about our valuations is that they do not reflect the city’s financial capacity because local governments cannot use assets’ value to raise loans for projects. These changes are accounting book entries and do not affect our cash operating revenue position.
The 2019/2020 independent auditor’s report noted that two financial ratios were below the required standards for the last three financial years. They are short term indicators of a council’s ability to service debt, based on the operating surplus before interest and depreciation.
We do need to get the indicators back on track and continue to apply scrutiny and prudence. However, it should also be looked at in the context of council’s investment in Fremantle. WA Treasury agreed to loan the city $20m at 1.95 per cent over 20 years to part fund the $45m Walyalup Civic Centre which will be opened in early December. The project replaces an aging civic centre riddled with asbestos and concrete cancer and long outgrown by the city. The new centre is an innovative and sustainable hub adjacent a rejuvenated Town Hall, which will grow and change with our community. It has also generated a new era of substantial investment and renewal in the city’s heart.
I think, thinking allowed, that it’s a big and complex story with a huge upside!