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Council has $246 million in cash investments, equal to $6,000 for every person in Orange
April 20, 2023
By Peter Holmes
Orange City Council (OCC) is sitting on nearly a quarter of a billion dollars in cash investments, which equates to nearly $20,000 for each of the 12,548 families - or nearly $6,000 for every person - in the 2800 postcode.
The money is invested in three categories:
General Fund - $103,425,572.13
Sewer Fund - $79,329,490.61
Water Fund - $63,361,085.36
The combined total is a little over $246 million.
The funds are in three categories as that is how rates and other services are charged by council. Income from rates goes into the General Fund, water levies into the Water Fund and for sewerage into the Sewer Fund.
Data shows that OCC is still lagging behind its own benchmarks for the returns paid out on those investments.
Financials shows that money placed into low-risk AAA investments had earned greater interest than those in riskier BBB investments.
At the end March 2023 council's investment portfolio and return on those investments was as follows:
Bank accounts: $19.7 million (3.65 percent)
AAA Rated: $1 million (4.5 percent)
AA Rated: $126 million (3.79 percent)
A Rated: $55 million (3.93 percent)
BBB + Not Rated: $43 million (4.13 percent)
"The credit rating is an independent opinion of the capability and willingness of a financial institution to repay its debts, or in other words, the providers’ financial strength or creditworthiness," OCC states.
"The rating is typically calculated as the likelihood of a failure occurring over a given period, with the higher rating (AAA) being superior due to having a lower chance of default. However, it is generally accepted that this lower risk will be accompanied by a lower return on investment."
Councillor Frances Kinghorne of the Orange Residents & Ratepayers Association is the only councillor to regularly push council staff on the quality of its nearly a quarter of a billion dollars of cash investments.
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In the wake of her questioning OCC has and is shifting money around in the hope of better returns. OCC has told councillors that the reason money wasn’t moved earlier was that the penalty fees for early withdrawal would have outweighed the benefit.
Council’s current Long Term Financial Plan establishes the benchmark for council’s interest on investments at “75 basis points [.75 percent] above the current cash rate”.
The cash rate for the period March 2023 was 3.60 percent, meaning that for OCC to meet its own benchmark, it would have had to have earned an average interest rate of 4.35 percent. It only managed 3.89 percent.
“This is being monitored closely with retiring investments being reinvested to optimise their returns,” council papers stated.
OCC states in its papers that it “utilises the services of an independent investment advisor in maintaining its portfolio of investments. Council’s current investment advisor is Imperium Markets, an independent asset consultant that works with wholesale investors to develop, implement and manage their investment portfolio.
“Imperium Markets is a leading provider of independent investment consulting services to a broad range of institutional investors including government agencies, superannuation funds and not-for-profit organisations.”
The Orange News Examiner put a number of questions to Orange City Council several weeks ago regarding its investments but did not receive a response.
The cash sits in a variety of investment accounts with dozens of financial institutions. Councils are required to spread their investments and regularly disclose how large (or small) the pile of money is that they’re sitting on.
The NSW Office of Local Government states: “Councils are encouraged to budget for surplus results and to take into account the condition and maintenance requirements of assets in this process.
SO GOOD WE HAD TO RUN THE AD TWICE!
Shaun McBride, the chief economist for Local Government NSW, told The Orange News Examiner that without commenting directly on Orange, it was prudent for councils to be sitting on significant sums of money to cover future costs such as new or updated pipelines, water treatment and storage.
But how do you know if you’re taking too much off the ratepayers (and, by extension, renters), or not enough?
The Office of Local Government (OLG) produces data that shows how councils within the same groupings compare across a range of areas.
There are 11 groupings across NSW. Orange is the OLG’s Group 4, along with Broken Hill, Albury, Bega Valley, Tamworth, Byron, Bathurst, Wagga Wagga, Richmond Valley, Lismore, Lithgow, Kempsey and Dubbo.
The OLG advises that “there are often large differences between councils in the same group, as a result this information should not be used as a basis for individual council policy changes”.
Despite this, the data is released for a reason, as it allows an overview of what each council is doing and how that compares to other regional locations.
For example, in the latest available figures (2020/21) Orange City Council had the equivalent of 419 full-time staff, while the Group 4 average was 370.
OCC’s revenue was $139.8 million, compared to the Group 4 average of $127.6 million. Orange's expenses were $101 million, the same as the Group 4 average.
Orange had 150 residents per square kilometre; the Group 4 average was just 35.
And while there were 524km of road in Orange, that figure was dwarfed by the Group 4 average of 1,393km.
NSW councils own and control assets with a total value of over $180 billion. These assets include cash, investments, infrastructure, plant and equipment, receivables, inventory and intangible assets.
“The management of these assets, and in particular infrastructure assets, is an extremely important component of a council’s function,” says the state government.
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