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Underspending on works and staff blowout

31 Aug 2017

By Stephen Mayne

How does the City of Melbourne manage to consistently underspend its capital works budget by tens of millions of dollars every year?

That is the key question to emerge from the council’s 2016-17 Financial Performance Report which was unanimously approved by councillors on August 15.

The Lord Mayor described the $13.1 million underlying surplus as “an excellent result” but there was no commentary in the committee room or the 19-page report about why only $91.6 million of the $133.86 million capital works budget was spent.

When the 2016-17 draft budget was first unveiled on May 5, 2016, the capital works budget was set at $108 million, but this then soared to $133 million courtesy of a $29 million underspend in 2015-16, $26.4 million of which was carried forward to 2016-17.

There was a similar underspend and carry forward a year earlier in 2014-15, although underspending the target by $42 million in 2016-17 is the biggest miss in council’s history.

So what happened this time? Well, the public won’t know the full project specific underspending until the fourth quarter capital works report comes to the August 29 council meeting.

However, the council works report for the first nine months of the year from the May 30 council meeting is instructive. Back then, the cumulative underspend was only $16.43 million ($60.67 million against a year-to-date, nine-month budget figure of $77.1 million). In other words, the City of Melbourne was budgeting to have a hefty $56.76 million capital works spend in the June quarter, but only managed to spend $31 million over those 92 days.

In terms of specific projects, the figures for the first nine months are instructive as the major underspends were in:

Queen Victoria Market renewal program: only $3.7 million of the $9.2 million budget was spent in the first nine months. Final underspend $4 million.

Rollout of new LED street lights: zero of the $5.6 million budget had been spent.

Bicycle Improvement Program: only $1.33 million of $2.67 million budget was spent in first nine months.

Upgrade to Lady Huntingfield Children's Centre: $391,000 spent against budget of $2.2 million.

Flood mitigation renewal: only $957,500 spent against budget of $2.65 million.

Parking meter renewal: only $150,000 of $1.3 million budget spent due to delays from Swedish supplier.

Roadway renewal: only $2.67 million spent of $5 million budget.

Major streetscape improvements: only $1.9 million of $4.35 million budget spent.

Parks renewal: only $3.32 million of $7 million budget spent.

Green Your Laneways Pilot Project: only $236,962 spent of $1.63 million budget.

Climate change adaptation streetscape renewal: only $651,120 spent of $1.5 million budget.

You get the picture – underspending across a range of projects that won’t be delivered as promised in an election budget which was clearly too optimistic.

That said, the council's financial position remains strong and town hall is cashed up to invest heavily into QVM and other projects. There was an unexplained $41.7 million book profit on an asset sale which is presumably related to the Metro Rail project and City Square but hasn’t been disclosed.

Cash contributions from developers came in $10.2 million ahead of budget at a record $17.2 million as the development boom continues. This also fed through into higher than expected supplementary rates lifting overall rates revenue $4.63 million ahead of budget to $262.3 million.

The council has a staggering $37.74 million cash in its open space reserve and will need more than just the $35 million Southbank Boulevard project to spend this.

Another round of property revaluations lifted the overall statutory annual surplus to $292 million as council’s net worth soared to a healthy $4.2 billion.

We won’t see which parks and buildings have been re-valued until the 2016-17 annual report is released in October but top of the pops last year were Royal Park (up $11m to $298m), Fawkner Park (up $4m to $194 m), Fitzroy Gardens (up $17m to $185m) and Queen Victoria Market (up $20m to $123m).

On the revenue front, parking fees were a healthy $3.8 million ahead of budget at $49.9 million, even without an expected post-election fee rise.

However, parking fines finished $3.6 million below budget at $39 million due to higher levels of compliance and industrial action related to the fractious enterprise agreement negotiation with the unionised workforce.

The eventual wage settlement – plus a round of redundancies amongst divisional finance staff which will save $800,000 a year – saw overall staff costs finish $4.56 million ahead of budget at $156.2 million. This followed on from a $3.86 million staff spending blowout in 2015-16 when a $139.4 million employee budget came in at $143.3 million.

Overall, the council is over-spending on staff and under-spending on capital works.

Stephen Mayne was chair of the Finance and Governance Committee from 2012-16 and is an occasional Docklands News columnist.

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