Once upon a time in Freo – Act II

COMMENT: THE financial health of any council in WA, including Fremantle, can be scrutinised at mycouncil.wa.gov.au/Council/ViewCouncil/51.
The Department of Local Government page includes information about population, rates of growth, revenue, staff numbers, assets and a financial health indicator (out of 100) to measure whether a council performs well or poorly. A FHI score of 70 and above indicates sound financial health. A low score indicates high risk.
Fremantle’s FHI, presently 55, is the lowest in the metropolitan area. But it was not always so and, frankly, it is nothing to celebrate given the City recorded a $32.8 million loss in the 2020 financial year. Yet it claims to have made a $4.7 million profit? Can’t wait for the 2021 figures, the latest at www.streetwisemedia.com.au/once-upon-a-time-in-freo-act-i.
Other factors the department says are used to assess performance include the range of services offered, efficiency of services delivered and community satisfaction: “A very high or low FHI may be a prompt for questions to be asked by the community about a local government’s revenue, expenses and service delivery.” Indeed.
The FHI is a sensitive subject at the City, which issued three media ‘clarifications’ in 2017 and 2018, declaring Fremantle to be on, “a sound financial footing”. Nothing to see here.
The City has mapped its FHI journey – with a score of 61 in 2012-2013; 60 in 2013-2014; 79 in 2014-2015; 42 in 2015-2016; and 87 in 2016-2017 (opposite).
No further figures are plotted, but StreetWise has obtained the latest scores which show Fremantle’s FHI dropped to 44 in 2017-2018 before it jumped to its present score of 55.
In 2017, former Greens mayor Brad Pettitt ran for and won a second term. During his campaign, StreetWise published minutes of a meeting in which Dr Pettitt’s team moved to direct the CEO to contact Local Government Minister David Templeman and ask him to have the FHI ‘adjusted’.
“The lower than usual score was a one off,” CEO Philip St John assured the minister, who replied: “I appreciate the work the City of Fremantle is doing towards correcting its FHI score. This includes accepting your auditors, Moore Stephens Australia’s, confirmation that subject to final audit, the City of Fremantle’s 2016-2017 FHI score will restore to approximately 85. Once the audited 30 June 2017 annual financial report becomes available, the message of improved financial health can be communicated to the community … I have asked the Department to review the way it communicates its risk profile process with the sector to avoid potential misunderstandings in the future.” State Government interference in local government?


Labor fails Freo


HAD Templeman acted in 2017, Fremantle ratepayers may have been spared a low FHI score comparable to the shires of Wandering, Boddington, Cunderdin, Nungarin and Wickepin.
His inaction enabled the City to pass questionable and highly dubious financials despite consistent calls for an inquiry, particularly into the 2012 Kings Square business plan. But rather than open the books, Templeman closed another sorry chapter in the City’s attempt over many years to conceal the true state of Fremantle’s finncial position.
In his reply to the CEO in 2017, the Minister said he accepted information from the City’s independent auditors that, subject to final audit, the City’s 2016-2017 FHI score would be restored to approximately 85. And it was.
Fremantle resident Claudia Green, who ran for City Ward in 2017 on a platform of fiscal responsibility and accountability, said Mr St John’s letter was disconcerting and unsettling: “The City is independently audited each year and no audit has ever indicated any fundamental issues or problems with the City’s medium or long term financial viability … the City of Fremantle has not ever been classified as being in any risk category, let alone high risk.”
She said this contradicted the minutes of the audit and risk committee, tabled at the full council meeting on November 23, 2016, which concluded, “the City’s ability to service debt out of its uncommitted or General Purpose funds available from operations is limited and declining”, and, “the City’s own auditor raised a concern in relation to the City’s financial sustainability and suggested that Council and management need to consider ways to improve the operating position either via increasing revenue or by decreasing expenditure (or a combination of both)”.
Why would the CEO, who was directed by the then campaigning mayor and now Upper House MP, tell the minister no audit ever indicated any fundamental issues or problems with the City’s financial viability? Why would the minister, at the behest of the CEO and despite beings at odds with the department’s financial rating, more than double the City’s score from 42 to 87 – pending a final audit AFTER the 2017 mayoral and local government elections?
No audit ever occurred and Fremantle’s FHI dropped back to 44. Another accounting ‘one-off’? Templeman had given the City a leave pass until after the election even though the department always stood by its original score.
Importantly, Templeman said the City could better communicate the improvement in its financial health indicators, including attracting no adverse issues or findings by auditors. Guess what the Auditor General’s Office found in the City’s latest financial statements, details of which are published at www.streetwisemedia.com.au/fremantle-council-massages-the-books.
In June 2018, Mr St John claimed the City was in good financial health with a FHI score of 87 for the 2017 financial year, but misleads ratepayers by having failed to acknowledge the score of 44 the department posted after the 2017 mayoral election.

Kings Square tipping point

THE losses reported in the City’s latest financial statements come as no surprise to local residents and community groups in Fremantle. For years, they have warned the City’s asset sell-off and loan borrowings were not sustainable. In fact, the $32 million loss for 2020 was predicted nearly 10 years ago when questions were raised over the City’s 2012 business plan for the $270 million Kings Square redevelopment.
On October 12, 2014, Fremantle financial analyst Martin Lee wrote to Dr Pettitt pointing out concerns over the Kings Square business plan. He said the Net Present Value and Rates of Return numbers the City had presented, “defy logic”.
He said: “You have overstated the NPV of the Kings Square development by more than $30 million. If so, this project will significantly destroy value rather than add to the value of the City of Fremantle’s property portfolio.”
Mr Lee said if he was correct, “you will be responsible for burning a $30 million hole in the value of the City of Fremantle’s finances”. What was the 2020 financial loss again?
On December 11, Mr Dougall wrote to Mr Lee stating the business case for Kings Square included income generated from the sale of three council properties which, “could and most likely would be used to finance council’s commitments to the redevelopment project. It highlights a shortfall of $15 million which is proposed to be funded through debt finance”.
Ms Green, on behalf of the Fremantle Residents and Ratepayers Association, challenged the City’s claims about the $1 billion in ‘pipeline’ investment spruiked by Dr Pettitt for most of his time on council. Subtract Kings Square ($270 million) and nearly $20 million worth of actual completed construction and you’re only one third of the way there after a decade.
“It appears the remaining $1 billion is merely possible plans that may or may not go ahead,” she said, adding Kings Square would leave, “a potential $30,000,000 liability for ratepayers”.
Had the Labor Party acted and addressed ratepayers’ concerns over the Kings Square deal, Fremantle may have achieved and sustained a high FHI. Under the Act, the council is required to accurately reflect the financial impact on the City’s finances. Representing a negative $30 million NPV as a positive $4 million NPV does not satisfy this requirement.
Ms Green said the minister had been asked on several occasions to review the business plan on behalf of ratepayers who, as time would show, stood to lose multiple investment properties to fund the controversial project.
“That the project can be funded from cash flows inherent to the project itself is incorrect and deliberately misleading,” she said, adding the City had not disclosed a 20 per cent increase to the $45 million estimate in the King’s Square business plan. Nor would it release to ratepayers the project’s business case and assumptions which led to the incorrect positive project NPV identified by Mr Bell.
Former Housing and Fisheries Minister Peter Tinley was in opposition when he was approached to submit questions in parliament, including:

1. How does the Minister for Local Government justify that he has refused to direct the City of Fremantle to answer legitimate ratepayer questions concerning the King’s Square business plan?
2. Has the Minister conducted a full and proper investigation into the questions raised with regard to the King’s Square business plan? If so, what were the findings?
3. Is the Minister satisfied that the King’s Square business plan does not misrepresent the financial implications of this project for the City of Fremantle? (The City claims the King’s Square Project will have a commercial rate of return for ratepayers, despite the investment of $45 million of ratepayers’ funds while generating less than $1 million per year of additional revenue and taking more than 50 years to recover its initial investment).
4. Is the Minister satisfied the King’s Square business plan contains sufficient detail for ratepayers and councillors to properly understand whether this project increases or decreases the asset base of the City of Fremantle?

Nothing happened and the McGowan Government continues to stick its head in the sand as Fremantle slides into a financial black hole.