Thursday 27 September 2007

The Iemma Government should immediately fix guidelines to stop councils making risky investments with ratepayer funds rather than causing further delay with another review, Shadow Minister for Local Government Chris Hartcher and Shadow Minister for Finance Mike Baird said today.

“It’s clear that Morris Iemma and Paul Lynch have not been on top of this issue. The time it has taken for the Iemma Government to finally identify this problem is of great concern, clearly they were asleep at the wheel,” Mr Hartcher said.

“Calling a review of council investments linked to the decline in the US sub-prime mortgage market is too late for those ratepayers whose councils are already investing in such schemes,” he said.

“Instead the State Government should admit that holes in its own Ministerial Investment Order allowed councils to risk millions in ratepayer funds and should be remedying it immediately.

“The current investment guidelines have loopholes meaning councils are not required to diversify their investments to mitigate their risk and can invest in bank-issued securities that are just above junk-bond status,” Mr Baird said.

“The guidelines also fail to specify a limit to the length of the investment. Clearly the risk of default for a lower-rated investment increases with the tenure. Some NSW councils have money invested for terms in excess of thirty years,” he said.

“Unfortunately councils are increasing risks to ratepayer funds because they’re not getting clear direction from the current guidelines.

Mr Baird recommended the following changes to the Ministerial Investment Order:

• Introduce a diversification principle that limits any one investment to no more than 20% of council portfolios
• Consider increasing the lowest credit rating from A- to AA-
• Limit the tenure of investments to 10 years
• Limit councils to take no more than 10% of any single bond or security issue
• Ensure council investments are approved/monitored by a central panel of experts.

“We also ask the Iemma Government to consider appointing experts to centrally manage investments on behalf of all councils. It is unreasonable to expect council staff and councillors to assess credit ratings, maturity profiles and asset classes,” he said.

“The Iemma Government can’t escape the fact that this whole affair could have been avoided had they been on the ball,” Mr Hartcher said.

“Ratepayers funds should not be further jeopardised by further Labor Government delays,” he said.

MEDIA: Lisa Harrington - 0406 726 880

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