Council investments threatened

BY PATRICK BILLINGS
The City of Sydney’s cash reserves could dip to pre-2004 levels because of the global credit crisis, says Liberal councillor Shayne Mallard.
When Clover Moore took control of Town Hall in 2004, the city’s cash reserves hovered at $289 million. Lord Mayor Moore had said council’s reserves would swell to $446 million this year, yet budget forecasts reduced the figure to $297 million for 2009. This figure may be further downgraded in light of the current financial crisis and its impact on council’s investment portfolio.
‘Some are saying that our investments will bounce back by the time they mature, but there is no way we will get the full value of them back,’ City of Sydney councillor Shayne Mallard said. ‘We have already had to slash some of our investments by half.’
Cr Mallard is referring to council’s investments in Collateralised Debt Obligations (CDOs), which have been the root cause of the global credit crunch. Council invested $10 million in CDOs and a further $4 million in the now bankrupt US-based investment back Lehman Brothers.
Lehman Brothers had acted as a portfolio manager for the City of Sydney. Council say when they invested in the CDOs they had been given sound credit ratings by Standard and Poor’s. But the collapse of the US subprime mortgage market and the shockwaves it sent through the global economy has seen those credit ratings nose dive.
Many experts are now questioning the true value of CDOs due to their toxicity in financial markets.
Cr Mallard said the city’s cash reserves have been ‘raided’ by the Lord Mayor and the current financial crisis would compound the problem.
‘The council is a very healthy cash cow,’ he said. ‘There’s lots of money in the bank but that money has already been spent and there are lots of cheques waiting to be cashed.’
A spokesman for the Lord Mayor said the council was secure and that its finances were reviewed on a quarterly basis. But Cr Mallard believes the magnitude of the crisis means council finances requires greater attention.
‘I don’t think Clover understands it to be honest,’ Cr Mallard said. ‘We have not had a single review of our finance since the market meltdown and that is unacceptable.’
Cr Mallard also claimed the city’s Sustainable Sydney 2030 plan was financially unsound, and had raised the ire of the Sydney Chamber of Commerce
The Sydney Chamber of Commerce declined to comment.