Concerns mount on local infrastructure

One of the councils hardest hit by sub-prime related investment losses, the City of Melville, has blamed cost blowouts for its decision to stop work on an $8.1 million upgrade of the Leeming Recreation Centre.

Veteran chartered accountant and Leeming resident Con Abbott said he believed more infrastructure projects were likely to be put on hold with the council facing massive losses on its sub-prime investment securities portfolio.

Melville is one of 35 councils across Australia to have purchased sub-prime investments since 2007, called collateralised debt obligations (CDOs), and is facing book losses of more than $10 million.

CDOs are complex investment securities backed by high-risk real estate loans and have plunged in value in line with weakness in the US mortgage market.

"The City of Melville is seeing the first impact these investments are having and this is on its services and infrastructure projects," Mr Abbott told WA Business News.

Melville mayor Russell Aubrey said that cost blowouts on the long-awaited redevelopment of the recreation centre and declining attendances meant the project was no longer a viable option.

Mr Aubrey said the council was in discussions to transfer management of the dilapidated centre to the Department of Education and Training.

"In the interests of financial rationalisation, a negotiation with the DET to take greater financial responsibility provides the only option for affordable access and ongoing operation of the centre," he said.

"The major burden of costs in relation to the centre has fallen on Melville ratepayers and this change of model is an attempt to avoid significant rate increases in the future and to provide non-users a significant saving.

"The city has a responsibility to ensure that ratepayer funds are used in the best manner to benefit residents."

Mr Abbott accused the council of naivety and poor judgement in acquiring the high-risk CDOs, some of which were provided by US investment bank Lehman Brothers which collapsed in September last year.

Other local councils in WA to be caught up in the sub-prime crisis include Swan, Geraldton, Melville, Albany and Cockburn.