LAKE Macquarie City Council has kept its accounts in the black despite a $5.7 million loss on the value of its investments, its annual financial report shows.

The 2008-09 results tabled at council on Monday show an operating surplus, excluding capital revenue, of $3.1 million, compared with a $7.1 million surplus in 2007-08.

Auditor PricewaterhouseCoopers' report said the decline was due to a decrease in user fees and charges and interest and investment revenue.

That was coupled with increases in expenses such as employee benefits, borrowing costs, and depreciation and amortisation.

The council was forced to wipe $5.7 million from the value of two investments as a result of the default of one security and the revaluation of another.

After the inclusion of capital grants and contributions, the council's balance sheet shows a $37.6 million surplus for the year, an increase of $1.9 million on the previous year.

A council report said several factors contributed to the increase, including a 6.04 per cent rate increase that added $3.6 million to revenue.

Ratepayers can expect to put their hands in their pockets again this year with another rate increase above the State Government's cap.

The rise is expected to yield an extra $2 million revenue for sustainability and environmental activities.

Council finance and administration manager Ross Gilshenan said that overall, the council had achieved a very pleasing surplus from operating activities of $37.6million for the financial year ended 30 June 2009 in the face of the worst global financial crisis in more than 70 years.

"Although the required write-down of two of our investments, totalling about 4 per cent of our total funds invested, was of concern, it should be remembered that this write-down occurred as a direct result of the worst global financial crisis in over 70 years," he said.