LEETON SHIRE COUNCIL

Transcription

1 LEETON SHIRE COUNCIL LONG TERM FINANCIAL PLAN Leeton Shire Council Chelmsford Place LEETON NSW 2705 Phone (02) Fax (02)

2 TABLE OF CONTENTS Page No. INTRODUCTION 1 PRIORITY AREAS FOR LEETON SHIRE COUNCIL 3 OBJECTIVES OF THE LONG TERM FINANCIAL PLAN 3 FINANCIAL SUSTAINABILITY 4 FINANCIAL STRATEGIES 7 PLANNING ASSUMPTIONS 8 REVENUE FORECASTS 11 EXPENDITURE FORECASTS 15 ASSET MANAGEMENT 18 PERFORMANCE MEASURES 19 FINANCIAL MODELLING SCENARIOS 21 SCENARIO 1 21 SCENARIO 2 24 SCENARIO 3 27 SENSITIVITY ANALYSIS 30 APPENDIX 1 10 YEAR CAPITAL WORKS PROGRAM 32 APPENDIX 2 FINANCIAL MODELLING SCENARIOS PERFORMANCE MEASURES 38 APPENDIX 3 FINANCIAL MODELLING GRAPHICAL ANALYSIS 53

3 INTRODUCTION The Department of Local Government has implemented a new Integrated Planning and Reporting Framework with the objective of improving delivery of services to the community by councils. The framework requires councils to integrate all of their plans together with the objective of delivering services for the community through streamlining council operations and ensuring optimal use of resources. Under the guidelines every council is required to prepare the following documents; Community Strategic Plan for at least the next ten years Delivery Program for four years Operational Plan annually Workforce management Plan Long Term Financial Plan for at least ten years Asset Management Plan Community Strategic Plan The purpose of the Community Strategic Plan is to identify the community s main priorities and aspirations for the future and to plan strategies for achieving these goals. While a council has a custodial role in initiating, preparing and maintaining the Community Strategic Plan it is not wholly responsible for it implementation. Other partners such as State agencies and community groups may also be engaged in delivering the long term objectives of the plan. Essential elements for the Community Strategic Plan include: A community vision statement Strategic objectives for the community that address social, environmental, economic and civic leadership issues identified by the community Strategies for achieving each objective The Community Strategic Plan must identify assessment methods for determining whether the objectives are being achieved. Delivery Program The Delivery Program is a statement of commitment to the community from each newly elected council. In preparing the program, Council is accounting for its stewardship of the community s long term goals, outlining what it intends to do towards achieving these goals during its term of office and what its priorities will be. The Community s strategic goals are translated into actions. These are the principal act ivies to be undertaken by Council to implement the strategies established by the Community Strategic Plan within the resources available under the Resourcing Strategy. Essential elements for the Delivery Program include: Page 1

4 Directly address the objectives and strategies of the Community Strategic Plan and identify principal activities that council will undertake in response to the objectives and strategies The Delivery Program must inform and be informed by the Resourcing Strategy The Delivery Program must address the full range of council operations The Delivery Program must allocate high level responsibilities for each action or set of actions Financial estimates for the four year period must be included in the Delivery Program. Operational Plan The Operational Plan supports the Delivery Program. It spells out the details of the Delivery Program the individual projects and activities that will be undertaken each year to achieve the commitments made in the Delivery Program. Essential elements for the Operational Plan include: The Operational Plan must be prepared as a sub plan of the Delivery Program It must directly address the actions outlined in the Delivery Program It must identify projects, programs or activities that Council will undertake within the financial year towards addressing these actions The Operational Plan must allocate responsibilities for each project, program or activity It must identify suitable measures to determine the effectiveness of the projects, programs and activities undertaken The Operational Plan must include a detailed budget for the activities to be undertaken in that year. Resourcing Strategy The Community Strategic Plan, the Delivery Program and the operational Plan must be supported by a resourcing strategy. The Long Term Financial Plan provides information about the affordability and the financial sustainability of the Council to address its current and future needs. The Workforce Management Plan gives information about the number of staff and their skills set and capability to deliver aspirations of the community. The Asset Management Plan informs on the current condition and ability of the community assets that exist for delivery of services to the community. When integrated, all these plans ensure that council delivers the expressed levels of service to its community through optimal utilisation of its resources. Page 2

5 In addition Council is also required to produce an Annual Report and an End of Term Report. Annual Report This report will provide an overview of the Shire s progress towards the vision. The Annual report will publish data on the objectives and indicators in Leeton Living Towards 2021 and Council s Delivery Plan to track progress towards achieving the vision That Leeton Shire be the Centre of Excellence within the Murrumbidgee Irrigation Area, fostering world best practices in all its endeavours, ensuring the people of Leeton Shire enjoy a rich and diverse lifestyle in harmony with our unique environment End of Term Report This document will be prepared at the end of each Council four year term to provide an overview of the progress of the community against the priorities and strategies outlined in Leeton Living Towards PRIORITY AREAS FOR LEETON SHIRE COUNCIL Taking into account its role and purpose as encapsulated in the Mission Statement, Council has adopted five priority areas. These are CARING FOR OUR HEALTH AND WELLBEING ENHANCING & PRESERVING OUR NATURAL ASSETS BUILDING OUR BUSINESS & LOCAL JOBS DEVELOPING OUR BUILT ENVIRONMENT STRENGTHENING OUR LEADERSHIP DIRECTION OBJECTIVES OF THE LONG TERM FINANCIAL PLAN The objective of the long term financial plan is to display in financial terms the activities Leeton Shire Council proposes to undertake over the short, medium and long term. The need to plan in order to achieve desired outcomes is crucial to Council s future operations. Like any business, Council needs a plan to ensure that it is achieving its objectives and satisfying the needs of its key stakeholders. The long term financial plan details in the short term how Council is going to get where it wishes to be; the resources it will utilise in getting there and the performance achieved throughout the process. The plan is a guide to the major parties within the process. These parties are the stakeholders, Councillors and Council s staff. Page 3

6 Stakeholders are groups or individuals who have a vested interest in Council s operations both directly or indirectly, including ratepayers, residents, developers, employees, community organisations, suppliers and governments. The long term financial plan allows stakeholders to have an input into Council s future operations and provides mechanism to judge and measure Council s performance. The result is greater public accountability of Council to its stakeholders. Some of the objectives of the plan are: Provide a link between the long term financial position and performance and the shorter term operating plan. Provide a range of planning scenarios that respond to the desires of the community. To provide services in an effective and cost efficient manner that will satisfy the identified needs of the community. Achieve and maintain a stable financial position and budget over the long term. Identify strategies and scenarios that support the sustainable provision of services identified by the community as outlined in the Community Strategic Plan. To employ sound financial and other management practices so as to optimise use of Council s resources and ensure that the recipients of Council s services receive value and contribute on an equitable basis. Provide a clear and transparent financial representation of Council s long term financial situation to the community. FINANCIAL SUSTAINABILITY Financial sustainability is a key challenge facing local government due to numerous contributing factors including increased demand for services beyond those traditionally provided by councils, cost shifting from other levels of government, ageing infrastructure and constraints on revenue growth. These constraints have all contributed to exerting significant pressures on Council s long term financial sustainability. The financial challenges identified have surfaced over a number of years and can be attributed to: Cost shifting from other levels of government. For example when Council is given extra responsibility to complete projects and have been distributed with funding to achieve what is required. Rate pegging is the percentage limit by which Council may increase the total income it will receive from rates. The rate pegging percentage is set each year by the Independent Pricing and Regulatory Tribunal (IPART). Page 4

7 The demand for additional facilities and services. Infrastructure renewals expenditure (back log). Cost Shifting Cost shifting is: The cost related to the imposition of responsibility for providing a certain service, asset or regulatory functions upon Local Government by other levels of government. The cost related to the transfer of responsibility to Local Government for funding a certain service or function (including concessions and rebates) where the responsibility for funding of which lies with other levels of government The cost related to the situation where Local Government agrees to provide a service/function on behalf of another sphere of government but funding is subsequently reduced or stopped, and Local Government is unable to withdraw because of community demand for the service/function. The cost related to) the situation where, for whatever reason, another sphere of government ceases to provide or provides insufficient levels of a service/function it is responsible for and Local Government steps in because of community of demand for the service/function. A survey completed by Local Government Association of NSW confirms that cost shifting continues to place a significant burden on councils financial situation. The survey estimates that cost shifting on to NSW Local Government in 2007/08 amounted to 5.92% of total income before capital amounts. The ratios are consistent with ratios established for previous financial years (5.84% for the financial year 2005/06 and 5.95% for 2006/07). Despite the recognition of cost shifting and its adverse impacts on local government, cost shifting remains at a high level (around 6% of total income before capital amounts). Higher levels of government have given Council extra responsibility to complete projects and have been distributed with funding to achieve what is required. For example the NSW Rural Fire Service is a cost that has been shifted to council. Leeton Shire Council processes all accounts and undertakes the bookkeeping required. The Rural Fire Service is not required to pay rates and buildings are on Council land, which is income that council does not receive and is rather an expense. Rate Pegging Rate pegging is the percentage limit by which Council may increase the total income it will receive from rates. The rate pegging percentage is set each year by the Independent Pricing and Regulatory Tribunal Page 5

8 (IPART). The rate pegging amount is set for all NSW Councils and does not take in consideration of individual council constraints and community requirements. Considerable variation exists in the functions of local government in the different jurisdictions, which affect both expenditure and revenue patterns. The amount received from the income of rates that is set, is used to fund council s normal operations and therefore council is restricted by this increase by IPART. For example, the actual amount of revenue raised by rate peg increase does not cover the annual wage increase. The restriction does not allow for any community consultation to meet the increasing demands of the community. Inflation increases in electricity, insurance and superannuation impose pressure on the community, which make it difficult to residents to meet their obligation to pay their rates. This increases debt recovery and financial strain on council as well as the community due to the fact that some residents are unable to pay the increases in rates, and which leads to council not receiving the revenue. The pensioner population is now living longer and as they are not a standard ratepayer, they receive a pensioner discount. Potentially the increasing number of pensioners applying for pensioner discounts to use Leeton Shire Council facilities and services are reducing income to manage the facilities as they are not paying the full amount of rates. Growth Leeton Shire Council serves the needs of approximately 12,000 residents and 50 businesses (including tradespeople). The wide range of services provided by Council include domestic refuse collection, infrastructure (traffic, roads, drains, water and sewerage, street lighting, footpaths, land and buildings), parks, library services, planning assessment and environment protection. Providing services to a growing population, which is more diverse and mobile than ever before is challenging for council. Leeton Shire Council has not experienced significant population growth over the past 10 years and it is expected that this trend will continue in the next 10 years. This is further discussed in the planning assumptions section of this plan. Community Demand The Community Strategic Plan identifies the community s main priorities and aspirations for the future and to plan strategies for achieving these goals and takes into consideration the need and/or demand for a number of additional facilities and services. The ageing community will increase demand for relevant services and facilities, including recreation and health services for the elderly. In addition, the new population will have an expectation of higher standard of community facilities and services than Page 6

9 that which currently exists and may require the provision of facilities which are not currently available. Infrastructure Back Log Ageing infrastructure requires maintenance and renovation prioritised within resource constraints. The following costs are under estimated or are not taken into consideration which is cause of the large amount of backlog for council: future operating and maintenance costs, opportunity costs and depreciation/ asset replacement costs. Local government plans, develops and maintains key infrastructure for its communities, which includes local roads, bridges, footpaths, aerodromes, water and sewerage, stormwater drainage, waste disposal, public buildings, parks, recreational and cultural facilities. Local government also has planning responsibilities that affect provision of infrastructure, whether by government or by business that encompass town planning land rezoning, subdivision approval, development assessment and building regulation (Local Government National Report, (DOTARS) (2006b, p.77). Although the local government area for Leeton Shire Council is not large compared to some councils as a rural council, it is typically burdened with a relatively large road network and the need to provide multiple facilities across the area with a scattered population density. The number of relatively small irrigation properties has contributed significantly to the large number of rural roads many of which are unsealed. FINANCIAL STRATEGIES Leeton Shire Council identifies possible financial strategies for the Long Term Financial Plan. By establishing these financial strategies Council can clearly demonstrate where it wishes to progress and the goals it wishes to achieve. These strategies enhance the longer term financial sustainability of council and help it achieve the strategic objectives documented in the Community Strategic Plan. The key strategies include: continuous improvement in financial position achieving/maintaining operating surpluses maintaining fair and equitable rating structure maintaining/improving service level standards maintaining a low debt service ratio progressively increasing funding for asset maintenance and renewal achieving full cost recovery for the provision of services Page 7

10 PLANNING ASSUMPTIONS The use of assumptions will enable Council to forecast revenue and funding of expenditure in situations where there is some uncertainty. The key planning assumptions include: demographic profile, population growth, property growth, inflation, rate pegging, investment returns, borrowing costs and major projects. Demographic Profile Leeton is a unique community with a diverse range of multicultural backgrounds. Population Growth Leeton is medium sized town in the Riverina region servicing the needs of Yanco, Murrami and the surrounding rural communities. The population of Leeton Shire Council area is 12,000 as at June 2011 and this is not expected to increase significantly over the next 10 years. Property Growth Whilst some incremental growth will occur it is unlikely any major new developments will be created. Murray Darling Basin Plan As much of the industry in the Shire is based on irrigated agriculture the Murray Darling Basin Plan will have some impact. The extent of which cannot be determined at this stage until the final plan including proposed water cutbacks is known and as such no allowance has been made in the Long Term Financial Plan. Inflation Consumer Price Index (CPI) The Consumer Price Index (CPI) measures quarterly changes in the price of a 'basket' of goods and services which account for a high proportion of expenditure by the CPI population group (i.e. metropolitan households). This 'basket' covers a wide range of goods and services, arranged in the following eleven groups: Food and non alcoholic beverages Alcohol and tobacco Page 8

11 Clothing and footwear Housing Furnishings, household equipment and services Health Transport Communication Recreation and culture Education Insurance and financial services (Australian Bureau of Statistics) Consumer Price Index (CPI) is utilised as the inflator for the following items in Council s financial modelling: All revenue excluding rates revenue as a guide for our fees and charges as outlined in our revenue policy. Operating expenditures excluding salary and wages are calculated by using the CPI as a guide for our budget reporting purposes. Salary & Wages Inflation Salary and Wages inflation for the first 2 years of the forecast period are based on the Local Government (State) Award increase of 3.25%, plus an amount of up to 3% following a review of the salary structure, for 2012/2013 and 3.25% for 2013/14. The increases in rates of pay provided by this Award have been used to determine a 3% increase for the next 8 years in council's salary system. Rate Pegging As mentioned earlier, rate pegging is the percentage limit by which Council may increase the total income it will receive from rates. The rate pegging percentage is set each year by the Independent Pricing and Regulatory Tribunal (IPART). The functions of IPART include determining the peg for Councils general (rate) income, and reviewing Council s applications for special variations and minimum rate increases under the Local Government Act Part of this framework includes IPART establishing a Local Government Cost Index (LGCI), which will be used in the setting of the maximum allowable increase in general revenue. IPART will calculate a productivity adjustment factor to be subtracted from the LGCI to arrive at a net annual rate peg. Page 9

12 The LGCI is a measure of movements in the unit costs incurred by NSW councils for ordinary council activities funded from general rate revenue. The LGCI is designed to measure how much the price of a fixed 'basket' of inputs acquired by councils in a given period compares with the price of the same set of inputs in the base period. The LGCI does not directly measure councils total level of costs. It is a composite index that combines changes in a number of input price indexes over time. The LGCI is similar to the Consumer Price Index (CPI) in this respect. The CPI does not measure household costs directly, but measures changes in prices of various goods and services over time (IPART Information Paper; Local Government Cost Index). In forecasting the annual rate peg, IPART has based the rate peg on the increase in the local government cost index, a productivity factor and an advance for the impact of the carbon price. IPART announced that the rate peg for NSW councils will be 3.6% in 2012/13.The index increased by 3.4% in the year to September IPART has then subtracted a productivity factor of 0.2% from the index. In addition, this year, IPART have added an advance to help Council meet the increases to their costs as a result of the introduction of the carbon price. This advance adds a 0.4% to the rate peg. Investment Returns Forecast returns on Council s investment portfolio are based on current balances using a conservative 5 % investment return. Borrowing Costs Forecast borrowing (interest) costs are actual costs for existing loans and an indicative rate of 7.8% has been obtained for borrowings to be taken up in 2012/13. Council has applied to the Division of Local Government for an interest subsidy of 4% on this new loan. No further external borrowing are included in the plan. Major Projects The major planned expenditure (capital works) that are included within the Community Strategic Plan and the Asset Management Plan are included in this section. Over the ten year period forecasted, the capital expenditure totals $51 million. The general fund has planned expenditure of $8.3 million in improved level of service and $29.8 million in asset renewals. The water fund has planned expenditure of $ 379,000 in improved level of service and Page 10

13 $5.1 million in asset renewals. The sewer fund has planned expenditure of $395,000 in improved level of service and $6.8 million in asset renewals. The major new capital expenditures included in the plan are: Roxy Theatre and Cultural Hub renewal & upgrade ($1.0 million) Buildings renewal ($500K) Cemetery improvements ($355k) Playground equipment upgrades ($570k) Leeton pool retiling ($200k) Library resources ($384k) Plant Replacement Program ($8.3 million) General Road Construction including PAMP and footpaths ($6.9 million) Roads Renewal Program ($19.2 million) Stormwater piping & improvements ($1.67 million) Water reservoirs repainting ($1.7 million) Water mains renewal ($2.5 million) Renewals & rehabilitation of sewers and rising mains ($5.7 million) REVENUE FORECASTS The major sources of revenue for council are: Rates and Annual Charges User Charges and Fees Grants Contributions and Donations Interest Other Revenues The following graph shows the breakdown of projected revenues for Leeton Shire Council in 2012/13 and gives an indication of the reliance on the various revenue streams. Page 11

14 Operating Revenues Ordinary Rates Council currently has 3 rating categories, being residential, business and farmland. Council proposes to continue with its current rating structure of a base rate amount to which an ad valorem amount is added. Future ordinary rate income will be impacted by rate pegging. Details of projected rate pegging increases have been provided in the assumptions summarised above. Domestic Waste Management Charge Council s domestic waste management service includes a weekly collection of a 240L kerbside garbage collection and a fortnightly kerbside collection of recycling materials. The Local Government Act 1993 requires that Domestic Waste Management charges must reflect the actual cost of providing of those services. The average annual increase in Domestic Waste Management Charges over ten year period of the plan is 3%. Page 12

15 Stormwater Management Service Charge Council introduced this charge in 2007/2008. Funds generated from this charge will continue to fund stormwater works and improve the management of urban stormwater in the local government area. The charge is set by clause 125AA of the Local Government (General) Regulation 2005 and Council has no scope to increase the charge. It is assumed the charge will continue to be the same over the next ten year period. These charges currently raise $86,275 each year all of which is utilised to fund stormwater works. User Charges and Fees User fees and charges include water, sewer, trade waste, fees for the use of Council facilities, fees for private works undertaken including road restorations. No significant new user charge or fee opportunities have been identified as part of the development of the Community Strategic Plan. Council reviews its fees and charges on an annual basis. These services are assumed to be provided on the same pricing basis and are forecast to increase in line with inflation. User charges and fees represent approximately 20% of total revenues. Significant user charges and fees include water consumption charges and Roads and Marine Services charges (these charges are contract work performed by Council for the RMS on the state roads). Other significant revenues received from user charges and fees include; sewerage, planning and regulatory, Roxy theatre, swimming pool, child care, tipping fees and cemeteries. Some user charges and fees are set to reflect full cost recovery of both operational and capital replacement of costs. These fees and charges are reviewed annually to ensure full cost recovery is achieved. Leeton Shire Council complies fully with the NSW Office of Water s Best Practice Management of Water Supply and Sewerage guidelines, however does not claim a dividend payment. Leeton Shire Council has assessed its activities in accordance with the National Competition Policy (NCP) for the current income. The two business activities are water supply and sewerage services. Statutory Charges The Council has no discretion to determine the amount of a fee for service when the amount is fixed by regulation or by another authority. Examples of statutory fees include some development assessment fees and planning certificates. The majority of statutory charges do not increase annually in line with CPI, however for the purposes of financial modelling these fees are assumed to increase in line with CPI over the long term. This assumption is considered more valid than assuming statutory charges will not increase at all over the planning horizon. Page 13

16 Grants and Contributions Grants and contributions are considered practical not to forecast an increase, other than for CPI, as it is unlikely that there will be any increase in grants, or provision of new grants, for current services. Any reduction or discontinuance of grants will be offset by a corresponding reduction in expenditure. Operating grants and contributions amounted to $5.12 million in 2010/11 and is estimated to increase by 3% per year for the next 10 years. $3.52 million was received for the Financial Assistance Grant which is an untied grant that council received each year. In 2010/2011 other major specific purpose grants and contributions were received for RTA Regional Roads ($464,000), Bushfire and Emergency Services ($48,000), Roads and Transport ($225,000) Child and Community Care ($216,000) Roads to Recovery ($464,000), and Noxious Weeds ($35,000). Capital Grants and Contributions received in the 2010/2011 year amounted to $831,000 and principally related to Transport ($137,000), Community Infrastructure Program ($172,000), Water Supplies ($78,000) and Developer Contributions ($33,000). The assumption made for the long term financial plan in regards to the Financial Assistance Grant (FAG) is that a nominal increase on the current actuals has been factored for the next 10 years. The continuance of these grants will be used to fund ongoing operational expenditure including road maintenance. There has been no indication that these grants will cease. Council received a total of $2,058,713 ($1,646,970 plus $411,743 supplementary) for the previous five year Roads to Recovery Program July 2005 to June 2009, which is an average of $514,678 per annum. In the current program, Council will receive a total of $2,318,365 for the five year program from 1 st July 2009 to 30 th June 2014, which is an overall increase of 12.61% from the previous program. This equates to an average of $463,673 per annum or an increase of 2.52% per annum from the previous funding program. When utilising Roads to Recovery funds, consideration must be given to distributing the funds evenly throughout the program to maintain resourcing levels. A five year budget plan was suggested at the beginning of the program and is reviewed annually for Council s budget process. This plan has been formulated on the basis that the program will continue beyond Interest and Investments Council s investment policy can be accessed from its website or can be viewed at Council s Administration Building. The policy objective is: To undertake investment of available funds in accordance with the latest Ministerial Order and Council s adopted Investment Strategy. To maximize earnings from authorized investments whilst maintaining the security of Council funds. Page 14

17 The interest rate that Council will apply in determining projection for interest on investments is 5%. The level of outstanding rates and charges has decreased over the past three years. Council applies what is indicated by the minister on overdue rates and charges, which are currently 11%. Other Revenues Other revenue includes, lease rental, legal fees recovery, insurance claims, commissions and general sales revenue. The majority of other revenues are generated by lease rentals and the recovery of legal fees. The assumption of lease/rentals increasing will be in line with the CPI over the long term, and the recovery of legal fees will assumed to increase and set according to a full cost recovery. EXPENDITURE FORECASTS Much of council s expenditure is regular and on going. To ensure financial forecasts are based on accurate information, and that sufficient resources are provided to satisfy the identified expectations of the community, expenditure forecasts are regularly reviewed through the quarterly budget review process. This process identifies any changes in services provided, service levels, commitments and changes to input cost for goods and services consumed. The major expenditure items as the basis for the forecast include: Employee Costs Borrowing Costs Materials and Contracts Depreciation Other Expenses The following graph shows the breakdown of projected expenses for Leeton Shire Council in 2012/13 and gives an indication of the reliance on the various expense streams. Page 15

18 Operating Expenditure Employee Costs Employee costs include salaries and wages, travelling, employee leave entitlements, superannuation, workers compensation, insurance, fringe benefits tax, payroll tax, overheads/oncosts and employee training costs. Employee costs are estimated to make up 37% of total operating expenditure in 2012/13. In the first year of the long term financial plan (2012/2013), employee costs are calculated using the employee cost for each position in the council that are based on actual rates of pay inflated for known increases in pay rates. The projections include employee on costs for each employee as well as an allowance for overtime. Future year's employee costs move in line with movements in equivalent fulltime (EFT) staff numbers and increases in salary and wage rate movements. The latest local Government (State) Award 2010 set actual increases in salary and wages rates that will apply to the three year period commencing 2011/12. In following years, salary and wage rates have been assumed to increase in line with forecast CPI. Provision has also been made for the 3% superannuation increase which is to be phased in over a 7 year period commencing 1 July Page 16

19 Borrowing Costs Loan borrowings are an important source of funding for Council. The objective of Council s Borrowing and Use of Loan Funds policy is to provide a structured and disciplined approach to the borrowing of funds for the purpose of funding new infrastructure and renewal of existing infrastructure. This policy aims: to ensure that all borrowings are in accordance with legislative requirements; to minimise the cost of borrowings; and to ensure the total amount of loan borrowings is sustainable in terms of ability to meet future repayments. The Plan includes new borrowings of $1 million in 2012/13 to finance the asset renewal of the Roxy Theatre and upgrading of the CWA and Senior Citizens Centre. Council has applied to the Division of Local Government for an interest subsidy of 4% on the loan under the Local Infrastructure Renewal Scheme. No other borrowings are proposed at this time. Council has a very low Debt Service Ratio (.6% for General Fund) and if the new funds are taken up this will increase to around 1.50%. The Plan allows for the repayment of interest and principal on this new loan and that Council will be debt free in 2021/22. Water Funds will be debt free in 2015/16 and Sewer Fund in 2014/15. No further borrowing are proposed for these operations. Materials, Contracts and Other Expenses Expenditure on materials and contracts are generally based on CPI. The exceptions to this are either if the materials and contracts are not recurrent every year, they have been identified as increasing by an amount different to CPI and/or are a result of increased services or service levels. Examples of materials and contracts include: Forecast electricity increases by 10% for the first year starting 2012/13 and then 3% after that until 2021/22. Council elections costing an estimated $85,000 every 4 years first cost starting in 2012/13 in the long term financial plan. Repainting of Whitton Pool every 3 years, $10,000 Depreciation Depreciation is an ongoing expense and realistic and accurate data is used in the Asset Management Plan. Council has a Depreciation Methodology which provides an overview of the reasons used and critical assumptions adopted to calculate the depreciation rates for each component of each asset Page 17

20 type depending upon the lifecycle phase the asset is in. The methodology is based on the best available knowledge of the lifecycle patterns of each asset hierarchy as described by key council staff. Both the valuation and depreciation calculations are based on the objective criteria established within this methodology to determine the current life cycle phase of the asset. The depreciation methodology then uses the best available estimate of the rate of consumption to the next phase to calculate the appropriate rate of depreciation. ASSET MANAGEMENT Council s asset management strategy specifies what is required to improve council s Asset Management capability and meet its objectives. The advanced asset management practices identified in the strategy will allow Council to undertake enhanced long term modelling of its asset portfolios and thus generate more robust financial projections that link with Council s LTFP. Council s asset management strategy includes broad long term asset planning information derived from the best available data. As more robust models are produced the planning information will be separated out into asset management plans for each infrastructure class that include costing for asset activities. The costs resulting from council s Asset Management Plan will be capital costs such as new assets, renewals, rehabilitation and non capital expenditure such as maintenance, operating costs and depreciation. All asset related expenditure identified in the Asset Management Plan has been incorporated into the LTFP, along with the funding options to support the plan which would include any anticipated gains from the sale of assets. Some ways council might better manage costs in this area include: Asset rationalisation and review of asset growth strategies More efficient use and operation of assets by turning them into income producing opportunities. This might be done by increasing their functionality. Choosing low cost strategies over high cost asset strategies Demand management Re evaluation of service levels and standards Changing the composition of capital spending from new to renewal Creating renewal reserves Carrying out cost/benefit analyses on the services being provided. Page 18

21 PERFORMANCE MEASURES Leeton Shire Council will monitor its performance against the LTFP and its annual budgets on an ongoing basis. To facilitate this process, five Performance Measurement Indicators will be monitored to benchmark Council s performance and assess its long term financial sustainability. The Performance Measurement Indicators are: Unrestricted Current Ratio Debt Service Ratio Rates and Annual Charges Coverage Ratio Rates, Annual Charges, Interest and Extra Charges Outstanding Percentage Building and Infrastructure Renewals Ratio Unrestricted Current Ratio This performance measure will assess the adequacy of working capital and its ability to satisfy obligations in the short term for unrestricted activities of Council. This ratio should be above 2.0:1 in order to be in a more comfortable range. A ratio of between 1.5:1 and 2:1 is satisfactory and indicated council has sufficient liquid assets on hand to meet its short term liabilities. A ratio of 2:1 or better is generally viewed by the industry as good. Debt Service Ratio This performance measure will assess the impact of loan principle and interest repayments on the discretionary revenue of council. This ratio varies significantly between council s in NSW (0% to 20.5%) and is generally higher for councils in growth area where loans have been required to fund infrastructure such as roads and water and sewerage works. If Council takes up the additional $1.0 million loan in 2012/13 to fund a building renewal for the Roxy Theatre and CWA there will be a slight rise of approximately.75% in the Debt Service Ratio. Rates and Annual Charges Coverage Ratio This performance measure will assess the degree of Council s dependence upon revenue from rates and annual charges and to assess the security of Council s income. This ratio varies and is primarily influenced by the level of development in the area. This ratio has increased significantly in 2010/2011 due to the finalisation of Farm land Capping and an increase in sewerage charges. Rates, Annual Charges, Interest and Extra Charges Outstanding Percentage This performance measure will assess the impact of uncollected rates and annual charges on Council s Page 19

22 liquidity and the adequacy of recovery efforts. Council has generally maintained a strong record in collecting rates and charges outstanding. Building and Infrastructure Renewals Ratio This performance measure will assess the rate at which these assets are being renewed relative to the rate at which they are depreciating. Page 20

23 FINANCIAL MODELLING SCENARIOS Financial modelling scenarios have been created to construct a financial representation of Council and these scenarios make recommendations which summarise particular financial positions for Council and provide direction regarding possible actions or alternatives. Council has created three different scenarios in the long term financial plan thus council is able to develop the best plan and meet community expectations. The three scenarios have been modelled to inform the community of the financial implications of the activities and the level of services outlined in the Community Strategic Plan. Each scenario builds on the previous base scenario in terms of levels of service and/or facilities provided. The three scenarios are: Scenario 1 : Current level of service Scenario 2 : Scenario 1 plus 2% increase special rate variation for the first 9 years Scenario 3 : Scenario 1 plus 4% increase special rate variation for the first 9 years SCENARIO 1 CURRENT LEVEL OF SERVICE This scenario models the financial implications of maintaining current levels of service and facilities with no change to existing policy. This scenario includes the rate peg for NSW councils at 3.6% in 2012/13 and a flat rate of 3 % til 2021/22. The scenario has allowed for the normal capital budget that has been approved by council with no extra projects going up. This scenario does not support the delivery of new facilities and services as identified in the Community Strategic Plan however, this scenario has partially addressed the shortfall in infrastructure renewals expenditure and identified infrastructure backlog in our capital works program. On the table below are the global income and expenditure changes. Page 21

24 LEETON SHIRE COUNCIL 10 Year Financial Plan for the Years ending 30 June 2022 Global income and expenditure changes Scenario / / / / / / / / / /22 Operating Income Rates Ordinary 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Rates Special Rates - Special Variation Annual Charges 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% User Charges Specific 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Fees & Charges - Statutory & Regulatory 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Fees & Charges Other 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Interest & Investment Revenues Investments Interest & Investment Revenues Other Other Revenues 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Operating Grants - General Purpose (Untied) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Operating Grants - Specific Purpose 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Operating Contributions - Developer Contributions Operating Contributions - Other Contributions Net Gains from Disposal of Assets Gain on Share of Interest in JV's & Associated Entities Page 22

25 Operating Expenditure Employee Costs Salaries 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Employee Costs - Casual Wages 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Employee Costs - Other 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Employee Costs - Capitalised Borrowing Costs - Interest on Loans Borrowing Costs - Interest on Finance Leases Borrowing Costs - Other Borrowing Costs - Capitalised Materials & Contracts - Raw Materials & Consumables 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Materials & Contracts - Contracts 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Materials & Contracts - Legal Expenses 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Materials & Contracts - Other 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Materials & Contracts - Capitalised Depreciation - IPP&E 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% Amortisation - Intangible Assets Depreciation & Amortisation - Capitalised Other Expenses - Utilities 10.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Other Expenses - Other 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Net Losses from Disposal of Assets Loss on Share of Interest in JV's & Associated Entities Page 23

26 SCENARIO 2 2% INCREASE SPECIAL RATE VARIATION This scenario models the financial implications with a 2% increase special rate variation for 7 years commencing 2013/2014. Years 1, 9 & 10 are as per scenario 1. The strategy to have a special rate variation will make a significant contribution towards achieving financial sustainability. When a council is considering whether it wishes to increase its income above the rate peg limit, it must determine which type of special variation is most appropriate to the council and its community s needs. This can be done by asking What does council want to do? including which section of the Act is most appropriate and the consequences of such an application. The level of income from a special variation, and the resulting impact on ratepayers, is largely dependent upon the type of special variation sought. Local councils that are seeking special variations to general income above the rate peg amount are required to submit applications to IPART for review and assessment. There are 2 special variation options under the Local Government Act: A single year increase under section 508(2), or A multi year increase (of between 2 and 7 years) under section 508A. In this case, Council would ask for a multiyear increase for 7 years at 2% under the section 508A following extensive community consultation. Council would then need to formally resolve in order to apply to IPART. This scenario allows Council to accelerate asset renewal expenditure that aren t able to occur due the shortfall in funding, therefore this scenario has used a special rate variation to allow the public to see what can be achieved with the extra revenue. No new projects are proposed. Additional revenue of $6.35 million will be generated over the 7 years. The capital projects that could occur with the special rate variation include: Acceleration of renewal and upgrading program for roads such as MR539 and Petersham Road. Renewal of public buildings including public halls, sportsground and park facilities. On the table below are the global income and expenditure changes. Page 24

27 LEETON SHIRE COUNCIL 10 Year Financial Plan for the Years ending 30 June 2022 Global income and expenditure changes Scenario / / / / / / / / / /22 Operating Income Rates - Ordinary 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 3.00% 3.00% Rates - Special Rates - Special Variation Annual Charges 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% User Charges - Specific 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Fees & Charges - Statutory & Regulatory 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Fees & Charges - Other 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Interest & Investment Revenues - Investments Interest & Investment Revenues - Other Other Revenues 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Operating Grants - General Purpose (Untied) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Operating Grants - Specific Purpose 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Operating Contributions - Developer Contributions Operating Contributions - Other Contributions Net Gains from Disposal of Assets Gain on Share of Interest in JV's & Associated Entities Page 25

28 Operating Expenditure Employee Costs - Salaries 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Employee Costs - Casual Wages 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Employee Costs - Other 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Employee Costs - Capitalised Borrowing Costs - Interest on Loans Borrowing Costs - Interest on Finance Leases Borrowing Costs - Other Borrowing Costs - Capitalised Materials & Contracts - Raw Materials & Consumables 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Materials & Contracts - Contracts 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Materials & Contracts - Legal Expenses 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Materials & Contracts - Other 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Materials & Contracts - Capitalised Depreciation - IPP&E 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% Amortisation - Intangible Assets Depreciation & Amortisation - Capitalised Other Expenses - Utilities 10.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Other Expenses - Other 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Net Losses from Disposal of Assets Loss on Share of Interest in JV's & Associated Entities Page 26

29 SCENARIO 3 4% INCREASE SPECIAL RATE VARIATION This scenario models the financial implications with a 4% increase special rate variation for 7 years commencing 2013/2014; years 1, 9 & 10 are as per scenario 1. The strategy to have a special rate variation will make a significant contribution towards achieving financial sustainability. When a council is considering whether it wishes to increase its income above the rate peg limit, it must determine which type of special variation is most appropriate to the council and its community s needs. This can be done by asking What does council want to do? including which section of the Act is most appropriate and the consequences of such an application. The level of income from a special variation, and the resulting impact on ratepayers, is largely dependent upon the type of special variation sought. Local councils that are seeking special variations to general income above the rate peg amount are required to submit applications to IPART for review and assessment. There are 2 special variation options under the Local Government Act: A single year increase under section 508(2), or A multi year increase (of between 2 and 7 years) under section 508A. In this case, Council would ask for a multiyear increase for 7 years at 4% under the section 508A following extensive community consultation. Council would then need to formally resolve in order to apply to IPART. This scenario allows Council to further accelerate asset renewal projects that aren t able to occur due the shortfall in funding, therefore this scenario has used a special rate variation to allow the public to see what can be achieved with the extra revenue. As per scenario 2 no new projects are proposed. Additional revenue of $13.32 million will be generated over the 7 years. As with scenario 2, the capital projects that could occur with the special rate variation include: Acceleration of renewal and upgrading program for roads such as MR539 and Petersham Road. Renewal of public buildings including public halls, sportsground and park facilities. With the extra income generated by the 4% increase (Scenario 3) there would be greater possibility of more of the above projects being started than in Scenario 2. On the table below are the global income and expenditure changes. Page 27