LONG TERM FINANCIAL PLAN

Transcription

1 DECISION REPORT REPORT TITLE: ITEM NUMBER: LONG TERM FINANCIAL PLAN DATE OF MEETING: 24 FEBRUARY 2015 AUTHOR: RESPONSIBLE OFFICER: JOB TITLE: MICHAEL CAREY STEPHEN FAULKNER GENERAL MANAGER PEOPLE AND GOVERNANCE ATTACHMENT: 1. SUMMARY LONG TERM FINANCIAL PLAN 2. ASSUMPTIONS TABLE PURPOSE To provide a report to the Audit and Governance Committee regarding the updated Long Term Financial Plan and the development of the draft Annual Business Plan and Budget. RECOMMENDATION MOVED: SECONDED: That: 1. The report be received. 2. The Summary Long Term Financial Plan to (Attachment 1 to report 1/15) be noted. 3. Comments from the Audit & Governance Committee relating to the Draft Long Term Financial Plan be noted. This is page 1 of the Audit and Governance Committee Reports for 24 February 2015

2 BACKGROUND Council is required under Section 122 (1)(a) of the Local Government Act 1999 to develop and adopt a Long Term Financial Plan (LTFP) for a period of at least 10 years, to form part of its suite of Strategic Management Plans. Pursuant to Section 122 (1a) of the Local Government Act 1999: A council must, in conjunction with the plans required under subsection (1), develop and adopt: a) a long-term financial plan for a period of at least 10 years, and b) an infrastructure and asset management plan, relating to the management and development of infrastructure and major assets by the council for a period of at least 10 years. The LTFP is used to assist in financial decision making. Consideration is given to what services are to be provided, the level of those services, the rating impost, income from other sources and the level of funding required from borrowings. The key objective of Council s LTFP is financial sustainability in the medium to long term, while achieving the objectives and outcomes detailed in the Community Plan. The LTFP to was presented to the Audit & Governance Committee on 13 October 2014 for noting and adoption of financial indicators. As part of this review the Committee recommended that: Council review all services and asset portfolios to determine whether they are required in their current forms in view of the desired significant future capital expenditures the administration undertake further modelling of the allocation of forecast wage and annual weekly earnings given the current economic climate and community expectations. DISCUSSION Council uses the LTFP to develop future Annual Business Plan and Budgets by setting the high level parameters and targets that will assist Council in maintaining the current level of services without unplanned significant increases to the rates paid by ratepayers or cuts to services. As such, the LTFP has been updated using the Adopted Budget as the base budget and reviewing assumptions and factors impacting on future revenue and expenditure estimates. Attachment 1 This is page 2 of the Audit and Governance Committee Reports for 24 February 2015

3 In terms of the review of Assumptions used in the LTFP, the following has been updated from those presented in the LTFP presented to the Committee in October 2014: reduction in CPI to reflect current CPI figures and forecast reduction in EB and Average Weekly Earnings increases over the medium and long term minor Reduction in LGPI by 0.1% subsequent reduction in Increase in Rates (being LGPI + 1%) by 0.1% to 4.1% reduction in Cash Advance Debenture Rate average by 0.25% reduction in Fixed Term Rate average by 1.12%. 4 Year Plan Implications Attachment 2 In addition, a review of the flagship projects over the next 4 years has focussed on what can be delivered on 3 major projects, namely Unley Central, Goodwood Road (linking into the Power Line Environment Committee (PLEC) proposed recommendations for the undergrounding of overhead power lines) and King William Road. This has included consideration on what can be planned, developed and implemented within that 4 year period. Options for funding has considered whether some of the road and building capital replacement program can be deferred for a few years and a small increase in borrowing over the 4 year period to of less than $1m. The updated LTFP summary shows that the currently adopted financial indicators can be met under that scenario. This scenario funds Operating Projects in the order of $1.690m. This amount is significantly higher than the last few years to fund Council s share of the Goodwood PLEC Project proposed at $650k. The Target Operating Surplus is $1.166m, resulting in an Operating Surplus Ratio of 3.2%, and covers the estimated principal repayments of $1.119m. Assuming that the Budget Build will meet target or better, there is a surplus of $47k in excess of the amount required to achieve the Operating Surplus Target, providing the opportunity to: reduce the estimated rates increase of 4.1% from the LTFP repay existing debt increase funds available for operating new initiatives or a combination of the above This is page 3 of the Audit and Governance Committee Reports for 24 February 2015

4 Financial Sustainability Overall, the LTFP indicates that the Council will maintain financial sustainability over the next 10 years. Based on current service levels, any additional new projects and expenditure requirements from strategies currently being developed are likely to result in delays to other priority projects included in the LTFP. As a result, Council needs to continue to regularly monitor its financial performance and continue its work and review of service sustainability. Financial Indicators The following Long Term Financial Plan indicators were adopted by this Committee as a part of the LTFP report presented in October 2014: an Operating Surplus Ratio of the greater of 3% or 100% of principal repayments the Net Financial Liabilities Ratio does not exceed 80% of the Total Operating Revenue less NRM Levy the Asset Sustainability Ratio target of a 100% average over a 10 year period be calculated using both infrastructure and asset management plan required expenditure and annual depreciation expense. It is not proposed to make any changes to these indicators. ANALYSIS OF OPTIONS Option 1 That the Summary Long Term Long Term Financial Plan be noted and comments from the Audit and Governance Committee relating to the Long Term Financial Plan be presented to the Council The Audit and Governance Committee provides valuable support to the Council in its strategic financial planning. Input to the LTFP at this time will provide opportunity for the Council to consider feedback prior to approving the Annual Business Plan and Budget for consultation in April RECOMMENDED OPTION Option 1 is the recommended option. This is page 4 of the Audit and Governance Committee Reports for 24 February 2015

5 CONCLUSION The City of Unley s Long Term Financial Plan has been updated to assist in the development of the Annual Business Plan and Budget. It is considered that the current financial indicators will ensure a budget which does not adversely impact on the long term financial sustainability of the Council. It is also proposed that in accordance with legislation, the Long Term Financial Plan and associated Chief Executive Officer s report on financial sustainability be presented to the Audit and Governance Committee in October 2015 with a recommendation to Council in terms of its adoption. This is page 5 of the Audit and Governance Committee Reports for 24 February 2015