General Managers Update – August 2017

Sorell Council has prided itself in recent years on being able to balance its budget and keep rate rises in line with inflation. During 2016/17 Council continued its program of independent asset condition assessment and revaluations as required by the Tasmanian Audit Office to provide current and quantifiable data that fully complies with Accounting Standards and contemporary Asset Management practices. The revaluation calculates the ongoing depreciation of our road, building, bridge, footpath, stormwater, parks and reserves assets and for 17/18 has meant that Council was confronted with an additional budget deficit of about $500,000 (notwithstanding effect of early FAG payment from Federal Gov that inflates this to $946k). This occurred principally from recognising Council assets that hadn’t previously been recorded in our balance sheet.

Council’s budget planning had us on track to meet its financial commitments and capital expenditure plans with a rate rise that did not exceed the long term financial plan forecast of 2.5%. Over the past two months the Council has been re-analysing its projected work plan and financial commitments to try and find a way of meeting community expectations without having to introduce what would appear to be a large rate increase. Another factor that will lead to increased rates for many properties is the recent release of revised property values by the Valuer General.

In order to meet its proposed capital expenditure commitments and ongoing operating and maintenance budgets, the Council decided at its June meeting to adopt the 2017/18 annual plan, budget and rates comprising –
• Operating deficit – $946k
o Revenue – $16.274m
o Expenditure – $17.220m
• Capital expenditure on asset renewal/replacement – $4.666m (against depreciation of $5.2m).
• Capital expenditure on new/upgraded assets – $572k
• Capital expenditure on carry forward projects from 2016/17 (renewal and new/upgrade) – $1.702m
• Waste management and other user charges to increase by 2.5%

The General rate increase is directly in response to the requirement to fund the annual depreciation out of the operating budget – which is a key financial / asset management indicator.

The regulatory and compliance framework has substantially changed over the past six years. Councils were previously audited each year by the Tasmanian Audit Office but there was no overarching suite of financial / asset management sustainability legislation or standards – provided Councils complied with Accounting Standards, they generally achieved a satisfactory audit and were not required to demonstrate if they were sustainable.

The following governance, management and reporting requirements have been legislated and Councils must have them in place:
• Strategic Plan – 10 year minimum.
• Annual Plan
• Long Term Financial Plan – 10 year minimum.
• Financial Management Strategy
• Asset Management Policy
• Asset Management Strategy
• Asset Management Plans for each asset class – Transport (roads, bridges, footpaths), Buildings (and Recreational/Open Space), Stormwater.
• Financial and Asset Management Indicators –
• Rates Policy
• Independent Audit Panels

Sorell has approached this increasing oversight openly and transparently – an influencing factor in this has been our previous focus on new and upgraded capital works with limited asset maintenance / renewals, growing residential rate base and population with associated demand for better and more assets and services. Like most non-metro Councils, we do not have the situation where strong commercial and industrial rate contributors enable liberal spending in our operating budget or more relevantly, our capital budget for new and upgraded assets.

For the past four years our budgets have been based on an inflationary rate increase only, a focus on providing a base level of services and functions, cost controls through reducing our overheads, utilising the Local Government common service business model for professional / technical services and joint tendering and a disciplined capital budget focusing on asset maintenance, renewal and replacements before any new or upgraded projects.

In determining the rates structure Council modelled different scenarios and determined that a continuation of the fixed charge and variable rate with the application of the new Valuer General capital values provided the least impact – notwithstanding the required increase in general rate revenue to fund the depreciation.

Council has been mature, reasoned and sensible in considering the effects of this situation on ratepayers and also the organisation. There has been no appetite to do anything other than dealing with it openly and transparently with a long-term view on annual impacts. And additionally, to actively and appropriately pursue State and Federal agencies for the timely provision of necessary infrastructure for the growing south-east.

GENERAL MANAGER
Robert Higgins

Communications, 22/08/2017