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How is the overall financial sustainability of Council measured and monitored and what external assurances are in place to make sure Council is managing its finances appropriately?
As part of reviewing its Annual Budget, Council also updates its Long Term Financial Plan on an annual basis. A copy of Council’s current Long Term Financial Plan will be presented to Council on the 12 June 2019.
The Agenda will be available from the close of business on Friday 7 June 2019 at www.wsc.nsw.gov.au/council-meeting-agendas-minutes.
The Long Term Financial Plan expresses in financial terms the activities that Council proposes to undertake over the short, medium and long term. This Plan guides the future strategies and actions of Council to ensure it continues to operate in a sustainable manner.
The Long Term Financial Plan acts as a tool for stakeholders (Council and the community) to use in deciding what resources Council needs to apply to deliver on the outcomes contained within the Community Strategic Plan, Wingecarribee 2031 (www.wsc.nsw.gov.au/uploads/2515/csp-adopted-june-2017-lr.pdf).
The Long Term Financial Plan covers a period of ten years and includes the following:
In terms of monitoring financial performance, Council utilises industry benchmarks (financial ratios) to ensure it continues to manage its finances prudently and responsibly. Council’s current Long Term Financial Plan identifies the following performance against these financial ratios:
Operating Performance Ratio
This ratio measures Council’s achievement of containing operating expenditure within operating revenues. The benchmark for this ratio is a ratio of greater than zero per cent.
As projected in previous updates of its Long Term Financial Plan, Council’s forecasts show that a positive operating performance ratio will be achieved in the 2019/20 financial year. This will be achieved for both the Consolidated Fund and General Fund. This positive operating result is projected over the course plan.
In subsequent years, this is in part due to the cost containment provisions which have been employed to offset the restrictions imposed by rate capping. Rate capping over the course of the plan has been forecast at 2 per cent per annum. These cost containment provisions will ensure that Council continues to maintain a balanced budget position, both in the short and long term.
In future years, the operating performance ratio for the General Fund stabilises at approximately 3 per cent, while the same result for the Consolidated Fund fluctuates between 2.50 per cent and 3 per cent.
Own Source Operating Revenue Ratio
This ratio measures the degree of reliance Council has on external funding sources such as operating grants and contributions. The benchmark for this ratio is greater than 60 per cent.
Council continues to meet this ratio comfortably. The General Fund performance ratio for the period ended 30 June 2018 was 65.84 per cent. This was lower than what was projected based on the dedication of non-cash infrastructure relating to new developments which was brought to account in the 2017/18 financial year.
The General Fund performance ratio projected for the 2019/20 financial year is also lower due to the expected receipt of a number of significant infrastructure-related projects. These include the Station Street Upgrade Project and the State Government’s Stronger Country Communities.
The performance of Council’s Consolidated Fund continues to be closely aligned with the General Fund.
Building and Infrastructure Renewal Ratio
This ratio measures the rate at which assets are being renewed relative to the rate at which they are depreciating. The benchmark for this ratio is greater than 100 per cent.
Council’s Long Term Financial Plan includes its increase in infrastructure renewal works which is funded through the approved Special Rate Variation. It is important to note that there has been no reduction in the level of cash funding which will be allocated towards infrastructure renewal over the course of the plan.
The primary reason that Council is forecasting a decline in this ratio in the mid to long term is due to the recent increase in depreciation expense reported in Council’s financial statements for the period ended 30 June 2018. This increase is a result of a revaluation and additional infrastructure dedicated through urban development.
Since Council last updated its Long Term Financial Plan, depreciation expense has increased by approximately $1.4 million. This has resulted in a decline in this ratio of approximately 10 per cent on an annual basis.
As part of the next review of its Strategic Asset Management Plan, Council will review its depreciation methodology to ensure that the calculation of depreciation expenditure reflects current industry practices.
Despite this negative trend in later years, Council will comfortably achieve this ratio over the immediate four-year forward estimates. This is as a result of a number of significant infrastructure projects such as the Station Street Upgrade, Kirkham Road Reconstruction and the Civic Centre Refurbishment.
Infrastructure Backlog Ratio
This ratio shows what proportion the infrastructure backlog is against the total value of infrastructure. It is essentially a measure of the total value of infrastructure which is failing. The benchmark for this ratio is less than 2 per cent.
In updating the Long Term Financial Plan, Council remains confident of achieving this benchmark within the course of the current Delivery Program. The percentage of infrastructure backlog for the General Fund will remain at just below 1.00 per cent from the 2022/23 financial year which is well within the industry benchmark.
Asset Maintenance Ratio
This ratio compares actual maintenance vs required annual maintenance which is determined as part of Council’s Asset Management Planning. The benchmark for this ratio is greater than 100 per cent.
Council is on track to fully fund its infrastructure maintenance requirements by the required timeframe of 2019/20. It is also projected that the asset maintenance ratio will be achieved by 2019/20 for both the Water Fund and Sewer Fund. This is illustrated in the ratio forecast for the Consolidated Fund.
Debt Service Ratio
This ratio highlights the extent to which Council’s revenue from continuing operations is required for the repayment of debt (including both principal and interest repayments). The benchmark for this ratio is less than 20 per cent.
As highlighted earlier in this report, Council is proposing to borrow $54.460 million over the course of the next four year forward estimates. Borrowings will be used to fund, or in some cases, part-fund major infrastructure projects which will have significant and demonstrated benefits to the residents of Wingecarribee Shire over the coming decades.
Council has considered the impact of the proposed borrowings, and subsequent debt servicing as part of reviewing its Long Term Financial Plan. Council has sufficient financial capacity to fund these loan repayments and is still well within the industry benchmark for debt servicing (known as the Debt Service Ratio).
The Debt Service Ratio for both the General Fund and Consolidated Fund remain relatively stable due to the maturity of a number of loans over the course of the next three to five years.
While this ratio is substantially below the maximum threshold, Council has been presented with a balanced budget over the course of the Long Term Financial Plan. Any increase in loan borrowings beyond what is proposed would require additional funding to be identified to service the recurrent loan repayments.
Council has been under the oversight of the NSW Audit Office since the financial reporting period ended 30 June 2017. Council has received unmodified audit opinions on its financial statements for each successive reporting period since this change in external audit arrangements.
In addition to its external audit arrangements, Council has in place an Audit Risk and Improvement Committee which considers the outcome of internal audits conducted by an independent internal audit agency. This committee is also charged with providing oversight of Council’s internal controls and risk management framework.