What is a Special Rate Variation?

A Special Rate Variation allows a council to increase its general income above the rate peg, under the provisions of the Local Government Act 1993 (NSW). IPART annually set a rate peg, which limits the amount by which councils can increase their total rate revenue from year to year - for 2017/18 it is 1.5%.

What is a rate peg?

Since 1977, council rate revenue has been regulated in NSW under an arrangement known as ‘rate pegging’. Rate pegging allows all councils to increase their total rate revenue in line with the annual change in the rate peg. 

The rate peg is a percentage that is set each year by IPART, mainly based on an index of typical council costs. The rate pegging system also provides flexibility for individual council circumstances by allowing councils to apply to IPART for a special variation. 

For many years, the rate peg limit has not kept pace with the spiralling increases to costs for councils in NSW to deliver vital community services.

Who is IPART?

The Independent Pricing and Regulatory Tribunal is the main independent pricing regulator in NSW. IPART set prices for water, electricity, gas and transport businesses. They set the rate peg for local councils.

What are the proposed rate increases?

Council will be seeking IPART approval to retain the 13.2% Special Rate Variation (approved as a one-off increase in 2017/18) as a permanent increase and for the additional special variations:

·  5.0% in 2018/19 (including an estimated rate peg of 2.5%)

·  5.0% in 2019/20 (including an estimated rate peg of 2.5%)

·  5.0% in 2020/21 (including an estimated rate peg of 2.5%)

Council’s 2017 IPART application contained cumulative increases of 35.6%, however, following feedback from the community, Council has reduced the cumulative impact of the proposed rate increases to 31.0% over four years. This is compared to a cumulative increase of 9.3% over four years if only the rate peg was applied and no Special Rate Variation.

When will rates rise?

If the new proposal is approved by IPART, it would be expected that rates will rise from the first rates notice in June 2018. This is subject to Council adopting any recommendation received from IPART. 

How do my rates compare to other councils?

Shoalhaven City residential rates rank at number 64 in the State and are significantly less than the neighbouring councils and also the Group 5 Councils which Shoalhaven is compared against.

Why does Shoalhaven City Council need a rate rise?

Council’s Long Term Financial Plan has identified a gap between current projected funding for asset renewal and what is needed to ensure assets are maintained to an acceptable level into the future in line with the expectations of our community. That is why Council is proposing to apply for a Special Rate Variation (SRV), as a way of securing these funds. 

The SRV is being proposed only after all other sources of income and cost saving measures have been examined. 

Why doesn’t Council increase efficiencies rather than ask for a rate rise?

Council has already saved millions of dollars by changing the way it works. In the last 4 years, Council has saved up to $6 million in staff changes, service reviews and other transformation efforts. We will continue to make savings by changing the way we operate, finding ways to cut costs and work more efficiency.

·  Some specific examples include:

·  Organisational restructure saving over $3M

·  Overtime reductions and resourcing changes over $500K

·  Changes to plant and fleet

·  Changes to purchasing policies

New systems play a major role in gaining efficiencies in how we do things, online services will improve interactions with Council and improve efficiencies and costs.

Has Council considered an efficiency review by an independent body?

In 2012, Council organised for an efficiency review by Blackadder Associates Pty Ltd, which resulted in an organisational restructure, multiple service reviews with an emphasis on savings and efficiencies and improvements in Customer Service.  The review highlighted 8 areas for improvement and resulted in over $6 million dollars in savings.  Council has also put in place an internal continuous improvement team and are fast tracking a system implementation to achieve further efficiencies.

What does Council mean by “Fit for the Future” and how is Council measured?

The Office of Local Government released a roadmap for Stronger, Smarter Councils, highlighting that for a Council to be deemed “Fit”, they must:

·  Be sustainable

·  Be efficient

·  Effectively manage infrastructure and deliver services for communities: and

·  Have Scale and capacity to engage effectively across community, industry and government.

Councils also needed to meet the following seven benchmarks:

·  Operating Performance before Capital Grants and Contributions

·  Own Source Revenue

·  Building and Infrastructure Asset Renewal Ratio

·  Infrastructure Backlog Ratio

·  Debt Service Ratio

·  Real Operating Expenditure Ratio.

Only the General Fund was considered as part of Fit for the Future.  Council only meets three of the seven benchmarks.  In order to meet the further ratios within a 3 year period, Council needed to implement a number of strategies, the key one being a rate increase, along with cost control measure.

What options are available to those that can’t pay a rate increase?

Council offers a number of options for ratepayers to tailor their payments to manageable amounts. For example, you can arrange to pay in quarterly or monthly instalments. Council recognises that some ratepayers may experience financial difficulties in meeting their rate commitments on time. A ratepayer may at any time make arrangements to pay off their outstanding accounts by regular payments Council can also provide a hardship application for those people in severe financial distress.

Can the special rate be itemised on the rates notice?

Given that the Special Rate will become part of the General Rate income it will be included in the current rates charged.  However, at each quarterly review of Council’s accounts a reconciliation will be provided of what the additional rates raised are being spent on.

Why does Council need more funding to pay for its assets?

Our community has consistently told us that assets like roads, footpaths and drainage are important to them, but we need to improve their condition.

In addition to this, in 2014 the NSW State Government initiated its Fit for the Future local government reform program that required all NSW councils to submit a proposal demonstrating plans to achieve long term financial sustainability and meet seven asset and financial benchmarks.

 Over time, the range of services Council provides, and the connected assets, has changed and expanded dramatically. It’s no longer just roads and rubbish, but childcare services, art and cultural facilities, sport and recreational facilities, environmental areas, stormwater management and more.

However, the income stream to fund these assets and services hasn’t changed. Many assets are already due for renewal, and Council has been undertaking a continual replacement and upgrade program to meet the needs of our growing city - but there is a renewal backlog that will only continue to grow if not addressed.

As a part of our Fit for the Future process we reviewed the condition of our assets and detailed long term financial modelling. This information told us we have a funding gap and need to invest additional money into maintenance and renewal of community assets.

The proposed Special Rate Variation is an important step to help maintain and manage our current assets to ensure that we deliver services in line with community expectations and remain financially sustainable into the future.

Aren’t there any alternatives to a rate increase?

Council has already completed an efficiency review in 2012, and continues to monitor costs closely.  Other alternatives considered were increases to user pay fees and charges and reduction in services or service levels.  Council already struggles to deliver the level of service to meet community expectations, so service level reductions will be a last resort.

How will Council prioritise the spend of additional money?

Each project is assessed on an individual basis and subjected to specific criteria, such as:

·  Existing condition

·  Risk mitigation

·  Usage rates

·  Projected future growth

·  Drainage issues

·  Whether the asset is in a flood or fire zone

·  Traffic volumes

·  Traffic speed

·  Accident records

Why do Council construction and upgrade projects appear to cost so much?

Council construction works have to adhere with strict conditions which can inflate costs.

Factors that must be considered and can have an impact on the cost of works include:

·  Safety requirements - Council works are generally conducted in public places and therefore steps must be taken to ensure that any potential risk is addressed and minimised. This includes insurances and risk cover requirements

·  Australian Standards – Council must comply with the Australian Standards for construction and maintenance. We must also comply with a range of other standards such as ensuring accessibility to as many constituents as possible.

·  Environmental requirements must be complied with e.g. If a protected species is identified within the work site, plans may need to be altered which can add cost

·  Costs of materials and disposal of material has significantly increased in recent years

·  Location of works e.g. if the work site is isolated establishment costs can be high.

What happens if Council's application for a rate increase is unsuccessful?

Asset conditions may decline over time. Roads may deteriorate. Fixing roads may cost more money as they may be in a poor state of repair. Maintenance levels may be reduced. Service levels may be cut. Council buildings such as community halls may be sold. New assets may not be built. 

How does Council get its income?

Council’s income comes from a number of areas. Council’s income is limited and or fixed in many ways, for example:

·  Fees for services and access to facilities are limited by market demand and our residents’ ability to pay. Many Council services and facilities are heavily subsidised.

·  Council supports many not for profit organisations by charging reduced rent for Council buildings and little or no charges to sports groups for sporting facilities, therefore, Council meets the needs of these community organisations.  Rental subsidies alone are approximately $1.2M annually.

·  We are always looking for additional revenue from the State and Federal Government and also seek a number of grant opportunities where we can.

What about all the new developments – do developers contribute?

Council charges developers to help build and improve community assets and facilities. All new developments are charged a developer contribution fee. This money is then used for projects within the area that the development is located and includes funding community infrastructure, roads and drainage, parks and playgrounds. 

Where will the monies collected from a rate increase be spent?

Council intends to maintain services at their existing level and to inject more funding into maintenance and renewal of Infrastructure Assets.

I have concerns about the rationalisation of Council assets, what plans do Council have in this regard?

Council recently received a report on Community Infrastructure requirements for the future, including priorities and funding.  The full report can be found at www.shoalhaven.nsw.gov.au/My-Council/Current-Projects/Community-Infrastructure-Plan.

Is Council able to minimise spend on external Conferences and Training Courses to save money?

Council currently spends $1.1M on training costs, including conferences and HEC’s.  This equates to less than 1.6% of total employee costs.  A significant proportion of this spend relates to Occupational Health and Safety Training, which is mandatory. The remainder is an investment in personal and professional development and contributes towards a stronger business and increased productivity.

Is Council able to cut costs with regard to External Consultants and use existing staff where possible?

Council endeavours to utilise existing staff where possible, however, sometimes the specific task requires specialist expertise or Council staff do not have the capacity to handle all the work required. In these instances the work is outsourced to contractors or consultants.

Council needs to increase revenue by targeting business growth in the LGA, what is Council doing to achieve this?

Council contributes funding towards economic development and tourism to help grow the local economy.  A number of DA fees are set by Regulation, so to further encourage development Council could reduce these charges, but this would then fall back on the ratepayers to fund.

It has been suggested that Council examine its debt policy, what has Council done to improve aged debt?

Council reviewed its Pensioner Deferral Scheme in 2015 and with this policy change Council is now able to pursue rates debt from pensioners.  This benefits Council with cash receipts earlier but also reduces the impact of interest charges for Pensioners over the longer term.

Council is also very active in terms of recovering debt and takes the necessary legal action if debts remain unpaid.

What legal right does Council have to charge rates and taxes without first contacting landowners?

Under Section 495 of the Local Government Act (1993):

495 Making and levying of special rates

(1)  A council may make a special rate for or towards meeting the cost of any works, services, facilities or activities provided or undertaken, or proposed to be provided or undertaken, by the council within the whole or any part of the council’s area, other than domestic waste management services.

(2)  The special rate is to be levied on such rateable land in the council’s area as, in the council’s opinion:

(a) benefits or will benefit from the works, services, facilities or activities, or

(b) contributes or will contribute to the need for the works, services, facilities or activities, or

(c) has or will have access to the works, services, facilities or activities.

Council is required under the Office of Local Government Guidelines to seek community feedback in relation to any proposed special rates and the results of any community consultation will be added to the submission to the Independent Pricing and Regulatory Tribunal.