We've answered some of the most frequently asked questions we've heard during our community conversations in short videos below.
|What would reducing our services look like?||Would a rate increase be an increase on my total rates bill?|
|What's the difference between Council's capital budget and maintenance budget?|
Why isn't Council considered 'fit for the future' anymore?
|Has Council undertaken an independent review of its finances?|
Over the past decade, Port Stephens Council has maintained a strong financial position however, the past two years have had a significant impact on our bottom line.
Income from our five holiday parks, childcare centres and Newcastle Airport was cut while at the same time construction, insurance and workers compensation costs increased.
Despite Council’s ability to implement effective short term strategies, the ongoing effects of COVID-19 and the lockdown periods through the first part of 2021/2022 have had a negative impact of more than $8 million on Council’s financial position.
Last year, Council predicted an underlying deficit of $4.4 million however, with careful planning and a commitment to further reducing expenditure, we saw a surplus of $583,000.
To achieve this, we’ve focused on improving our productivity, streamlining services, containing our costs, and increasing revenue.
Despite these efforts, our financial forecast has shown that if we keep going this way, we’ll spend more on our services than we can afford unless we make real change.
Like most business the impacts of the past two years have forced Council to stop and reset. With a new Council in place, we need to look at how we do business, where we can improve our revenues, find savings and how we can ensure financial sustainability for the residents of Port Stephens well into the future.
Over the past 10 years, Council has maintained a strong and stable financial position achieving an annual budget surplus of 1%. This has allowed Council to deliver a broad range of services, invest in local infrastructure, grow our economy and make Port Stephens a great place to live work and visit.
Councils Long Term Financial Plan (LTFP) is the tool used to effectively plan for and deliver long term sustainability. For some time, the LTFP has identified this year and next as being tough with operational costs associated with insurance, workers compensation and legislated changes in superannuation negatively impacting the budget.
Like many other businesses around the world, the last two years have also impacted Councils budget. Income from our holiday parks, childcare centres and Newcastle Airport have been reduced while at the same time costs associated with construction and transport have significantly increased. Major storm events have increased our maintenance costs, insurance and diverted funds away from planned projects.
Last year, Council predicted an underlying deficit of $4.4 million however, with careful planning and a commitment to further reducing expenditure, we saw a surplus of $583,000. To achieve this, we’ve focused on improving our productivity, streamlining services, containing our costs, and increasing revenue.
Despite these efforts, our financial forecast has shown that if we keep going this way, we’ll spend more on our services than we can afford unless we make real change.
We know COVID-19 isn’t over and other economic factors such as inflation continue to have flow on effect, so it’s important we take steps now to ensure Council is financially sustainable in the long term.
This may include reducing service delivery, increasing fees and charges, or investigating new revenue streams – it’s all on the table.
Port Stephens has one of the lowest rate bases in the region. Changes to our rate revenue is also an option but if our community wants to keep rates low, we need to understand what services our community is prepared to see reduced into the future.
The Fit for the Future reports were completed 10 years ago based on answering a wide range of criteria set by the State Government. These reports were designed solely to investigate the potential of merging local government areas.
The Fit for the Future reports had a very wide focus on Council operations. They did include some information about Council’s current and projected financial position but also required Council to provide information around geography, demographics, services centres, service levels, asset backlogs and community sentiment.
Since 2012 Council has consistently delivered a strong, stable or ‘fit’ financial position achieving an annual budget surplus of 1%.
Our long term Financial Plan always highlighted that 2022/2023 would be difficult years for our budgets. What we did not know however was the unforeseen impacts of the pandemic. This created an ‘external shock’ to Council’s forecasted budgeting.
The environment which we operate in and our financial forecasting has significantly changed since the reports for Fit for the Future. Our Funded Future considers these impacts and will set a new plan for the next 10 years.
Reducing services does not mean we stop delivering services – our role is to look after Port Stephens and deliver on the community’s vision for our place.
What you may see though is a reduction in the service level delivery – this might mean we only mow our parks once per six weeks instead of once per month, it could mean we postpone the resurfacing of a road, we push back the renovation of a sports facility or not replace older playground equipment. Other services which could be impacted is opening times of our community libraries, our Visitor Information Centre or other facilities.
In order to weather the financial storm of the past couple of years Council has already curtailed certain areas of spending, reduced services and delayed projects. This was a necessary measure to ensure that we stayed within our means. Further long term cuts to resourcing and / or service delivery will likely have a clear impact on the community. If this option is recommended by the elected Council further engagement will be undertaken with the community to ensure Council, where possible, can continue to meet expectations whilst reducing services.
Each year, the NSW Government sets the percentage councils can increase their total rate income by for the following year. This percentage is known as the rate cap.
The rate cap is based on the Local Government Cost Index (LGCI) which looks at last year’s cost increases for items typically purchased by councils. Sometimes, the rate cap is lower than LGCI to ensure councils focus on finding savings and operating productively. When forecasting their budgets councils are advised by IPART to assume a 2.5% rate cap however, historically, the rate cap does not meet all increasing costs and is not enough to meet new infrastructure and additional service needs. The rate cap only applies to rates, being the top two lines on your rate notice.
This year the rate cap was set at 0.7% and for the first time, Port Stephens Council received a population growth factor of 0.6% in addition. The combined 1.3% increase was significantly lower than the budgeted 2.5%. The NSW Government recognised that the lower-than-expected rate cap was problematic for councils across NSW and introduced the Additional Special Variation (ASV) process to bring the rate cap for 2022-2023 financial year back up to 2.5%.
IPART sets the rate cap each year. It also assesses council requests for a rate rise more than the rate peg which is called a special variation. Special Rate Variations can be either for a single year or multiple years and can be temporary or permanently retained in the rate base. Council needs to follow IPART’s guidelines and make a formal application showing how they have demonstrated each criteria in the guidelines.
Port Stephens Council has the lowest average rates for the residential and farmland rating category compared to the Office of Local Governments Category grouping (Group 5) which includes our neighboring Councils of Newcastle, Maitland and Lake Macquarie. The average residential rates for OLG5 is $1,429* whilst Port Stephens Council is $1,100* or 26% lower than the average. Our Business category is also at the lower end of the category average.
(*based on 2020-21 figures)
Simply, yes. It is unfortunate that all councils at some point will face periods of challenging financial sustainability caused by the constraints and influences on local government. A Special rate variation is becoming a more common tool that Council’s use to adjust their fixed income when reducing operating expenses alone does not balance the budget. All surrounding Council such as Maitland, Newcastle and Lake Macquarie have all applied and been successful for a Special rate variations in recent times.
Rates are calculated according to the property land value, determined by the NSW Valuer General. Rates are charged to property owners and vary according to:
- Your land category and sub-category (e.g. residential, farmland, business)
- Your land value (not including the value of your home or other structures)
- Council’s rating policy (e.g. business rates are higher than residential rates)
There are other charges that may appear on your rate notice that are not subject to the rate cap such as waste management charges, waste service charges, on-site sewage management fees or the catchment contribution which Council collects and passes on to Hunter Local Land Services.
Rates increases applied by councils are determined by Independent Pricing and Regulatory Tribunal (IPART). Each year, IPART determines a percentage that we can increase rates to meet increasing costs – this year it is 2.5%.
Currently, Port Stephens has the lowest average rates across the Hunter region, charging less than Maitland, Dungog, Newcastle, Singleton and Lake Macquarie. In some instances, our rates are up to 30% lower.
We have managed this low rate base for some time by supplementing rate income with non-traditional forms of revenue such as our holiday parks, investment in Newcastle Airport and more recently, programs like Smart Parking. Our forecasting is telling us that this will no longer be sustainable and if we maintain rates at current levels our service levels will need to reduce.
After this conversation with the community, if Council elects to move forward with a variation to the current rates, further consultation will occur with the community and a formal application to IPART would be required.
Council is facing a forecasted financial shortfall of more than $80 million over ten years. That means our costs are rising faster than our income and the gap between our income and the funds needed to upkeep infrastructure assets and services to a level expected by the community is growing.
The key purpose for Council potentially applying for a special rate variation (SRV) is to maintain financial sustainability by eliminating the budget shortfall. It is unsustainable for us to continue to operate as we are. The additional income raised by the SRV would be used to cover rising costs associated with delivery services the community is expecting as identified in our strategic plans. Although a balanced budget is our first priority, some of the proposed rate increase options give the opportunity for additional budget to be put into enhancements of existing maintenance levels. If the preferred path forward includes income above what is required to balance our budget, we are seeking input from the community as to the priority areas for us to focus on.
As part of IPART determination, Council will be required to report back to IPART each year of the Special rate variation that it has implemented the increase rate revenue as advised in its application. The community will also be able to access the Council’s Quarterly Budget Review Reports and Long Term Financial Plan which reflects Council’s Financial Position.
Council rates are paid by property owners. However, higher rates form part of costs which non-ratepayers may bear, including tenants currently paying rent in Port Stephens, and the cost of goods and services through businesses. Infrastructure, facilities and services are provided by Council for all residents of, and visitors to, the Port Stephens local government area. Having a financially sustainable Council benefits everyone.
Having a financially sustainable Council benefits both tenants and non-residents as well as those living in Port Stephens. Ratepayers of Port Stephens will receive information with their rate notice in July 2022 about our financial position and the opportunities to find out more and provide feedback. Council has an extensive communication and engagement plan that will utilise a range of methods to reach and inform landlord ratepayers. If after hearing form the community, the elected Council decides to progress forward with an SRV application and it is successful, the rate increase would apply to all ratepayers, including residents and non-residents.
After the special variation period finishes rates will increase only by the rate cap amount set by IPART.
The majority of grant funds require funds to be spent on capital expenditure e.g. sporting field or community facility and therefore grant funds are not normally used to fund the day-to-day operations of Council
Council regularly applies for and receives government grants and will continue to do this in the future, however there a various reasons as to why Council cannot solely rely on this source of income:
- In most instances, the grant requires Council to provide a financial co-contribution up to half of the grant amount.
- Receiving grants is a competitive process and there are not enough grants available to fund all of Council’s infrastructure needs.
- Grants programs usually have requirements attached to them that may not fit in line with Council’s current strategies and plans.
- Budget allocations are required to maintain and renew projects and this has to be allocated in Council’s existing budget.
Council’s current 2022 Long Term Financial Plan has already allowed for additional income strategies that we have implemented to increase our income including increasing fees and charges and introducing smart parking. Even with this additional income, we are facing severe financial pressure and a budget shortfall of $80 million in 10 years. In this situation we would not be able to handle any future external shocks such as natural disasters and our cash flow would be at a critical condition. We will continue to investigate other funding sources and cost savings but ultimately assets will be subject to heavy deterioration, and Council will have to work with the community to examine and reduce service levels.
Financial sustainability has been a long term focus at Port Stephens Council.
At its meeting of 26 October 2021, Council acknowledged the ongoing impacts on financial sustainability and endorsed a number of key directions to improve this over time including creating strong cash reserve to help Council avoid shocks from natural disasters or economic downturns, creating the Port Stephens Resilience Fund to future proof investment in important infrastructure, seeking grant funding and reducing operational costs.
To support this, Council appointed independent experts to analyse our overall long term financial position. These reports and recommendations were presented to Councillors in March 2022. Since then, wages have been reduced by $1,053,000, a one off 10% increase to fees and charges was implemented and agreement has been made for a further rollout of paid parking. Council has also identified a number of assets which may be in excess of our community needs.
What we know is that we need to make real change. With a rate increase of only 2.5% and CPI expected to increase by at least 5.1%, our long term budget is showing an $80 million shortfall over 10 years. It is clear that we can no longer keep doing things the same way.
We are now starting the conversation. We want our community to have a complete understanding of our financial position and the ability to participate in the decision making for our funded future.
The underlying operating surplus of Council to a target of 1% is designed to build strength in our current financial position allowing Council to continue to invest more in critical works and services.
By attaining and maintaining an underlying surplus Council will be in a position to invest more in the maintenance of our roads, environmental assets, parks, open space, drainage and other services.
By setting aside funds each year, Council will also be in a much better position to respond to both issues and opportunities. In the case of major weather events, having funds set aside allows us to respond quickly – we don’t need to wait for Government funding to fix our roads and repair our parks - we can get out and get the job done.
When it comes to taking advantage of new opportunities we also need to set aside funds. Grant funding nearly always requires a co-contribution – we need to retain funds in our cash reserves to allow us to apply for grant programs many of which enable Council to deliver important community infrastructure.
Council developed the Port Stephens Council Resilience Fund to guide decision making in relation to the use of excess non-rate revenue for Council. Council endorsed the formation of this fund in October 2021.
The overall aim of the Resilience Fund is to ensure that the use of excess non-rate revenue is directed towards significant projects, investments or initiatives to achieve the strategies of Council. Over time, it is envisaged this fund will help position Council to deliver significant projects and initiatives for the community.
Port Stephens Council invests in and maintains a strong property portfolio. These property investments provide both capital growth and an alternate revenue stream outside of rates and fees and charges.
Councils’ property portfolio includes investment in Port Stephens and Newcastle.
The sale of income producing assets occurs when there are changes in market conditions. For example, rental returns from a particular property may be reduced or, when new opportunities present a better return on investment.
When we sell income producing assets, we make sure we reinvested profits into another income producing investment via our Property Restricted Asset Fund. This ensures that Council continues to receive a revenue stream from this asset over time
If funds from the property sale were directed straight to our general revenue, there would be a negative impact on Councils ongoing operating revenue.
These property assets are in important element the delivery of important services across Port Stephens.
The size of the rates pie (total rates income) is constrained by the rate cap, which is set by IPART. Every three years, when Council receives the land revaluations from the NSW Valuer General, Council adjusts the Ad Valorem or “cents in the dollar” amount shown on the rate notice to ensure that our rates pie does not exceed the rate cap increase. Put simply the pie does not get any bigger than the rate cap allows for, however, residents' piece of the pie may change based on their new land value in comparison to others in the area.
July/August 2022: Council is opening the conversation with the community to inform the community about Council’s financial position and provide options to the community that creates a financially sustainable Council.
August/September 2022: Council will consider the engagement results and come to a selected path forward. In which this path forward will be set out in Council’s strategic plans.
September/October 2022: Council will put those strategic plans out on public exhibition and seek further input from the community.
Late October 2022: Council will consider all submissions and adopt the plans, resolving their intent to apply to IPART.
February 2023: Council will submit its application and IPART will publish the application on their website and open for community consultation.
April 2023: IPART will consider the application put forward by Council under the criteria and guidelines as well as all community submissions.
May 2023: IPART will advise Council of its determination.
1 July 2023: If successful the rate increase will come into effect from the 1st July.
Council will be required to report back to IPART annually regarding its use of additional SVR funds.