Long Term Financial Plan December 2013 Page 2

Transcription

1 Long Term Financial Plan December 2013 Page 1

2 Asset data used in this plan is based on information presented to Council in November Other financial data is based on the 2012/13 Annual Accounts and 2013/14 Operational Plan adopted 13 May Long Term Financial Plan December 2013 Page 2

3 CONTENTS PAGE 1. INTRODUCTION Objectives Integration Resourcing Strategy Snap Shot Structure and Method Current Financial Summary 8 2. PLANNING ASSUMPTIONS 8 3. CASE DEVELOPMENT & SCENARIO Base Case (Case 1) Sustainable Service Case (Case 2) 14 Case2 Financial Projection & Outcome (Scenario A without SRV application) 14 Case2 - Financial Projection & Outcome (Scenario B with SRV application) Snapshot of Financial Position from all Cases and Scenarios Non-Funded Potential Future Projects (Community Aspirational Program) FINANCIAL PERFORMANCE (FINANCIAL KPIs) RISK ANALYSIS SENSITIVITY TESTING CONCLUSION APPENDICES INTRODUCTION Long Term Financial Plan December 2013 Page 3

4 The introduction of the Integrated Planning and Reporting reforms by State Parliament, requires all NSW Council s to plan and adopt a strong sustainability focus (including financial sustainability) with a minimum 10 year strategic planning framework relative to their local community areas and the activities of their Councils. In the context of these reforms, Council has developed its Resourcing Strategy. While our Community Strategic Plan (CSP) provides the community an avenue via which they can express their aspirations and priorities for the future of the City, the Resourcing Strategy identifies what is needed in terms of resources to meet these outcomes. In short, the Resourcing Strategy looks at the assets, funding, time and people required to turn our aspirations into reality. The Long Term Financial Plan (LTFP) is one of three components that together are Council s Resourcing Strategy. The remaining two components are our Asset Management Strategy (and Plans) and our Workforce Strategy. This LTFP has been developed through financial modelling and with input from key management and staff. The aim is to structure a fully integrated and consulted plan that demonstrates the financial impacts of providing different levels of service, new and renewal of assets together with the implications on Council finances. The Plan also considers alternate funding sources - such as user fees and charges, grants and rates - in the short, medium and long term. The LTFP outlines the coming 14 years forecast and projects Council future s financial performance. The Plan also presents key financial indicators and strategies for Council to make sound decisions in meeting its financial sustainability challenge over The LTFP has been updated with 2012/13 Actuals, revised economic data and asset management projections based on extensive community engagement during 2012/13 and 2013/ Objectives The objectives of this plan are to: Provide a transparent account of Council s financial situation to the community, Identify the financial risks and opportunities confronting Council - both short and long term, Identify alternative revenue options to maintain the existing service levels to the community, Maintain a balanced budget and be financially viable over the long term, Demonstrate a mixture of financial outcomes through testing the sensitivity of key assumptions, Incorporate the financial effects from Council s other strategic plans, Provide an early warning of potential hazards to Council s financial sustainability, Provide a basis for Council to make sound strategic decisions that best serve the community s interests, and Meet the requirements of the Division of Local Government s (DLG) Integrated Planning & Reporting (IP&R) framework Integration The LTFP is guided by the Council s Community Strategic Plan, the Willoughby City Strategy together towards tomorrow (2010 to 2025). It also draws information from the actions and projects identified in Council s Delivery Program and the Annual Operational Plan. The LTFP is also integrated with the Workforce Plan and Asset Management Plan. It integrates these components through consideration of activities that might have a financial impact on Council for example: future staffing levels, training and development needs, maintenance programs for infrastructure and levels of service. All of these have been progressively considered in the development of the LTFP. As these community and corporate plans and policies are reviewed including community consultations, so too will the LTFP to ensure an on-going synergy. Long Term Financial Plan December 2013 Page 4

5 Local Government Planning and Reporting framework 1.3. Resourcing Strategy Snapshot Long Term Financial Plan (LTFP) Willoughby City Council s Long Term Financial Plan (LTFP G3) covers the remaining 12 years of the 14 year time frame from 2011/12 to 2024/25. This LTFP examines financial sustainability through the use of Council s forecast for the coming 12 years and outlines financial outcomes and financial indicators with the aim of ensuring Council can meet its financial challenge over The financial modelling also includes measures for productivity improvement and cost efficiencies without compromising current service levels and income maximisation, together with key financial statements and financial performance indicators. Sensitivity analysis against various scenario options is also provided. The sensitivity testing results are guides to assist Council to assess its financial risks and opportunities and help to make informed decisions about future operations, services and asset expenditures. Long-term modelling and planning is difficult; it relies on a variety of dynamic assumptions that will undoubtedly change during the Plan period. The LTFP will therefore be reviewed regularly and updated annually with the development of the Operational Plan and the completion of annual Financial Statements. Workforce Planning The Workforce Plan identifies current and future staffing needs as well as how we might retain current employees, attract new ones and ensure that these employees are appropriately supported in their professional development. Council s key strategies in human resources are to deliver a fair and harmonious working environment as well as maintaining the right level of skilled staff for now and the future. The Workforce Plan has an impact on the LTFP in so far as a significant portion of Council s operating budget is allocated to funding its labour force. There are some costs involved with the current strategies but they will be covered by Human Resources normal operating budget. Some of the strategies contained within the Workforce Plan involve researching future options and include items such as salary benchmarking. This information will be used to adjust the LTFP once it becomes available. Asset Management Plan In order to provide various services to the community, Willoughby Council is responsible for a vast pool of assets and is therefore faced with the challenge of funding their management in the most efficient way possible. Long Term Financial Plan December 2013 Page 5

6 Limited funding, community wants and legislative changes mean that Council needs to review its asset management practices and devise a strategy for their continuous improvement. Asset management refers to many activities that are already undertaken within Council, such as road pavement maintenance, park landscaping and the provision of high-need services such as cultural centres. Asset management, therefore, is not a new concept but rather something that has been undertaken implicitly for as long as services have been provided by Council. Improvement in asset management involves formalising the knowledge about asset performance, maintenance levels and community expectations in order to optimise both expenditure and service provision over a much longer time scale. This long term planning requires much more detail about assets and their related services than has previously been available. In 2009, Council adopted its first Asset Management Policy, which provided a framework for managing its large portfolio of assets. Asset Management Plans (AMPs) were first drafted at the end of 2010 using a first generation (G1), top-down approach based on the best information available at the time. Sample data and network averages were used where detailed asset inventories or condition data were not available. Second generation (G2) plans were drafted in early 2012 based on (with the exception of open space assets) a bottomup approach. Detailed inventories of asset dimensions, expected lives, degradation patterns and condition data were combined with proposed definitions for acceptable levels of service within each asset class to produce long term models of asset renewal. The impact of a range of budget scenarios on long-term asset condition was presented to Councillors in February 2012 and current gaps in asset expenditure were identified. These financial scenarios have formed the basis for the additional asset-related funding identified in this long term financial plan. More detail can be found on this modelling under the assumptions for each set of financial projections. The Asset Management Improvement Strategy was adopted in June 2012, establishing an action plan to achieve strategic, ongoing improvement of asset management practices throughout the organisation in order to address the gaps identified in asset-related expenditure and service provision over the long term. The action plan included tasks ranging from data collection and system implementation through to community consultation and improvements in business processes including planning for and recording new works, allocation of budgets and methods of prioritisation. Resourcing implications for these improvements have also been identified. The audited 2012/2013 Financial Accounts include amended Asset Valuations for a number of asset classes together with a specific schedule which provides the community with a condition rating for each asset class together with an annual funding gap. There is also an estimated one off cost needed to be spent to bring all assets to a deemed acceptable level. It should be noted that this figure reduced from $42.6M in 2012 to $28.3M in This was largely based on staff re-evaluating asset condition criteria and useful lives in line with community expectations. The second phase of the engagement sought more structured feedback around expectations and levels of satisfaction. A Citizens Panel, attended by up to 40 volunteers, met over several weekends, saw presentations from Council staff, completed detailed surveys based on their informed positions and worked through a number of exercises before presenting a report of their findings, An eye to the future to Council in August A wider survey about community assets, requiring less background knowledge, was completed by 128 community members. Long Term Financial Plan December 2013 Page 6

7 1.4. Structure & Method Council s LTFP Gen 3 covers the remaining 12 years of the 14 year timeframe from 2013/14 to 2024/2025 (plus Actual 2012/13). It is consistent with IP&R framework requirements and assessing Council s short, medium and long term financial viability. It will be reviewed annually and used as a tool in assisting with the development of Council s annual budget, delivery program and any special rate variation applications. The LTFP is structured into 2 financial cases - Base case (Case1) - Sustainable Service case (Case 2A) (Case 2B) Each case incorporates a range of assumptions and shows a specific financial outcome. The Sustainable Service case introduces increased revenues to fund additional infrastructure works. A separate section lists the community aspirational projects from the Community Strategic Plan (CSP) and outlines any potential long-term financial implications. Base case Case1 Sustainable Service case Case2 Community Aspirational Projects Non-Funded Potential Future This case represents business This case is built on Case 1 but This section represents all the as usual, a continuing of current and previous operations. It includes some constraints such as utilisation of Reserves to fund some of the capital expenditure incorporates the additional funding required to maintain existing service levels and planned infrastructural assets in good condition. This case also examines the key financial indicators in two situations: community in aspired initiatives from WCS where an independent financial assessment is calculated and tabled away from the financial modelling. Community can assess its affordability to proceed with these projects. initiatives and with limited without additional revenues (2A) budgets addressing the infrastructural renewal level. Based on this case funding model, Council asset base is deemed unsustainable. with additional revenues (2B) Data model used: /13 Actuals /14 Forecast Budget - Some measure of productivity improvement and cost efficiencies without compromising current service levels and income maximisation. Data model used: - Case 1 - AMP G3 financial data (the funding gap portion). Data model used: - None of Case1 and Case2 - AMP G3 New/Upgrade Projects (projects that do not have business plan and are yet to be reported to Council). Since the life of this plan covers a 14 year period, any unexpected changes may have an impact on the Council s future financial viability. The LTFP model contains a number of key assumptions which are used in the sensitivity analysis testing to demonstrate the financial implications of movements in advance. Long Term Financial Plan December 2013 Page 7

8 1.5. Current Financial Summary Council adopted its 2013/14 budget in May The chart below illustrates the major distribution of the income source basis. 2. PLANNING ASSUMPTIONS Population growth in Willoughby In 2013, it is estimated Willoughby City s population is 71,959 (.id Profile). It is predicted that the City s population will increase to 80,032 by 2025 and 82,033 by 2031, representing an average 0.61% annual growth rate. The increase is mostly driven by significant apartment construction in the Chatswood CBD and in St Leonards, as well as intensification of existing residential areas, most notably in Chatswood, Artarmon and Naremburn. Based on the projected population growth, Council has taken a conservative view for rate revenue growth and has assumed a 0.1% increase for each year of this plan with the exception in year 2013/14 which an extra 1% included due to additional residential developments due for completion. Economic growth & Inflation In the recent forecast of Australia s Economic Outlook, prepared by TCORP, GDP is projected to grow at around 3% until 2014 then increase to 3.3% in 2023 with unemployment increasing to 6% in 2014 before falling to 5.25% in December With these predictions from TCorp, in our opinion, the local economic outlook indicates CPI inflation will stay between 2.5% and 3%. Council proposes to use the following as guide in the LTFP model. Long Term Financial Plan December 2013 Page 8

9 Tabled below is the CPI inflation rate from Forecast Year CPI * 2.5% 3% 3% 3% 3% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% Council applied CPI 0% 3% 3% 3% 3% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% The more variation there is between the CPI and the rate peg increase determined by IPART (especially where the CPI rate is higher than the % rates increase) the more significant implications there are for Willoughby s long term financial outlook. General assumptions: Following are a series of assumptions adjusted for inflation to year 2024/25 as used in the modelling. Rates pegged at 2.3% for 2014/15 and 3.0% thereafter. Statutory Fees and Fines increase by 3% in 2014/2015 and CPI rate each year thereafter. Other Fees & Charges increase by 3.0% to 2017/2018 and 2.75% thereafter. Rental Income increase by 3.5% in 2014/2015 and thereafter. Paid Parking income (excluding The Concourse s Car Park) will increase by 4% from 2014/2015 onwards. An additional $200K is included in 2016/17 to reflect the introducing of additional car park facility. Operating Grants and Contributions increase by 3% to 2017/2018 reducing to 2.75% thereafter, except specially funded projects. Domestic Waste Management charge increase by 8% from 2014/15, 7% from 2020/21. Employee costs are forecast to increase by 4% from 2014/2015 for each year, this being 3.25% for award increase and 0.75% for performance increases. Materials & Contracts generally increase by CPI. Plant & Equipment and Library books purchase increase CPI. Fire levy increase by 10% every year. Past history shows the levy amounted to around 10% annual increase. Utilities cost increases by 15% to 2017/18 and decrease to 12% thereafter. Garbage disposal increase by 8% until 2020/21 and 7.2% each year thereafter. Please note a snapshot of general assumption escalation rates is located in Appendix 2. Other assumptions underpinning the LTFP & Commentary: Service Delivery Level Whilst current funding appears to be sufficient to maintain some classes of assets at a level that is deemed acceptable by Council, such as footpaths and road pavements, long term analysis of degradation rates and expenditure has revealed a considerable funding gap for many other classes. Some minor adjustments could be made to Council s current funding distribution to minimise the impact on high risk groups of assets at the expense of other, low risk, assets; however a significant funding gap exists that will continue to grow over the long term if total expenditure is not increased or some services reduced. Under the current funding model Council s asset base is deemed unsustainable. It has therefore been decided to present the long term effects on Council s asset base (and therefore ability to provide services to the community) of maintaining the current level of expenditure. It has been assumed for this Base case projection that budgets for asset maintenance, renewal and new works will be consistent with current trends except for inflation. A model was created where all individual asset renewals (at the component level wherever possible) were scheduled according to their current condition, expected life and rate of degradation. Long Term Financial Plan December 2013 Page 9

10 The required treatments could only be carried out if the allocated budget for each given year allowed for it. As such, a backlog of renewal works that could not be carried out built up for many of the asset classes, and the decline in overall asset stock condition could be seen over time. A further backlog in maintenance, in addition to the renewal backlog described above, is likely to grow over time if funding remains unchanged, since all new works result in larger or more numerous assets that require maintenance. Any capital projects (acquisition/creation of new assets or upgrade/expansion of existing assets) that either have not yet been formalised or are over and above current trends in capital expenditure have not been included in this case but in the section Non-funded Potential Future Project - Community Aspirational Programme" and are discussed later in this plan. For this base case, therefore, no attempt has been made to meet a defined level of service delivery, unlike the Sustainable Service case. Rather, the impact of a constrained budget on service delivery has been demonstrated using, where available, condition rating data to determine maintenance frequency. Where unavailable (i.e. for open space and drainage assets) an estimated renewal frequency has been provided. It should be noted that for a select number of the second generation asset management plans, for example Buildings, renewal modelling was carried out purely to demonstrate the effect of current expenditure levels on long-term asset condition. Since renewal works can be distributed throughout several areas of Council s budgets, it is unlikely that the total amount used in renewal modelling will correspond directly to any single figure in current or future budgets. The amount used, however, certainly reflects true expenditure on asset renewal and is therefore the only appropriate amount that can be applied to physical degradation models. This apparent discrepancy will remain until either a restructure of Council s Operational Plan and budgets take place, or Council s asset management system is fully implemented. It does not, however, preclude the accurate identification of a funding gap for renewal works. Ordinary Rates and Annual Charges Rates & Annual Charges are Council s predominant source of annual income contributing 47.3% (Rates 36.6% DWM Charges 10.7%) of total Operating Income in 2012/13. Rate pegging legislation has limited Council s ability to raise the necessary income to maintain levels of services and infrastructure. The increase is to be capped at 2.3% with increases forecast at 3.0% over the remainder of the plan. Rate increases less than inflation effectively decrease Council s ability to maintain current service delivery levels. Interest and Investment Revenue Investments will be made in accordance with Council s Investment Policy. Investment returns have been applied at an average of 4% every year in this plan. Council s investment revenue is forecast at between $2M and $3M. However, it will be significantly eroded if Council proceeds to maintain its current service levels as demonstrated in the Sustainable Service case without additional revenue. Grants and Contributions S.94 Contributions The model predicates income of $4M in 2013/14 reducing to approximately $2M annually over its remaining life. It should be noted that the S94 reserve is the funding source of a $15M loan scheduled to be repaid by 2017/18. User Charges and Fees With 16.5% of revenue coming from User Charges and Fees, Council needs to ensure services continue, where possible, to be provided on a "user pay" basis. The LTFP includes, where possible, an increase in fee revenue that reflects the increasing costs of service provision, the increasing volume of patronage based on usage projections whilst continuing to remain competitive with other service providers. Council reviews its Fees and Charges on an annual basis. However statutory fees are regulated by the State government e.g. planning fees. Pricing is based on cost recovery or specified in the regulations. Based on past trends Council uses CPI rate for this plan. Non-regulatory fees & charges are also forecast at a 3.5% increase every year in this plan. Pricing is assessed based on numerous factors in order to optimise revenue, these include - inflation costs, Long Term Financial Plan December 2013 Page 10

11 administration and overhead costs. Council is aware that the impact of increasing fees is unpopular with the community. Therefore, the objective of our fee increase is purely focused on cost recovery so as to ensure the financial sustainability of Council. Please note some fees are not based on full recovery of costs (e.g. Children Services/Performing Arts). The Concourse Car Park - Council envisages occupancy will increase and forecasts a 10% increase from 2013/14 to 2019/20 (taking the income over $500K and up to $1,160K) and 4% thereafter. Other Revenues Other Revenues amounting to 17% of Operating Revenue is mostly generated from rental income from the lease of Council properties. The rental income is forecast to increase by 3.5% in 2014/15 thereafter. Council has recently contracted for advertising within the City which will generate additional income of $680K in 2014/2015 and $1.36M indexed each year following. Expenditures Employee costs Employee costs are usually determined as part of annual Enterprise Bargaining Agreement (EBA) between the LGNSW representing Council and relevant unions. The plan has forecast a 4.0% increase every year which allows for award increase and between 0.25% % for regrading. A total of FTE is budgeted in 2013/14 With direct employee costs representing 46% of the total Operating Expenditure (excl. depreciation), this plan has been prepared to incorporate Council's first Workforce Plan (WFP). The WFP has been developed to consider the current and future workforce challenges such as staff retention and the skills employees need to meet our key objectives. Council will have to address these challenges and potential additional percentage increases are included in the Sensitivity Testing section. Employee superannuation guarantee expenses also increased in line with employee costs with the increase from 9% to 12% in 2019/20. Materials & Contracts Materials and Contracts are forecast with CPI increases except: - In 2013/14 most untied materials & contracts are forecast at between 0% to 1% as part of Council s productivity improvement & cost efficiencies initiative. CPI increase is forecast every year after. Borrowings costs All Council borrowings costs are included in the model. Other Operating expenses - Most items within operating expenses are forecast with a CPI rate increase. Reserves Council reserves remain sound due to prudent financial control. However, should the Council determine to introduce new initiatives and projects without identified income sources it will have a negative impact on the level of Reserves. At June 2013 Council s Externally and Internally Restricted Reserves totalled $47.2M At June 2025, the model predicts that this figure will approximate $72.8M largely resultant upon funding levels of $4.861M Domestic Waste, potentially for Council s contribution to a regional waste facility, $20.6M Regency Reserve, $24.1M The Concourse Reserve principally for asset renewal and $11.6M Section 94/A for provision of community facilities. Future updates of the LTFP will provide more specific timetabling of expenditure initiatives from these reserves. Long Term Financial Plan December 2013 Page 11

12 Local Government Election Expenses The State Government charges Council for the cost of running the local council election every four years. $305K was spent in 2012/13 and has been compounded with the CPI increases for future elections. $50K is provided in the 2013/14 budget for transfer to the Election Reserve to lessen the impact of the cost of the next election in The Concourse (included in above expenditure items) The Concourse s net surplus is forecast to transfer back to The Concourse Reserve for future asset renewal and debt repayment. Council s Priority Improvement Program (PIP) Capital & Non-Capital Works Council s PIP (includes Capital and Non-Capital projects) expenditures and funding are based on the 4 year PIP projection as determined from the Delivery Plan and increased by 3% from 2018/19. The scheduled capital works also contain some projects associated with Council s Asset Management Plan. A snapshot of Council s capital PIP projections is illustrated below. CAPITAL PRIORITY IMPROVEMENT PROGRAM SUMMARY 2014/ / / / / / / / / / /2025 Buildings $ 3,196,000 $ 2,018,000 $ 2,259,940 $ 2,101,140 $ 2,164,174 $ 2,229,099 $ 2,295,972 $ 2,364,852 $ 2,435,797 $ 2,508,871 $ 2,584,137 Library Stock $ 450,707 $ 464,229 $ 478,155 $ 492,500 $ 207,275 $ 522,493 $ 538,168 $ 554,313 $ 570,943 $ 588,071 $ 605,713 Bridges $ 50,000 $ 50,000 $ 51,500 $ 53,050 $ 54,642 $ 56,281 $ 57,969 $ 59,708 $ 61,499 $ 63,344 $ 65,245 Stormwater Drainage $ 1,263,700 $ 453,740 $ 598,700 $ 718,400 $ 724,490 $ 730,817 $ 737,390 $ 744,215 $ 1,018,935 $ 1,030,843 $ 1,043,109 Furniture & Fittings $ 75,614 $ 46,382 $ 47,174 $ 47,989 $ 49,429 $ 50,912 $ 52,439 $ 54,012 $ 55,633 $ 57,302 $ 59,021 Foothpaths $ 340,000 $ 340,000 $ 346,300 $ 352,790 $ 363,374 $ 374,275 $ 385,503 $ 397,068 $ 408,980 $ 421,250 $ 433,887 Kerb & Gutter $ 229,000 $ 250,000 $ 256,750 $ 263,697 $ 271,608 $ 279,756 $ 288,149 $ 296,793 $ 305,697 $ 314,868 $ 324,314 Office Equipment $ 159,800 $ 20,000 $ 20,600 $ 21,220 $ 21,857 $ 22,512 $ 23,188 $ 23,883 $ 24,600 $ 25,338 $ 26,098 Other Assets $ 30,000 $ 80,000 $ 83,000 $ 86,090 $ 88,673 $ 91,333 $ 94,073 $ 96,895 $ 99,802 $ 102,796 $ 105,880 Other Structures $ 308,659 $ 314,069 $ 319,941 $ 329,535 $ 339,421 $ 349,604 $ 360,092 $ 370,895 $ 382,022 $ 393,482 $ 405,287 Plant & Equipment $ 1,224,398 $ 900,630 $ 927,649 $ 955,478 $ 984,143 $ 1,013,667 $ 1,044,077 $ 1,075,399 $ 1,107,661 $ 1,140,891 $ 1,175,118 Sporting Grounds/Parks $ 770,000 $ 765,000 $ 828,500 $ 862,010 $ 887,870 $ 914,506 $ 941,942 $ 970,200 $ 999,306 $ 1,029,285 $ 1,060,164 Playgrounds $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 51,500 $ 53,045 $ 54,636 $ 56,275 $ 57,964 $ 59,703 $ 61,494 Roads $ 1,967,100 $ 1,976,600 $ 2,026,900 $ 2,078,710 $ 2,141,071 $ 2,205,303 $ 2,271,463 $ 2,339,606 $ 2,409,795 $ 2,482,088 $ 2,556,551 $ 10,114,978 $ 7,728,650 $ 8,295,109 $ 8,412,609 $ 8,349,527 $ 8,893,603 $ 9,145,061 $ 9,404,114 $ 9,938,634 $ 10,218,132 $ 10,506,018 Long Term Financial Plan December 2013 Page 12

13 Debt Redemption The following Table provides a snapshot of Council s debt levels over the life of the Model. Some major planned expenditure in this LTFP Non-Capital Expenditures: Re-write corporate financial system chart of accounts to reflect the organisations current structure, $500,000 (2014/15 to 2016/17). Capital Works expenditures: The Incinerator Facilities (12/13 15/16) Tri-Gen at The Concourse (14/15) Solar farm in Westfield Car park Stage 3-15/16 Works identified in strategic property review commencing 15/16 Willoughby Park Buildings Master plan construction (14/15) Parking meter upgrades (EMV compliance) (13/14 14/15) 3. CASE DEVELOPMENT & SCENARIO 3.1 Base Case (Case1) Financial Projection This case was developed using the current budget to forecast income and expenditure over the Plan with a series of assumptions as stated in the Planning Assumptions. It is based on current service levels and includes some constraints such as utilisation of Reserves to fund some capital expenditure initiatives. The forecast does not provide for maintaining existing infrastructure assets to a satisfactory condition or maintaining current service levels. It does, however, consider some measure of improvement in efficiencies to minimise costs and maximise revenues Financial Outcome As detailed in the Table below, between 2014/2015 and 2024/2025 the net Operating result including Capital Contributions totals a deficit of $9.11M, however, when Capital contributions are eliminated, a deficit of $33.58M is the result. As shown in Appendix 1 Base Case, the net operating result continues to gradually decline over the Plan with a deficit peaking at $5.73M (excluding capital) in 2024/25. The impact from these deficits will restrict Council s sustainability in the long-term when the assets require renewal or replacement or just sustaining the existing standard of service. In preparing the annual the Cash Budget, Council targets a balanced budget. The financial result is positive in the short term but declines to a deficit of $162K in 2016/2017 and continues to decline each year thereafter as shown in Appendix 1. Long Term Financial Plan December 2013 Page 13

14 It should also be noted as previously detailed, when the inflation rate (CPI) and other expenses increase higher than our income a wider gap between income and expenditure will result. This means Councils long term financial position will not be sustainable. Total cash holdings (below) are positive and sufficient to cover the restricted reserves until 2024/2025. This indicates Council s unrestricted cash is sufficient however, the Model suggests following 2024/2025 the unrestricted cash begins to decline and its long-term financial position is not sustainable without additional income. Council Officers would be recommending budget initiatives to address this issue. One important measure of liquidity in local government is the Unrestricted Current Ratio which measures the ability of Council to meet its current liabilities. The UCR averages around 3.7 for the life of the Model. Details of comparative UCRs can be found in Section Sustainable Service Case (Case2) The objective of this case is to address the backlog of asset works identified in our AMP. The case builds on the Base Case1 but incorporates the additional expenditure required to address the backlog of works to maintain existing service standards and achieve a satisfactory condition for our assets. Since renewal works can be distributed throughout several areas of Council s budgets, it is unlikely that the total amount used in renewal modelling will correspond directly to any single figure in current or future budgets. The amount used, however, certainly reflects true expenditure on asset renewal and is therefore the appropriate amount to be applied to the model. This apparent discrepancy will remain until either a restructure of Council s Operational Plan and budgets take place, or Council s asset management system is fully implemented. Case2 - Financial Projection and Outcome (Scenario A - without SRV application) Financial Projection: Assumption underpinning this case Service Delivery Level The asset renewal modelling described under the Base Case scenario was repeated in this Sustainable Service case to determine the additional funds required to meet a level of service defined as acceptable by Council. The definition of acceptable varies between, and even within, asset classes. For example, total renewal of the fit-out component of buildings should occur when the asset degrades to a condition 4 (on a 0-5 condition scale where zero is brand new), whereas high risk building components such as roofs or fire systems would be renewed at condition three. Asset types, materials and hierarchies might cause variations in intervention points for each asset class. Individual asset management plans should be consulted for further details. Balanced with the asset renewal / maintenance plans is the level of service. The level of service has been estimated by Council based on experience in service provision and input from the formal community consultation with a Community Panel. Long Term Financial Plan December 2013 Page 14

15 As with the Base Case, any capital projects that have not yet been formalised and are over and above current trends in capital expenditure have not been included in this case. However, maintenance expenditure resulting from those capital projects that are included have been identified. This was achieved using the present maintenance expenditure expressed as a proportion of the current total value of the asset stock, and applying that proportion to all increases in asset stock. New and upgrade works are expected to increase renewal costs over the long term as well, however this is unlikely to have an impact during the forecast period for most asset classes and can therefore be discounted in the short term. The long term financial plan under a sustainable service delivery case was therefore directly informed by the gaps identified in each asset management plan for renewal and maintenance expenditure, following input from the Community Panel. Hypothetical new and upgrade capital projects not addressed under the Base Case or Sustainable Service Case are listed individually along with their expected financial impact in the Aspirational section. Further life cycle costing on these potential projects has yet to be undertaken, so the estimates may be conservative The following points should be noted:- Infrastructure asset funding required to improve asset to a satisfactory condition and sustain the current standard of service level is based on information supplied. The costing is based on achieving an average asset condition of satisfactory for all asset classes in a 20 year period. A 3% CPI increase each year has been applied in AMP costing. Maintenance and renewal works will be undertaken as per the Council s Asset Management Strategy. The Table below provides a summary of funds required over the life of the model for each asset category (the Sustainable Case). SUSTAINABLE CASE 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 23/24 24/25 ASSET CATEGORY FOOTPATH $ 2,179,411 $ 2,190,659 $ 2,146,978 $ 1,983,572 $ 1,983,645 $ 2,043,154 $ 2,104,450 $ 2,167,582 $ 2,232,610 $ 2,299,588 $ 2,368,576 KERB & GUTTER $ 613,359 $ 396,329 $ 423,098 $ 513,611 $ 464,670 $ 543,496 $ 476,195 $ 520,677 $ 505,196 $ 713,929 $ 673,838 BRIDGES $ 358,139 $ 231,868 $ 261,695 $ 342,260 $ 288,486 $ 220,004 $ 245,087 $ 57,969 $ 202,318 $ 174,610 $ 207,749 STORMWATER DRAINAGE $ 3,399,902 $ 3,074,498 $ 3,035,198 $ 3,482,779 $ 3,083,004 $ 2,911,453 $ 3,209,049 $ 3,824,424 $ 3,869,433 $ 3,324,487 $ 3,534,534 ROAD PAVEMENT $ 3,405,314 $ 3,739,388 $ 3,800,493 $ 3,905,515 $ 4,013,676 $ 4,133,907 $ 4,258,110 $ 4,385,852 $ 4,517,429 $ 4,652,951 $ 4,792,539 PARKS $ 2,788,075 $ 2,636,461 $ 2,667,296 $ 2,196,202 $ 2,923,260 $ 2,617,210 $ 2,869,343 $ 2,421,462 $ 3,401,509 $ 3,022,448 $ 2,782,478 PLAYGROUNDS $ 650,466 $ 462,755 $ 300,067 $ 321,893 $ 439,307 $ 532,630 $ 731,420 $ 493,577 $ 773,158 $ 615,779 $ 621,066 SPORTING FIELDS $ 2,104,426 $ 2,637,180 $ 2,780,488 $ 2,852,462 $ 3,088,268 $ 3,325,045 $ 3,623,742 $ 3,754,327 $ 3,364,212 $ 3,442,305 $ 4,217,509 GENERAL BUILDINGS $ 8,890,695 $ 8,950,854 $ 8,574,141 $ 8,435,614 $ 9,928,385 $ 10,124,012 $ 10,411,007 $ 10,634,315 $ 13,686,414 $ 10,055,269 $ 10,115,600 CONCOURSE BUILDINGS $ 2,082,501 $ 1,908,076 $ 1,965,318 $ 2,024,278 $ 2,085,006 $ 2,147,556 $ 2,211,983 $ 2,278,342 $ 2,346,693 $ 2,417,094 $ 2,489,606 $ 26,472,288 $ 26,228,068 $ 25,954,772 $ 26,058,186 $ 28,297,707 $ 28,598,467 $ 30,140,386 $ 30,538,527 $ 34,898,972 $ 30,718,460 $ 31,803,495 The Asset Funding Gap This table represents the asset funding gap between the Base and Sustainable Cases. GAP 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 23/24 24/25 ASSET CATEGORY FOOTPATH $ 396,881 $ 365,153 $ 277,207 $ 57,708 $ - $ - $ - $ - $ - $ - $ - KERB & GUTTER $ 238,632 $ - $ - $ 77,819 $ 15,810 $ 81,170 $ - $ 30,196 $ - $ 193,577 $ 137,876 BRIDGES $ 208,139 $ 181,868 $ 211,695 $ 290,760 $ 235,436 $ 165,362 $ 188,806 $ - $ 142,610 $ 113,111 $ 144,405 STORMWATER DRAINAGE $ 716,246 $ 464,667 $ 1,141,331 $ 1,303,276 $ 1,115,777 $ 1,155,369 $ 1,162,942 $ 1,737,094 $ 1,739,643 $ 1,150,964 $ 1,315,964 ROAD PAVEMENT $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - PARKS $ 1,012,466 $ 967,920 $ 939,400 $ 359,151 $ 1,093,773 $ 802,323 $ 997,806 $ 486,601 $ 1,404,748 $ 952,796 $ 640,192 PLAYGROUNDS $ 313,997 $ 202,104 $ 49,814 $ 81,122 $ 130,108 $ 141,052 $ 328,219 $ 78,954 $ 346,527 $ 175,497 $ 168,041 SPORTING FIELDS $ 546,445 $ 1,116,780 $ 1,227,294 $ 1,253,876 $ 1,431,432 $ 1,621,104 $ 1,868,533 $ 1,945,039 $ 1,499,092 $ 1,521,866 $ 2,237,679 GENERAL BUILDINGS $ 757,810 $ 1,278,626 $ 1,199,511 $ 1,059,129 $ 2,352,432 $ 2,303,464 $ 2,356,043 $ 2,338,158 $ 5,140,798 $ 1,252,055 $ 1,049,012 CONCOURSE BUILDINGS $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 4,190,616 $ 4,577,118 $ 5,046,252 $ 4,482,841 $ 6,374,768 $ 6,269,844 $ 6,902,349 $ 6,616,042 $ 10,273,418 $ 5,359,866 $ 5,693,169 Long Term Financial Plan December 2013 Page 15

16 Financial Outcome As detailed in Appendix 1 for Sustainable Case 2A, between 2014/2015 and 2024/2025 the net Operating result including Capital Contributions totals a deficit of $22.77M, however, when Capital contributions are eliminated, a deficit of $47.24M is the result. The net operating result continues to gradually decline over the Plan with a deficit peaking at $8.861M (excluding capital) in 2024/25. The impact from these deficits will severely restrict Council s sustainability in the long-term maintain the existing standard of service when assets require renewal or replacement. As shown below the unrestricted cash holdings decline over the life of the model and actually shift to an overdraft position of $4.756M in 2017/2018. This indicates that Council s unrestricted cash is not sustainable without additional income or reduction in expenditure. The following table/graph show the different asset related expenditure s between Case 1 and Case 2A and the impact on Council s cash holdings position in the near, medium and long term. The Sustainable Service case results in a deteriorated financial position for the Council. In particular the Unrestricted Current Ratio reduces over the term of the Model to less than 1:1 in 2021/2022 and is in a negative position in 2023/2024. Case2 - Financial Projection and Outcome (Scenario B - with SRV application) Financial Projection: Assumption for scenario B: Council s previous LTFP Gen 2, recommended a Special Rate Variation beginning in 2014/15 of 8% followed by annual increases of 5%, 4% and 4% p.a. (in addition to yearly rate increases set by IPART assumed at 3%). This would increase the rate base by approx. $27.1M over 4 years, continuing thereafter as the increase is cumulative. In this LTFP following the latest revision of the Asset Management Plans and identification of other significant revenues, the SRV considered appropriate to fund the gap is 6%, 2.5%, 2%, 2% and 2%, above the rate peg set by IPART. Assuming the rate peg for 2014/15 is 2.3% and 3% thereafter, the estimated rate increases commencing in 2014/15 are: o 2014/15 8.3% o 2015/16 5.5% o 2016/17 5% o 2017/18 5% o 2018/19 5% The SRV is targeted at infrastructure upgrade, renewal and maintenance as set out in the Asset Management Plan (AMP). Long Term Financial Plan December 2013 Page 16

17 Financial Outcome The outcome with the SRV, together with the additional revenues identified significantly improves Council s long term financial position. The approval of another 6%/2.5%/2%/2%/2% on top of the rate peg will bring the financial results into a positive position including fully funded depreciation expense by 2021/2022. Over the life of the Model, under Case 2B, Council rates will yield an additional $70.8M above the amount generated from the Base Case. This amount will all be expended on additional maintenance, renewal and upgrade of the City s assets. As detailed in Appendix 1 for Sustainable Case 2B, between 2014/2015 and 2024/2025 the net Operating result including Capital Contributions totals a surplus of $61M, and when Capital contributions are eliminated, a surplus of $37.15M is the result. The net operating result continues to gradually increase with the additional rate revenue and is maintained once the rates are reduced to the rate peg amount. The impact from the additional revenues will set an adequate base for Council s sustainability in the long-term and assist to maintain the existing standards of service. In this scenario the rates variation commencing in 2014/15 will significantly improve Council s long-term financial sustainability. The result demonstrates the proposal for an infrastructure rate levy is an option for sustaining Council s future financial position whilst improving and maintaining assets to a satisfactory condition. Case 2B results in an improved financial position for the Council. The Unrestricted Current Ratio increases over the term of the Model to average 3.65:1. The following graph shows the Council s cash position with the SRV rate income included (Case 2B). Long Term Financial Plan December 2013 Page 17

18 3.3 Snapshot of Financial Position from all Cases and Scenarios These snapshots summarise the shortfall and the improvement of Council s financial positions ($ 000s) 2014/ / / / / / / / / / /2025 TOTAL ($'000s) Net Operating Surplus/(Deficit) Case 1 (1130) (185) (819) (771) (1274) (1920) (3360) (9114) Case 2-Scenario A (1184) (40) (376) (193) (602) (1139) (2157) (2540) (3467) (4577) (6494) (22769) Case 2-Scenario B 1,383 3,871 4,794 6,000 7,116 7,123 6,679 6,902 6,612 6,174 4,964 61,618 Net Operating Result Before Capital/(Deficit) Case 1 (3317) (2723) (1926) (1877) (2045) (2284) (2967) (2969) (3523) (4225) (5729) (33585) Case 2-Scenario A (3371) (2936) (2340) (2198) (2653) (3238) (4305) (4738) (5716) (6883) (8864) (47242) Case 2-Scenario B (803) 976 2,830 3,995 5,065 5,024 4,531 4,704 4,363 3,868 2,594 37,147 Cash Holdings Case 1 49,187 49,586 52,719 56,360 59,734 62,741 64,427 67,004 68,684 69,773 69,258 Case 2-Scenario A 47,003 43,723 41,925 39,638 35,606 30,540 23,601 16,968 8, ,223 Case 2-Scenario B 49,520 50,127 53,477 57,359 61,020 64,212 66,105 68,909 70,841 72,205 71,991 Unrestricted Current Ratio Case % 2.78% 3.61% 3.90% 4.01% 4.09% 3.91% 4.19% 4.14% 4.13% 3.95% Case 2-Scenario A 2.58% 2.32% 2.63% 2.45% 2.09% 1.70% 1.17% 0.80% 0.32% -0.19% -0.79% Case 2-Scenario B 2.75% 2.73% 3.49% 3.75% 3.84% 3.92% 3.77% 4.03% 4.00% 4.00% 3.85% Rate Revenues Case 1 42,211 43,477 44,781 46,125 47,509 48,934 50,402 51,914 53,471 55,075 56, ,626 Case 2-Scenario A 42,211 43,477 44,781 46,125 47,509 48,934 50,402 51,914 53,471 55,075 56, ,626 Case 2-Scenario B 44,686 47,144 49,501 51,977 54,575 56,212 57,898 59,635 61,424 63,267 65, ,484 All financial statements relating to all cases and scenarios are included in Appendix 1. Statements covered include: Income Statement Balance Sheet Cash Flow Statement Cash (Rates) Budget Long Term Financial Plan December 2013 Page 18

19 3.4 Non-Funded Potential Future Projects (Community Aspirational Program) Case 2B addresses the asset funding gap and the current standard of service delivery. The Asset Management Plan identified capital projects that either have yet to be formalised or are over and above current trends in capital expenditure. Listed below are the community aspirational projects from the Community Strategic Plan (CSP) including an outline of the potential long-term financial implications. It should be noted that the table is not a complete listing of these aspirational projects. To achieve these new additional community initiatives will require long-term financial support. An estimated life cycle costing and the potential extra percentage rate income required to fund any project shortfall will need to be developed. This will require consultation with the community regarding their affordability during a community engagement program. Non-funded Potential Asset Investment Proposal to Council (Community Aspirational Projects) Description Asset Class Start Year End Year Work Type Funding Source Discretionary Total work cost Borrowing Cost Maint/Service Cost Non-Discretionary Operational Cost Depreciation (Renewal) Income Opportunity Beauchamp Park / Upgrade child care facililities, meeting room & expanded changerooms. Buildings Upgrade GF $380,000 $26,600 $9,120 $3,800 $3,800 $0 $43, % Artarmon (Long Day Care) Children's Centre & Store / Demolish and Rebuild Buildings Upgrade GF $1,000,000 $70,000 $24,000 $10,000 $10,000 $0 $114, % Muston Park / Accessibility chantes to amenities block - convert to two unisex (one accessible) toilets plus storage areas & bbq. Buildings Upgrade GF $200,000 $14,000 $4,800 $2,000 $2,000 $0 $22, % Northbridge Park & Memorial Reserve/ Masterplan - Northbridge Park including demolition of all buildings and rebuilding a single facility. Stage1 & 2 Buildings Upgrade GF $5,000,000 $350,000 $120,000 $50,000 $50,000 $0 $570, % Chatswood Rotary Memorial Athletic Field/ Masterplan - Rotary athletic including updated facilities and other community uses Buildings Upgrade GF $1,000,000 $70,000 $24,000 $10,000 $10,000 $0 $114, % Willis Park / Masterplan - Willis Park and Cove Sports Club to expand recreational and social activities on site Buildings Upgrade GF $500,000 $35,000 $12,000 $5,000 $5,000 $0 $57, % Willoughby Park / Masterplan - Willoughby Park including expanded childcare, change rooms, community space and redesigned upper levels. Stage 2 & 3. Buildings Upgrade GF $500,000 $35,000 $12,000 $5,000 $5,000 $0 $57, % West Chatswood Kindergarten & Storeroom /Masterplan - would most likely involve demolition and rebuilding Buildings Upgrade GF $800,000 $56,000 $19,200 $8,000 $8,000 $0 $91, % 13 Eastern Valley Way /Masterplan, demolish ECHC and dwelling and rebuild expanded ECC Buildings Upgrade GF $600,000 $42,000 $14,400 $6,000 $6,000 $0 $68, % Willoughby Leisure Centre /Implement findings from aquatic facilities report including 50 m pool. Stage 1-15 ** Buildings New/Upgrade GF $45,000,000 $3,150,000 $1,080,000 $450,000 $450,000 -$2,000,000 $3,130, % Thomas Park /Masterplan - toilet block very old, will be part of masterplan yet to be developed Buildings Upgrade GF $400,000 $28,000 $9,600 $4,000 $4,000 $0 $45, % Artarmon Reserve /Upgrade amenities Buildings Upgrade GF $200,000 $14,000 $4,800 $2,000 $2,000 $0 $22, % Gore Hill Park/ Fitout for indoor recreational facility which is likely to be gifted to Council between (Steven to confirm) Buildings New/Upgrade NA $0 $0 $0 $0 $0 $0 0.00% Unknown Oval / Synthetic turf1 Sportground New/Upgrade GF $1,000,000 $70,000 $70,000 $10,000 $20,000 $0 $170, % Willis Park / Hard court conversion -1 Sportground New/Upgrade GF $150,000 $10,500 $10,500 $1,500 $3,000 -$5,000 $20, % Willis Park / Hard court conversion -2 Sportground New/Upgrade GF $150,000 $10,500 $10,500 $1,500 $3,000 -$6,000 $19, % Bi- centennial baseball diamond / Install lighting at un-lit fields - site 1 Sportground New GF $300,000 $21,000 $21,000 $3,000 $6,000 -$2,016 $48, % Total Annual Cost % Rate Revenue Long Term Financial Plan December 2013 Page 19.