Agenda of Council - 31 October 2012

Council 31 October 2012 Item 8.1

8.1. DA 2012.149: Use of Bermagui Surf Life Saving Club as a Reception Establishment

Group Manager Planning & Environment

Applicant	Bermagui Surf Life Saving Club
Owner	Department of Primary Industries (Catchments & Lands)
Site	Lot 7305 DP 1128706 and Lot 7034 DP 1118743 within Dickinson Reserve 83225, off Lamont Street, Bermagui
Zone	6(a) Existing Open Space
Site area	5.4ha
Proposed development	Use of Bermagui Surf Life Saving Club as a Reception Establishment

Precis

Council is in receipt of a development application seeking consent for the use of the Bermagui Surf Club building (a Community Facility) as a Reception Establishment under the provisions of Clause 71 of Bega Valley Local Environmental Plan 2002 (BVLEP 2002).

The application is reported to Council for determination due to the broader issues raised with the proposed use of a Community Facility as a reception establishment, catering for private functions.

Objections to the proposal were received during public exhibition.

The proposal is recommended for approval.

Background

In May 2007 Council consented to the construction of the Surf Life Saving Club building within Dickinson Reserve, Bermagui. Construction of the building commenced in January 2009 and Interim Occupancy was issued on 25 May 2012. There are a number of matters that remain outstanding for the Final Occupation Certificate, and these matters are being actively attended to by the Club.

Description of the proposal

Consent is sought for the building to be used as a Reception Establishment for up to 18 times per year. The applicant originally sought approval for up to 28 days per year but this was reduced to 18 during the assessment of the application. The proposal would require upgrading of the existing kitchen to a commercial grade suitable for catering purposes. It is also proposed to install a bar area at the eastern end of the hall. The application proposes hours of operation up until 12.30am, with service of alcohol to cease at 11.30pm (as per the Club’s current liquor licence) and music to cease at 11.40pm. The maximum number of patrons is proposed at 120 persons for seated functions and 200 persons for cocktail functions.

A copy of the submitted development plan is provided as Attachment 1.

Description of the site

The surf club building is located within Dickinson Park Reserve, immediately adjacent to the existing amenities block. The Reserve is bounded by Horseshoe Bay to the north, the Lamont Street business precinct to the south-east and the oval facilities to the south and south-west.

A locality plan is provided as Attachment 2.

Planning assessment

The proposal has been assessed in accordance with the Matters for Consideration under Section 79C of the Environmental Planning and Assessment Act 1979. Staff highlight the key issues of the proposal in this report for Council’s consideration.

A copy of the assessing officer’s Section 79C assessment will be available at the meeting.

Zoning

Bega Valley Local Environmental Plan 2002

The subject land is zoned 6(a) Existing Open Space under the provisions of BVLEP 2002. The proposed use is defined as a Reception Establishment, which means;

A building or place used for the purpose of wedding receptions, birthday parties and the like where admission is by private invitation, but does not include a refreshment room or hotel.

Reception Establishments are prohibited in the 6(a) zone. The applicant has requested the proposed use be considered in accordance with Clause 71 of BVLEP 2002, under the provisions of temporary use of land. Clause 71 states:

“71 Temporary use of land

Despite any other provision of this plan, consent may be granted to the carrying out of development for the purpose of a street stall or carnival or to other temporary development in any zone for a maximum period of 28 days, whether consecutive or not consecutive, in any one year.“

This issue will be discussed later in this report.

Notwithstanding the land use being prohibited in the zone, the objectives of the zone are relevant and must be considered in the determination of the application.

The objectives of the 6(a) zone are as follows;

(a) to recognise the importance of land in the zone as open space and allow a limited range of uses compatible with the keeping of the land as open space and in public ownership,

(b) to permit a range of uses, especially recreational uses, where those uses comply with the plan of management of the land,

For the purpose of Clause 8(3) and 38(2) of BVLEP 2002, the proposed use of the Surf Club building as a Reception Establishment to enable wedding receptions, birthday parties and the like, is considered to be consistent with the objectives of the 6(a) zone.

The proposed use provides an additional income source for the Club to maintain the Surf Club building and secure its continued primary function as a Community Facility, being for the physical, social, cultural, economic or intellectual development or welfare of the local community.

The proposed use is not expected to conflict or take away from the main use of the reserve, being for passive and active recreation. Most of the proposed private functions to be conducted at the Surf Club building would occur in the evening, when the public use of the reserve is limited. The proposed reception establishment would allow for either the Surf Club building to be hired to private caterers to come in and use the kitchen facilities to service a function, or allow the Surf Club Committee to provide catering to functions, at a fee.

It is considered that the proposal complies with the applicable plan of management (see later discussion of issues).

It is considered that the proposal would not reduce the environmental significance of the Reserve setting and surrounds.

Draft Bega Valley Local Environmental Plan 2012

The subject site is proposed to be zoned RE1 Public Recreation under Draft Bega Valley Local Environmental Plan 2012 (Draft BVLEP 2012). The proposed land use would be defined as a Function Centre under the Standard Instrument definitions, which means;

A building or place used for the holding of events, functions, conferences and the like, and includes convention centres, exhibition centres and receptions centres, but does not include an entertainment facility.

Function Centres would be prohibited in the RE1 zone. Notwithstanding, consideration of a temporary use can be made under Clause 2.8 of Draft BVLEP 2012. This matter is discussed in more detailed later in this report.

The objectives of the RE1 zone are;

· To enable land to be used for public open space or recreational purposes.

· To provide a range of recreational settings and activities and compatible land uses.

· To protect and enhance the natural environment for recreational purposes.

It is considered that the proposed use of the Surf Club building for the purpose of conducting non-surf club functions, such as weddings and birthday parties, would be a compatible activity within the recreation reserve. It is unlikely that such functions would adversely impact on the other reserve uses during day time or evening events. Suitable conditions of consent are recommended to control activities, in terms of noise, hours of operation and service of alcohol. In this regard, the proposal is considered to be consistent with the objectives of the proposed RE1 zone.

Issues

Permissibility of proposed land use

The building was approved as a Community Facility (erection of a building for the purpose of a surf life saving club and radio control room). A Community Facility is defined by BVLEP 2002 as;

a building or place owned or controlled by a public authority or a body of persons associated for the purpose of providing for the physical, social, cultural, economic or intellectual development or welfare of the local community, but does not include a building or place (other than a club) elsewhere specifically defined in this Dictionary.

A condition of consent was included on the development consent (2006.508) for the surf club, limiting the uses of the building. Condition 33 states;

The Club Room and Training Room shall be used for Surf Club or community based purposes only.

The Club now seek to upgrade the kitchen area to a commercial grade kitchen and to include a bar area to be able to hold private functions in the hall area of the Club building, such as weddings and birthday parties.

Clause 71 allows Council to consider temporary uses that would otherwise be prohibited in the zone. Clause 71 states;

Draft Bega Valley Local Environmental Plan 2012 (Draft BVLEP 2012) also contains a clause which permits temporary land uses with the consent of Council. The assessment of the proposal in light of Clause 2.8 of Draft BVLEP 2012 is relevant as the gazettal of the plan is considered to be imminent as at the time of writing this report.

Clause 2.8 of Draft BVLEP 2012 states;

2.8 Temporary use of land

(1) The objective of this clause is to provide for the temporary use of land if the use does not compromise future development of the land, or have detrimental economic, social, amenity or environmental effects on the land.

(2) Despite any other provision of this Plan, development consent may be granted for development on land in any zone for a temporary use for a maximum period of 52 days (whether or not consecutive days) in any period of 12 months.

(3) Development consent must not be granted unless the consent authority is satisfied that:

(a) the temporary use will not prejudice the subsequent carrying out of development on the land in accordance with this Plan and any other applicable environmental planning instrument, and

(b) the temporary use will not adversely impact on any adjoining land or the amenity of the neighbourhood, and

(c) the temporary use and location of any structures related to the use will not adversely impact on environmental attributes or features of the land, or increase the risk of natural hazards that may affect the land, and

(d) at the end of the temporary use period the site will, as far as is practicable, be restored to the condition in which it was before the commencement of the use.

(4) Despite subclause (2), the temporary use of a dwelling as a sales office for a new release area or a new housing estate may exceed the maximum number of days specified in that subclause.

(5) Subclause (3) (d) does not apply to the temporary use of a dwelling as a sales office mentioned in subclause (4).

The objective of the clause

It is considered that the proposed use of the Bermagui Surf Club building for the purpose of a Reception Establishment, which would enable the Club to hire the premises for the purpose of weddings, birthdays and the like, would not compromise the future development potential of the land. The land is located within Dickinson Reserve of which Council is Trustee and is managed under the Bermagui Foreshore Reserves Plan of Management 2004 (PoM).

The Plan of Management establishes objectives which specify what is to be achieved within the subject land. The ‘Tourism/Commercial’ Values’ of the PoM state (p.24);

· Ensure a sustainable tourism industry by careful planning to maintain and enhance those natural qualities that attract visitors to the area without disadvantaging the permanent residents of Bermagui.

· Allow for commercial enterprise on foreshore land where such enterprise is appropriate to its environmental and social settings and where a clear net gain to the community can be demonstrated.

The Club submit that the proposal will provide a net gain to the community in being able to secure income which will enable the Club to service its debts and to continue to fundraise for essential surf life saving equipment.

Temporary use not to prejudice the subsequent carrying out of development on the land

As the use would be conducted wholly within the confines of the Surf Club building, it is considered that there would be no significant impact on the development potential of adjoining reserve lands.

No adverse impact on any adjoining land or the amenity of the neighbourhood

It is considered that there would be minimal adverse impact on adjoining lands. The Surf Club building sits within the Reserve which enables a suitable buffer to adjoining businesses and residential properties beyond. Specific conditions of consent are recommended which define hours of operation and ensure strict compliance with the responsible service of alcohol.

There is adequate car parking available within the Reserve (both formal and informal) to cater for the proposed functions without adversely impacting on the on-street parking in Lamont Street.

In terms of noise impact, the proposal would be required to comply with the provisions of the NSW Industrial Noise Policy and the Protection of the Environment Operations Act.

No adverse impact on environmental attributes or features of the land, or increase the risk of natural hazards that may affect the land

There is no envisaged adverse impact on any environmental attributes or features of the land as a result of the proposed development.

The site will, as far as practicable, be restored to the condition in which it was before the commencement of the use

As the proposal relates to a use of a building, that use can cease at any time without impact on any of the facilities provided within the building or the reserve. The upgraded kitchen and bar area would still be able to be used by normal surf club functions and currently permissible community uses.

Summary

Whilst Council can consider the use of the building for the purpose of a Reception Establishment up to 28 days per year under the current LEP and up to 52 days under the Draft LEP, the Club seek development consent for up to 18 days per year.

The proposal is considered to be a minor use of the premises, which primary function is to provide surf life saving services to the community and as a venue for use by community groups.

The proposal is considered to be a reasonable use of this community asset.

Asset

Council is Trustee of the subject reserve and the building is leased to Bermagui Surf Life Saving Club Incorporated under a license agreement. The license agreement would need amendment to permit the hire of the premises by non-community groups (ie for private functions).

Consultation

The proposal has been considered by the Department of Lands as the owner of the land. No objection is raised by Lands in relation to the proposed use.

Submissions

The development application was placed on exhibition for a period of 14 days from 6 June 2012 until 20 June 2012. A total of three submissions were received in relation to the development.

The key issues raised in submissions are discussed below followed by staff comment.

A copy of the submissions will be available at the Council meeting.

I object to having to compete in a limited market place with individuals who are using a public facility and have no risks attached.

It simply is not a level playing field when competing for the same wedding or function.

Every time the Life Saving Club undercuts us to host a wedding at least 10 staff will not be working at Mimosa that night.

Mimosa Wines request that you do not cater to the whims of a club whose primary objective while essentially worthy, with this proposal goes beyond the boundaries of sustaining a supposedly not for profit organisation at the expense of the local business community.

COMMENT:

The impact on existing businesses within the township as a result of the proposed development, in terms of business competition, is not a matter for Council in its planning consent authority role.

Notwithstanding, the Club have reconsidered their initial application for a maximum of 28 days per year and have agreed to limit the number of non-community events to 18 per year. The Club does not seek to compete directly with other function centres in the local area but offer an alternative venue for the community to hold functions. The Club has indicated that their primary purpose is conducting surf life saving functions and seeks to utilise the asset in a viable way to provide financial sustainability.

The surf club has been used for several receptions already. I would like the noise from music to cease at 10pm – as I sell sleep.

COMMENT:

The applicant seeks consent for hours of operation up to 12.30am, with music to finish at 11.40pm and service of alcohol to finish at 11.30pm (as per the current liquor licence). The objection from the proprietor of the Beachview Motel in Lamont Street suggests that music from functions should cease at 10pm.

Assessing staff recommend the inclusion of Councils standard condition for licensed premises which states;

The LA10 noise level emitted from the licensed premises should not exceed the background noise level by more than 5dB(A) from 7am to midnight and shall not exceed the background level from midnight until 7am. No correction for tonality is applied. Measurement is taken at the boundary of the worst affected premises.

This would ensure the premises complies with the provisions of the Environment Protection Authority NSW Industrial Noise Policy at all times.

Given the separation distance between the Surf Club and the Motel and the fact that the Motel is located within a commercial precinct and adjoining other licensed premises, staff consider it unreasonable to impose a 10pm curfew on music.

Any concerns raised in relation to noise from the subject premises would be appropriately investigated by Council officers in accordance with the Protection of the Environment Operations Act and the NSW industrial Noise Policy.

We are concerned that there appears to have been no proper notice of the proposal to turn a volunteer surf club into a potentially large commercial business competing directly with struggling private small business.

COMMENT:

Notification of all properties along Lamont Street between Montague and Wallaga Streets was undertaken, a notice placed in the local newspapers and all documentation displayed at the Bermagui Library for viewing by the public. The provisions of Councils Development Control Plan No. 3 – Notification have been satisfied in this regard.

As a reception venue and bar the club will directly compete with struggling businesses in and around Bermagui. In this regard we note that the club has not had to pay for its land or its buildings and is staffed by volunteers. It has received extremely generous Government grants and as far as we are aware it pays no land tax or rates. In other words it has virtually none of the overheads, capital expenses or running costs of the businesses it will directly compete with.

COMMENT:

A copy of a letter from the Bermagui Surf Life Saving Club in response to submissions is provided as Attachment 3 to this report.

As mentioned previously in this report, the impact on existing businesses within the township as a result of the proposed development, in terms of business competition, is not a matter for Council in its planning consent authority role.

conclusion

The proposed development application has been assessed in accordance with the relevant Matters for Consideration under Section 79C of the Environmental Planning and Assessment Act 1979.

Whilst Reception Establishments are prohibited in the zone, the provisions of BVLEP 2002 allow the consent authority to consider the use up to 28 days per year. The Club, in considering the concerns raised in submissions, only propose to operate up to 18 days per year.

The proposal is considered to be consistent with the objectives of the zone and is not considered to adversely conflict with the principles of the Bermagui Foreshore Reserves Plan of Management.

In this regard, the proposal is recommended for approval subject to conditions as outlined in Attachment 4 to this report.

ATTACHMENTS

1 View. Proposed development plan

2 View. Locality Plan

3 View. Letter from Bermagui Surf Life Saving Club

4 View. Draft Consent

Recommendation

1. That Development Application 2012.149 for the use of the Bermagui Surf Life Saving Club (a Community Facility) as a Reception Establishment for up to 18 days per year at Lot 7305 DP 1128706 and Lot 7034 DP 1118743 within Dickinson Reserve 83225, off Lamont Street, Bermagui be approved subject to conditions outlined in the draft consent.

2. That those persons who made a submission be advised of Council’s decision.

Sporting Oval	Average Usage 2008-2012	Calculated Allowance KL/Pa	Proposed Water Allocation KL/PA	Current Water Allocation (currently paid)	Average Water Bill 2008-2012	Proposed equivalent Water Allocation KL @$2.25 2012/13
George Brown Sporting Complex (Eden)	2,292	1720	1800	$4282.00	$6,344.57	$4,050.00
Dickinson Park (Bermagui)	1627	2323	2500	$2408.00	$4,403.94	$5,625.00
Pambula Beach Sporting Complex	3765	4303	4500	$9145.50	$17,114.31	$10,125.00
Berrambool Sporting Complex	3021	3213	3500	$19298.00	$9,377.95	$7,875.00
Lawrence Park	5605	2278	2500	$5002.00	$13,680.91	$5,625.00

Sporting Oval

Average Usage 2008-2012

Calculated

Allowance KL/Pa

Proposed Water Allocation KL/PA

Current Water Allocation (currently paid)

Average Water Bill 2008-2012

Proposed equivalent Water Allocation
KL @$2.25 2012/13

George Brown Sporting Complex (Eden)

2,292

1720

1800

$4282.00

$6,344.57

$4,050.00

Dickinson Park (Bermagui)

1627

2323

2500

$2408.00

$4,403.94

$5,625.00

Pambula Beach Sporting Complex

3765

4303

4500

$9145.50

$17,114.31

$10,125.00

Berrambool Sporting Complex

3021

3213

3500

$19298.00

$9,377.95

$7,875.00

Lawrence Park

5605

2278

2500

$5002.00

$13,680.91

$5,625.00

Council 31 October 2012 Item 11.3

11.3. Developer Charges Guidelines for Water Supply and Sewerage (Consultation Draft)

In August 2012 the NSW Office of Water in conjunction with IPART released In August 2012 the NSW Office of Water in conjunction with IPART released revised Developer Charges Guidelines for Water Supply, Sewerage and Stormwater (Consultation Draft) for comment by NSW Local Government Water Utilities.

This report provides Councillors with a summary of key elements of the new Guidelines and an update on implementation of revised Strategic Business Plans and Development Servicing Plans for Water Supply and Sewerage.

Group Manager Infrastructure, Waste & Water

Background

Developer charges are up-front charges levied to recover part of the infrastructure costs incurred in servicing new developments or additions/changes to existing developments. The authority for local government councils/local water utilities (LWU) to levy developer charges for water supply and sewerage, derives from Section 64 of the Local Government Act 1993 by means of reference to Section 306 of the Water Management Act 2000.

Water and Sewerage Developer Charges (also known as Headworks Charges or Section 64 charges) are regulated by the NSW Office of Water through Guidelines issued in December 2002. The Guidelines provide a methodology for calculating the maximum applicable developer charge, and set out the requirements for the preparation of Development Services Plans (DSP’s). DSP’s are preceded by preparation of Strategic Business Plans (with associated asset, demographic and financial models).

DSP’s are the reference documents produced by Councils in NSW to enable Developer Charges to be levied at a local level.

In 2006 Council adopted the current Development Servicing Plans (DSP’s) for Water Supply and Sewerage. The DSP’s and their associated calculations informed the current S64 contributions and replaced a number of area based interim contribution plans. They also informed the long term financial plan (LTFP)

The current Section 64 contributions have been levied on the basis of full cost recovery (user pays) from all developers in accordance with policy 2.3.1(l).

In 2007 the NSW State Government requested that IPART review the Developer Guidelines. IPART provided a final report to the then Minister in late 2007; however the conclusions of the report were not made public by the Minister.

Council commenced its scheduled review of the DSPs and associated charges 12 months ago, commissioning consultants to assist the asset and financial modelling reviews. NSW Office of Water advised Council mid-year to not continue the review until the new guidelines were issued.

The matter of headworks charges has been the topic of several questions and notices of motion from councillors, particularly around:

· Application of charges to council/community facility developments

· Differentiation of portion of capital works cost between new development, and existing users

· Comparison of headworks charges to other LWUs (noting Council has recently invested approximately $75 million in expanded modern sewer systems, requiring recovery of part of that capital cost over the next 10/20 years)

· Retrospective application of headworks charges to lots subdivided before adoption of the 2006 DSP

· Differentiated charges between towns, villages and catchments

· Scale of proposed augmentation works, having regard to changing demographics, growth patterns, and consumer behaviour towards sustainability

· Mapping DSP catchments to new LEP urban boundaries

The Minister for Primary Industries recently advised Council that she had decided to support all of the recommendations of the 2007 report, and the report has now been released on the IPART website.

The revised Developer Charges Guidelines for Water Supply, Sewerage and Stormwater - Consultation Draft, has been released by the Minister for Primary Industries pursuant to section 306 (3) of the Water Management Act 2000.

The 2012 Developer Charges Guidelines (Consultation Draft) will update the Water Supply, Sewerage and Stormwater Guidelines, 2002 and modify them in accordance with the recommendations of the IPART Review Report available on the NSW Office of Water (NOW) website and IPART website. Links to the two documents are as follows:

Developer Charges Guidelines for Water Supply, Sewerage and Stormwater, 2012 – Consultation Draft

IPART Review Report

ISSUES

Legal

In August 2012 a report was submitted to Council to clarify the applicability of Section 64 contributions to properties in Bega Valley Shire. A copy of this report is attached since it also details the legal basis for application of the contributions in NSW by Council local water utilities.

Policy

There are significant financial implications arising from the policy position that Council ultimately chooses, once the new DSP’s are adopted. The current policy position is based on a complete cost recovery approach whereby developers who utilise water and sewer systems pay for all growth related infrastructure, with no subsidy from the wider community.

Key IPART Recommendations

The NSW Office of Water has prepared new guidelines that incorporate all of the IPART recommendations. There are 30 recommendations and these are summarised below, together with the potential impacts for Bega Valley Shire Council.

Recommendation	General Comments	Impacts on Bega Valley Shire DSP
1 Background Information	Increased importance on background documentation, including providing spreadsheet models	Potentially a little more effort required to prepare background documentation.
2 Draft & Final DSPs on BVSC website and review by an independent auditor	No real change.	Additional cost and time associated with having the DSPs audited by an accredited auditor.
3 & 4 Audit Process	DSPs will now need to be audited prior to being registered with the NSW Office of Water.	Additional cost and time associated with having the DSPs audited by an accredited auditor.
5 CPI Increase of S64 Charges	No change	No impact.
6 & 7 Expert Panel / Dispute Resolution	Expert panel to be formed to advise on technical matters or matters of interpretation of guidelines	May potentially impact the Draft DSP exhibition process if a matter is referred to the expert panel for consideration.
8 & 9 Assets >30 yrs Age	Assets >30 years old at the commencement of the DSP must be excluded unless special approval by NSW Office of Water and/or expert panel is given. Documentation also required.	Headworks assets >30 yrs of age are likely to be excluded unless documentation to justify their inclusion can be produced.
10 Future Assets <10 yrs Only	Future assets to be constructed within 10 years of commencement of DSP only to be included in DSP if they are included in BVSC Strategic Business Plan (SBP).	Unless BVSC decided to apply for an exemption to this rule, future augmentations beyond 5 years will not be included in the DSP. This will impact the extent of work required in the Servicing Strategies (currently a 30 year capital works plan) and also impact the base year for the charges – everything now needs to relate to the year the DSP commences (probably 2013).
11 & 12 Reticulation Assets	Reticulation assets continue to be excluded, with a supplementary charge possible if reticulation costs need to be recovered for specific areas.	No anticipated impact.
13, 14 & 15 MEERA	- Contingencies not included for existing assets - Future assets to be based on MEERA rates and associated contingencies not to exceed 20%	Contingency adjustments will be straight forward. However a consistent set of construction Reference Rates will need to be developed for use on both existing and future assets. Recent asset valuation work will assist in this regard.
16 & 17 Agglomeration	Agglomerating capital charges within 30% of each other is still allowed. Agglomeration of service area beyond the 30% is no longer allowed.	Total number of service areas based charges is likely to increase. More significantly the charges applicable to certain areas may increase whilst others may decrease. Administering the charges may be a little more complicated.
18 & 19 NPV Approach	NPV approach for calculating capital charge is now required.	Already included in the existing BVSC approach.
20, 21 & 22 Reduction Amount	- NPV of annual charges should be used for reduction amount, but 30 yr financial plan not necessary - Iteration process not required.	BVSC Financial Plan already exists. Requirement to no longer use iteration process should make the calculation of reduction amount easier and quicker.
23 & 30 Backlog Areas	Simplifies treatment of backlog areas so they are calculated the same as other areas except reduction amount can be altered if operating costs differ significantly.	Shouldn’t affect Servicing Strategies as long as Backlog Areas are clearly identified.
24 & 25 Equivalent Tenements	More details required on how ETs are determined, including future growth projections. ET to be considered based on average annual demand. Utilities to carefully consider ABS data, NSW DoP data and other Council data.	Assumptions for determining water and sewer ET’s will need to be clearly stated.
26 & 27 Cross-subsidies	- Limits the Council ability to write down the value of assets so that more costs are recovered through recurring charges (ie residential customers). - Assets built after 2012/13 to be fully recovered through developer charges. - Any cross-subsidy benefitting developers to be fully disclosed to customers via website, Operational Plan and Annual report.	Could be a financial consideration if the revised DSP areas result in developer charges that are considered too high by Council.
28 Phasing in of Charges	Phasing in of charges is no longer allowed.	Depending on the new charges (including less agglomeration of charges) some areas could be subject to a substantial and sudden increase in developer charges with no phase in option now available.
29 & 30 Non-Residential and Residential Charges	Calculation of Developer Charges to consider all residential and non-residential development. Charges for non-residential development should be the same as for residential development. Capital charge for DSP’s involving backlog works to be calculated in the same manner as other DSP areas and only new developments are required to pay developer charges.	No anticipated impact.

Timing for BVSC Review

A review of Council’s Water Supply and Sewer Strategic Business Plan (SBP) and associated DSP’s has already commenced. A number of Councillor Workshops are to be held in the months leading up to consideration and exhibition of the new DSP’s.

As advised in the August 2012 report, the following timetable is applicable to the SBP/DSP review process over the coming months:

· Completion of draft S64 Guidelines by NSW Office of Water and submission to IPART by early July 2012.(Completed)

· Review of the draft S64 Guidelines by IPART due early September 2012.(Completed)

· Final industry consultation between September 2012 and January 2013. (Taking place at present)

· Adoption of new S64 Guidelines by NSW Office of Water, Feb 2013. (Future action)

· Completion of BVSC DSP documentation and adoption for 1 July 2013. (Future action)

Asset

Section 64 charges enable developers to equitably fund assets needed to support their developments. Often the contributions include an provision/upgrade to an asset (such as a sewer pumping station) directly to service development, and/or a financial contribution to the broader planned augmentation to the water or sewer system, based on the additional load or demand that development generates on the system.

The new S64 Guidelines and associated Council policy position may have a significant impact on Typical Residential Bills and Council’s ability to provide new assets to support growth.

Economic

Broader economic discussion is a strategic balance of economic development, growth property developers and community provided infrastructure. There are arguments the current s64 charges may inhibit development, but research indicates the charges are not out of step with similarly sized councils undergoing long term growth and undertaking significant augmentation programs. Similarly, it is contended new development is a barometer of economic prosperity, and ultimately the purchasers of subdivided land/buildings pay access charges. Indeed, it is understood developers pass on the proportional cost of the s64 charges in the market pricing of land for sale.

In conjunction with the scheduled s94/94A development contribution plans review, an assessment of the relative cost and impact of all contributions on the cost and margins of development, will be reported to Council.

It is noted access charges should be designed to recover the fixed cost of capital (eg debt servicing) and management, and usage charges recover operational costs.

Inevitably, simple maths dictates that someone has to pay for infrastructure, either the community (access charges) or property developers (S64 charges).

The adopted DSP has taken the position that a single charge applies across the shire, based on calculation of addition load (expressed as ET), regardless whether that development takes place in a district town or a village. Without that cross subsidy/whole of shire approach, the cost to provide water or sewer services to villages (and thus open the prospect for growth/affordable housing in those villages) would be prohibitive to development.

With the above in mind the discussion then falls to whom most appropriately pays for growth related capital augmentation works, and paradoxically the ability for those groups to pay and indeed support economic development.

Strategic

In conjunction with the Water and Sewer DSP’s, a Strategic Business Plan (SBP) is currently being drafted detailing the capital works proposed for the Shire particularly over the next ten years. The DSP’s will reflect the SBP level of service and capital works goals, with appropriate reference to the adopted asset management plans (AMPs). Policies will also be revised to activate the adopted DSPs.

Consultation

The revised DSP’s will be subject to wide community consultation in accordance with the requirements of the new Developer Charges Guidelines.

Financial

The application of a DSP and associated charges remains a requirement in order to receive state government subsidies under the various government schemes. In the absence of these subsidies developers and consumers bear the full cost.

The contribution of S64 charges to Council income is significant and it is intrinsically linked to the combined residential bill and other revenues required to balance long term financial plans. In drafting the SBP and DSP’s, a sensitivity analysis will be carried out as part of the financial modelling process.

The sensitivity analysis will present Councillors with a number of levels of service, growth, subsidy and capital works scenarios to consider prior to adopting appropriate S64 and residential bill price paths for the 2013/14 to 2017/18 period.

Resources (including staff)

Significant staff and consultant time has already been devoted to the revision of SBP and DSP documents. It is expected that over $150K will be expended by the time the DSP’s are adopted by Council.

Operational Plan

The SBP and DSP documents support Operational Plan outcomes (Sustainability and Accessibility).

Conclusion

Implementation of revised Strategic Business Plans and Development Servicing Plans for Water Supply and Sewerage is proceeding as planned.

At this stage the precise impact of the new Guidelines on the level of existing S64 charges is not possible to calculate. However the most significant financial risk to Council is the change to the way agglomeration is allowed for and the impact that this may have on S64 charges applicable to small villages where new capital works has taken place.

A further challenge for consideration is the amount of subsidy, if any that Council is prepared to extend to developers.

ATTACHMENTS

1 View. Developer Charges Guidelines Water Supply and Sewerage Key Modifications to the 2002 Guidelines

2 View. Council Report - Water supply and sewer developer contributions: Infrastructure Committee 09 08 2012

Recommendation

That Councillors note the NSW Office of Water Guidelines (Consultation Draft) and the timetable for adoption of revised Water Supply and Sewerage Strategic Business Plan and Development Servicing Plan documents.

Council 31 October 2012 Item 12.6

12.6. Local Government Infrastructure Renewal Scheme (LIRS) Funding Update

This report is to provide an update on the status of Councils Local Infrastructure Renewal Scheme (LIRS) application.

Finance Manager

Background

On 20 March, 2012 Council resolved to submit an application to the NSW State Government’s Local Infrastructure Renewal Scheme (LIRS) program. The LIRS program allowed Councils to request a reimbursement of 4% on the interest paid on loans drawn down to specifically address a backlog of infrastructure.

Council resolved to apply for the following project:

· Bega Town Hall ($2m)

· Bega Depot ($1.5m)

· Merimbula Airport Runway Renewal ($3.5m)

· Roads ($2m)

Each of these projects had been identified within Councils Community Strategic Plan as projects that required significant renewals and were reasonably close to commencement.

Council underwent an application process that required an independent audit of Councils financial performance by Treasury Corp (otherwise known as T-Corp), the NSW State Government’s funding body. T-Corp reviewed Councils Asset Management Plans, Long Term Financial Plan, and the past 3 years of Financial Statements in order to ascertain Council’s financial sustainability and capacity to service the level of debt as submitted in its application.

On July 16, 2012 Council was advised by the Division of Local Government that a press release would be issued from the office of the local state member Mr Andrew Constance MP. These press releases (attachments 1 & 2) advised that Council had been approved in principle for two of its four projects. Council was to receive LIRS funding for the Roads ($2m) and Merimbula Airport Runway Renewal ($3.5m) components of its application. Council was advised the approvals was subject to a satisfactory T-Corp audit process and a recommendation that Council could service the related debt the interest subsidy. There was no advice from the NSW State Government as to why two projects were approved and two denied, although the Bega Town Hall or Bega Depot projects were not “Shovel Ready” which may have played a part in those two projects being denied. The Division of Local Government did advise that those projects would be welcomed in Round 2 of the LIRS program. Round 2 opens in November and provides a 3% interest subsidy.

On 9 October 2012 Council received the final report from T-Corp (attachment 3). This report provided analysis and commentary from an independent view point with a direct focus on whether Council was financially able to meet the commitments presented in it LIRS application via the LTFP. The T-Corp report reached the following conclusions:

The Council has been well managed over the review period based on the following observations:

· Council has reported an operating surplus excluding capital grants and contributions in 2009 and 2010. The 2011 results report an operating deficit of $1.5m with the deficit caused by increased depreciation and materials and contracts expenses primarily due to flooding in 2011

· Council’s underlying cash result (measured using EBITDA) remained consistent over the three year period at around $19.0m per annum

· Approximately 71.0% of the Council’s revenue base is derived from own sourced revenue (annual charges and user charges and fees). This result is supported by an SRV of 3.49% (above rate peg) which is in place until 2031

Council reported an infrastructure backlog of $64.9m (9.4%) in 2011 with an infrastructure asset value of $687.3m. Other observations include:

· The Council’s infrastructure backlog is on an upward trend

· Compared to benchmark ratios Council appear to be underspending on building and infrastructure asset renewal and asset maintenance. However, Council has exceeded the Capital expenditure Ratio benchmark for the last three years indicating that they are spending on assets which improve performance or capacity

· The most significant proportion of the backlog relates to roads at 57.0%, with building and other structures at 17.0%. Both of these backlogs are being addressed in the LIRS applications

The key observations from our (LIRS) review of Council’s 10 year forecasts for its General Fund are:

· The forecast shows a surplus position is expected in the operating result each year after 2014 when capital grants and contributions are excluded

· Overall Council’s level of fiscal flexibility is sound as own sourced revenue is maintained at levels above 64% from 2013

· Cash Expense Ratios are well above benchmark indicating Council will have sufficient liquidity throughout the next 10 years to service short term liabilities and currently scheduled capital expenditure

In our view, the Council has the capacity to undertake the combined additional borrowings of $9.0m for the projects applied for under LIRS. This is based on the following analysis:

· The DSCR remains above benchmark over the 10 year forecast period

· The interest cover is well above benchmark for the 10 year forecast

· Based on a benchmark of DSCR>2x, we believe Council could borrow an additional $6.0m in addition to the $9.0m borrowings proposed under LIRS in 2012/13

In respect of the Benchmarking analysis, TCorp has compared the Council’s key ratios, on a consolidated basis, with other councils in DLG Group 4. The key observations are:

· Council’s financial flexibility was sound, as indicated by the Operating Ratio and the Own Source Operating Revenue Ratio which generally outperformed the group’s average

· Council’s liquidity position was very strong and generally outperformed the group’s average

· Council has a similar level of gearing to its peers, and its DSCR and Interest Cover Ratio were acceptable in the past three years

· Council’s Infrastructure Backlog was slightly better than the group’s average but well above the benchmark throughout the review period. Council’s asset maintenance and asset renewal were on par with the group’s average. Capital works were sufficient and are forecast to increase over the medium term

The T-Corp report then made the following recommendations:

Based on our review of both the historic financial information and the 10 year financial forecast within Council’s LTFP, we consider Council to be in a satisfactory financial position in terms of their operating performance. Both past performance and the financial forecasts support our findings that Council has sufficient financial capacity to service the additional borrowings proposed under its LIRS application.

We base our recommendation on the following key points:

· Council has sufficient financial capacity to manage the additional $9.0m debt highlighted by a DSCR and Interest Cover Ratio above the benchmarks in all 10 years of its financial forecast

· Council has an infrastructure backlog of $64.9m and Public Roads and Buildings and Infrastructure comprise 71.0% of the total backlog. Council are seeking to address these asset classes in its LIRS projects

· Council has undertaken capital expenditure in the last three years at a level to enhance their IPP&E

· Council has engaged external advisers to provide assistance in reviewing its operating and capital investment position and options

· Council are aware of the impacts of climate change on their community. They mitigate these risks by developing their floodplain mapping to more accurately predict flood hazards and prepare for flood risks

· The quality of management plans, asset management plans, and operating plans also suggest that Council are well managed and adequately resourced

However we would also recommend that the following points be considered:

· As revenues are increasing at much lower rates than expenses, Council needs to develop strategies to address this imbalance between revenue and expense growth. The Internal Audit Committee in place should assist with this process

ISSUES

Legal

Council is waiting for the Division of Local Government to issue a contract formally approving and offering the LIRS subsidy. In order to activate the agreement Council must commence work on the approved projects within 12 months of the dated contract. Once Council has a duly authorised contract with the Division of Local Government, Council will commence negotiations with financial institutions for the provision of the relevant loans to commence work.

Financial

Merimbula Airport Runway Renewal: Within Council’s Delivery Plan, the Merimbula Airport runway renewal was to be funded by a loan with a term of twenty years. Council successfully applied to IPART to retain an expiring rate variation of $332k pa in 2011, to be applied towards the repayment of the loan funding the renewal works. Council has confirmed with the Independent Pricing and Regulatory Tribunal (IPART) that as long as the revenue raised through the special variation is expended on the provision of debt used to service the renewal project, there is no issue with Council leveraging the project through LIRS. As a result, Council would be able to borrow up to approximately $6m and retain an annual repayment of $332,000 per annum over 20 years. The indexed variation is to be placed in the asset reserve for future renewals.

However, subject to Council’s decision on tenders following it’s rescission of previous resolutions on runway tenders and airport strategy, the funding of the portion of renewal v upgrade contained in any new tender or negotiation, may require matching to the amount of debt and term capable of being serviced by the rate variation. Most likely, the current rate variation may fund around $5m of airport renewals at current interest rates over 20 years. As suggested in previous reports, Council may then apply the LIRS subsidy ($140k pa IO for 10 years) to other infrastructure renewals, or in turn service a further debt over $1m over a 10yr term.

Roads: Within Councils Long Term Financial Plan (LTFP) and Asset Management Plans (AMP), Council has scheduled an increase in renewals of all asset classes over the next ten years. The LTFP scheduled a number of loans over the first 3 years of the plan to allow large sections of renewals work to occur in order to reduce Councils infrastructure backlog. By utilising the LIRS funding in roads, Council is able to continue that borrowing program but at a significantly reduced cost. The estimated savings for Council on the road component of the LIRS approval is approximately $800,000 over ten years, subject to the detail in the LIRS contract.

Similarly to the airport loan subsidy, Council may also consider borrowing more for roads renewals, utilising the annual subsidy of $80k over 10 years.

Policy

On 8 October, 2012 the Division of Local Government issued Circular 12-37 (attachment 4) advising that round 2 of the LIRS program was being established for implementation in the 2013/2014 financial year.

The Division of Local Government advises that application forms will be made available early November 2012 with a closing date of 31 December, 2012 with a decision made in May 2013. The Division of Local Government has issued guidelines (attachment 5) for Councils to use to determine if they wish to apply for Round 2 funding.

While the program is still aimed at enabling Councils to undertake backlog reduction renewal works. Round 2 of the LIRS program has been refined from Round 1. Some of the more significant changes are:

· A maximum of 2 projects per Council

· The subsidy reduced from 4% to 3%

· New Capital projects (not backlog) whereby the project assists in creating new residential housing. These projects must be critical in directly enabling residential housing development. The program does not extend to Commercial dwellings.

· The program still has a loan term maximum of ten years, but does mention a priority being given to shorter term projects.

Conclusion

This report is seeking the authority to accept and action the LIRS funding agreement when it is issued by the Division of Local Government.

Secondly, Council has the option of applying for LIRS round 2 funding for implementation in the 2013/14 financial year. Council is able to re-submit the two projects that were initially declined in round 1 or indeed, provide two new projects if any can identified. If Council were successful with an application for the projects that were declined in round 1 it would result in a saving to Council of over $600,000 over ten years.

T-Corp has provided a very positive assessment of Council’s financial management capacity and ability to service debt. As briefed to councillors, NSW government has also recently assessed Council’s asset management plans and integration with LTFP. A separate report will be presented when that assessment is received.

ATTACHMENTS

1 View. LIRS DLG Media Release: Airport

2 View. LIRS DLG Media Release: Roads

3 View. LIRS TCorp Final Report

4 View. LIRS Rd2 Circular 12-37

5 View. LIRS Rd2 DLG Guidelines

Recommendation

1. That Council note the attachment to the report advising that the NSW State Government has approved Bega Valley Shire Council for LIRS subsidy under the provision that T-Corp approve Council financial position.

2. That Council note the attachment to the report advising that T-Corp approves Council’s financial serviceability in relation to LIRS subsidy.

3. That Council authorise the Mayor and General Manager to accept and authorise the LIRS funding agreement.

4. That Council resolve to submit an application to round 2 of the LIRS program, seeking a 3% subsidy on the two projects not previously awarded to Council in round 1 of the LIRS program, including the Bega Depot ($1.5m) and the Bega Town Hall ($2.0m).

Council	31 October 2012
*Item 12.6 - Attachment 3*	*LIRS TCorp Final Report*

Bega Valley Shire Council

Financial Assessment and Benchmarking Report

8 October 2012

Prepared by NSW Treasury Corporation as part of the Local Infrastructure Renewal Scheme

Disclaimer

This report has been prepared by New South Wales Treasury Corporation (TCorp) in accordance with the appointment of TCorp by the Division of Local Government (DLG) as detailed in TCorp’s letters of
22 December 2011 and 28 May 2012. The report has been prepared as part of the Local Infrastructure Renewal Scheme (LIRS) announced by the NSW Government.

The report has been prepared based on information provided to TCorp as set out in Section 2.2 of this report. TCorp has relied on this information and has not verified or audited the accuracy, reliability or currency of the information provided to it for the purpose of preparation of the report. TCorp and its directors, officers and employees make no representation as to the accuracy, reliability or completeness of the information contained in the report.

In addition, TCorp does not warrant or guarantee the outcomes or projections contained in this report. The projections and outcomes contained in the report do not necessarily take into consideration the commercial risks, various external factors or the possibility of poor performance by the Council all of which may negatively impact the financial capability and sustainability of the Council. The TCorp report focuses on whether the Council has reasonable capacity, based on the information provided to TCorp, to take on additional borrowings within prudent risk parameters and the limits of its financial projections.

The report has been prepared for Bega Valley Shire Council, the LIRS Assessment Panel and the DLG. TCorp shall not be liable to Bega Valley Shire Council or have any liability to any third party under the law of contract, tort and the principles of restitution or unjust enrichment or otherwise for any loss, expense or damage which may arise from or be incurred or suffered as a result of reliance on anything contained in this report.

Index

Section 1 Executive Summary. 4

Section 2 Introduction. 6

2.1: Purpose of Report 6

2.2: Scope and Methodology. 6

2.3: Overview of the Local Government Area. 8

2.4: LIRS Application. 9

Section 3 Review of Financial Performance and Position. 10

3.1: Revenue. 10

3.2: Expenses. 11

3.3: Operating Results. 12

3.4: Financial Management Indicators. 13

3.5: Statement of Cashflows. 13

3.6: Capital Expenditure. 15

3.6(a): Infrastructure Backlog. 15

3.6(b): Infrastructure Status. 16

3.6(c): Capital Program.. 17

3.7: Specific Risks to Council 17

Section 4 Review of Financial Forecasts. 19

4.1: Operating Results. 19

4.2: Financial Management Indicators. 20

4.3: Capital Expenditure. 22

4.4: Financial Model Assumption Review.. 23

4.5: Borrowing Capacity. 24

Section 5 Benchmarking and Comparisons with Other Councils. 25

Section 6 Conclusion and Recommendations. 31

Appendix A Historical Financial Information Tables. 32

Appendix B Glossary. Error! Bookmark not defined.5

Section 1 Executive Summary

This report provides an independent assessment of Bega Valley Shire Council’s (the Council) financial capacity and its ability to undertake additional borrowings. The analysis is based on a review of the historical performance, current financial position, and long term financial forecasts. It also benchmarks the Council against its peers using key ratios.

The report is primarily focused on the financial capacity of the Council to undertake additional borrowings as part of the Local Infrastructure Renewal Scheme (LIRS).

Council has made four LIRS applications for roads, building infrastructure and airport renewal projects, for a total of $9.0m. The roads and building infrastructure projects are to be repaid over 10 years. The airport renewal project is to be repaid over 20 years with the LIRS subsidy applicable for 10 years only.

We understand that two of Councils LIRS applications have been approved during the first round of applications totalling $5.5m.

We have not adjusted our analysis on the basis that we would expect Council to continue with the two projects not approved, either as part of round two applications under LIRS or on their own account.

TCorp’s approach has been to:

· Review the most recent three years of Council’s consolidated financial results

· Conduct a detailed review of the Council’s 10 year financial forecasts. The review of the financial forecasts focused on the particular Council fund that was undertaking the proposed debt commitment. As the Council operates three funds we focused our review on the General Fund as the loan will be attached to the General Fund

The Council has been well managed over the review period based on the following observations:

· Council’s underlying cash result (measured using EBITDA) remained consistent over the three year period at around $19.0m per annum

Council reported an infrastructure backlog of $64.9m (9.4%) in 2011 with an infrastructure asset value of $687.3m. Other observations include:

· The Council’s infrastructure backlog is on an upward trend

· The most significant proportion of the backlog relates to roads at 57.0%, with building and other structures at 17.0%. Both of these backlogs are being addressed in the LIRS applications

The key observations from our review of Council’s 10 year forecasts for its General Fund are:

· The forecast shows a surplus position is expected in the operating result each year after 2014 when capital grants and contributions are excluded

· Overall Council’s level of fiscal flexibility is sound as own sourced revenue is maintained at levels above 64% from 2013

In our view, the Council has the capacity to undertake the combined additional borrowings of $9.0m for the projects applied for under LIRS. This is based on the following analysis:

· The DSCR remains above benchmark over the 10 year forecast period

· The interest cover is well above benchmark for the 10 year forecast

· Based on a benchmark of DSCR>2x, we believe Council could borrow an additional $6.0m in addition to the $9.0m borrowings proposed under LIRS in 2012/13

In respect of the Benchmarking analysis, TCorp has compared the Council’s key ratios, on a consolidated basis, with other councils in DLG Group 4. The key observations are:

· Council’s financial flexibility was sound, as indicated by the Operating Ratio and the Own Source Operating Revenue Ratio which generally outperformed the group’s average

· Council’s liquidity position was very strong and generally outperformed the group’s average

· Council has a similar level of gearing to its peers, and its DSCR and Interest Cover Ratio were acceptable in the past three years

Section 2 Introduction

2.1: Purpose of Report

This report provides the Council with an independent assessment of their financial capacity and performance measured against a peer group of councils which will complement their internal due diligence, and the IP&R system of the Council and the DLG.

The report is to be provided to the LIRS Assessment Panel for its use in considering applications received under the LIRS.

The key areas focused on are:

· The financial capacity of the Council to undertake additional borrowings

· The financial performance of the Council in comparison to a range of similar councils and measured against prudent benchmarks

2.2: Scope and Methodology

TCorp’s approach was to:

Review the most recent three years of the Council’s consolidated audited accounts using financial ratio analysis. In undertaking the ratio analysis TCorp has utilised ratio’s substantially consistent with those used by Queensland Treasury Corporation (QTC) initially in its review of Queensland Local Government (2008), and subsequently updated in 2011

· Conduct a detailed review of the Council’s 10 year financial forecasts including a review of the key assumptions that underpin the financial forecasts. The review of the financial forecasts focused on the particular Council fund that was undertaking the proposed debt commitment. For example where a project is being funded from the General fund we focussed our review on the General fund

· Identify significant changes to future financial forecasts from existing financial performance and highlight risks associated with such forecasts

· Conduct a benchmark review of a Council’s performance against its peer group

· Prepare a report that provides an overview of the Council’s existing and forecast financial position and its capacity to meet increased debt commitments

· Conduct a high level review of the Council’s IP&R documents for factors which could impact the Council’s financial capacity and performance

In undertaking its work, TCorp relied on:

· Council’s audited financial statements (2008/09 to 2010/11)

· Council’s financial forecast model

· Council’s IP&R documents

· Discussions with Council officers

· Council’s submissions to the DLG as part of their LIRS application

· Other publicly available information such as information published on the IPART website

Benchmark Ratios

In conducting our review of the Councils’ financial performance and forecasts we have measured performance against a set of benchmarks. These benchmarks are listed below. Benchmarks do not necessarily represent a pass or fail in respect of any particular area. One-off projects or events can impact a council’s performance against a benchmark for a short period. Other factors such as the trends in results against the benchmarks are critical as well as the overall performance against all the benchmarks. As councils can have significant differences in their size and population densities, it is important to note that one benchmark does not fit all.

For example, the Cash Expense Ratio should be greater for smaller councils than larger councils as a protection against variation in performance and financial shocks.

Therefore these benchmarks are intended as a guide to performance.

The Glossary attached to this report explains how each ratio is calculated.

Ratio	Benchmark
Operating Ratio	> (4.0%)
Cash Expense Ratio	> 3.0 months
Unrestricted Current Ratio	> 1.50x
Own Source Operating Revenue Ratio	> 60.0%
Debt Service Cover Ratio (DSCR)	> 2.00x
Interest Cover Ratio	> 4.00x
Infrastructure Backlog Ratio	< 0.02x
Asset Maintenance Ratio	> 1.00x
Building and Infrastructure Asset Renewal Ratio	> 1.00x
Capital Expenditure Ratio	> 1.10x

2.3: Overview of the Local Government Area

Bega Valley LGA
Locality & Size
Locality	South East Coast
Area	6,280km²
DLG Group	4
Demographics
Population	34,035
% under 18	24%
% between 18 and 59	48%
% over 60	28%
Expected population 2025	41,659
Operations
Number of employees (FTE)	270
Annual revenue	$71.5m
Infrastructure
Roads	1,420km
Bridges	227
Infrastructure backlog value	$64.9m
Total infrastructure value	$687.3m

Bega Valley Shire Council Local Government Area (LGA) is located at the south-eastern extremity of New South Wales. The LGA’s coastal fringe extends from Wallaga Lake in the north, and to Cape Howe, and the Victorian border in the south. Collectively this 225 kilometre section of coastline forms the Sapphire Coast.

The LGA has one identified regional centre, Bega and three main towns Merimbula, Eden and Bermagui. Approximately 73% of the Shire’s 6,280 square kilometres are National Park or State Forest.

The current population is expected to grow by 22% to 41,659 by 2025.

Council had 270 full-time equivalent employees at the end of 2011.

2.4: LIRS Application

Council made four LIRS applications.

We understand that two of Councils LIRS applications (Projects 2 and 4) have been approved during the first round of applications totalling $5.5m.

Project 1: Bega Works Depot Renewal

Description: Replacement of crew amenities, refurbishment of works administration and workshop at Bega Maher Street Depot

Amount of loan facility: $1.5m

Term of loan facility: 10 years

Project 2: Urban Roads Renewal Scheme

Description: Renewal of collector roads in urban areas

Amount of loan facility: $2.0m

Term of loan facility: 10 years

Project 3: Bega Town Hall Renewal

Description: Demolition and rebuilding of superstructure and facilities of Town Hall

Amount of loan facility: $2.0m

Term of loan facility: 10 years

Project 4: Merimbula Airport Infrastructure Renewal

Description: Renewal of existing runway, lighting, apron and taxiway

Amount of loan facility: $3.5m

Term of loan facility: 10 years

Section 3 Review of Financial Performance and Position

In reviewing the financial performance of the Council, TCorp has based its review on the annual audited accounts of the Council unless otherwise stated.

3.1: Revenue

Key Observations

· Total Revenue increased over the three year period by 17.3% to $71.5m in 2011.

· Rates and annual charges increased by 7.8% in 2010 and 5.4% in 2011 to $37.3m. Council was granted the renewal of an existing SRV in 2011 of 3.49% above rate peg until 2031 to fund tourism promotion, and service loan repayments for the resurface of Merimbula Airport runway additional to the LIRs funding. This contributed to the additional $1.9m in revenue in 2011. The SRV combined with increased revenue in sewage services contributed towards the overall increase in 2010.

· Council also applied for an additional SRV of 2.8% above the rate peg in 2011 for expenditure on road renewal. This application was rejected.

· User fees and charges increased marginally between 2010 and 2011. In 2009 Caravan Park fees generated revenue of $1.0m. In 2011 this revenue was reclassified as discontinued operations following the responsibility of their management being assumed by the Land and Property Management Authority (LPMA). The transfer resulted in a $6.1m loss from discontinued operations being disclosed in the operating results. This is not a cash loss but a loss in caravan assets.

· Operating Grants and contributions rose for the second consecutive year. Following an increase of 13.1% in 2010, 2011 saw an increase of 23.9% due to Council being allocated an additional $3.3m in operating grants for flood restoration following the floods in March 2011.

3.2: Expenses

Key Observations

· Employee costs in 2011 are equal to 32.8% of total expenses, compared to 34.2% in 2009. 2011 saw an increase of 12.4% in employee costs due to a significant increase in overtime to outdoor staff because of the increase in the number of emergency events. Superannuation also increased as a result of the Defined Benefit Super Scheme requiring an injection of funds to maintain its liquidity. Council also had a one-off increase in Workers Compensation claims in 2011 following a major incident.

· Materials and contract expenses increased by 42.0% to $23.7m between 2009 and 2011. 2011 had the largest increase of $4.5m due to a combination of carryover works from 2010 and increased works associated with flood damage. However, this expense is substantially offset by a $3.3m increase in operating grants for flood restoration.

· The Asset Revaluations process resulted in the value of Council’s roads, bridges, footpaths and other structures increasing by $174.9m since 2009. The Asset Revaluation resulted in the 2011 depreciation expense increasing by $4.2m to $18.1m.

· Other expenses have fluctuated over the period increasing by 5.3% in 2010 and subsequently decreasing by 2.8% in 2011. 2010 included a bad debt expense of $0.5m arising from a contractual dispute. This was resolved and is not of a recurring nature.

3.3: Operating Results

TCorp has made some standard adjustments to focus the analysis on core operating council results. Grants and contributions for capital purposes, realised and unrealised gains on investments and other assets are excluded, as well as one-off items which Council have no control over (e.g. impairments).

TCorp believes that the exclusion of these items will assist in normalising the measurement of key performance indicators, and the measurement of Council’s performance against its peers.

All items excluded from the income statement and further historical financial information is detailed in Appendix A.

Key Observations

· Council reported net operating surpluses excluding capital grants and contributions in 2009 and 2010. The 2011 results were adversely affected by increases in depreciation charges, employee expenses, and materials and contracts expenses.

· Council expenses include a non-cash depreciation expense of $18.2m in 2011 which is an increase of $4.2m from 2009 following the Asset Revaluations process. Whilst the non-cash nature of depreciation can favourably impact on ratios such as EBITDA that focus on cash, depreciation is an important expense as it represents the allocation of the value of an asset over its useful life.

3.4: Financial Management Indicators

Performance Indicators	Year ended 30 June
	2011	2010	2009
EBITDA ($’000’s)	18,912	19,840	19,656
Operating Ratio	(2.2%)	5.3%	5.4%
Interest Cover Ratio	8.30x	8.36x	8.49x
Debt Service Cover Ratio	3.85x	4.05x	4.11x
Unrestricted Current Ratio	2.78x	2.50x	2.07x
Own Source Revenue	0.60x	0.66x	0.64x
Cash Expense Ratio	9.19 months	10.6 months	10.4 months
Net assets ($'000’s)	821,545	768,194	581,642

Key Observations

· Council’s EBITDA has been maintained at consistent levels over the last three years.

· The Operating Ratio for 2011, while above the benchmark, is lower than 2010 mainly due to increased depreciation, and materials and contracts expenses.

· Council’s Interest Cover Ratio and DSCR were above their respective benchmarks indicating Council have flexibility in regard to carrying more debt.

· The Unrestricted Current Ratio has been above benchmark each year indicating Council have sufficient liquidity.

· The Own Source Operating Revenue is above the 60% benchmark. This indicates that Council have sufficient financial flexibility.

· The Cash Expense Ratio was well above benchmark all three years indicating Council have sound liquidity.

· Council’s Net Assets have increased by $240.0m between 2009 and 2011 due to Asset Revaluations which have increased the value of roads, bridges and drainage infrastructure. An impairment of $4.9m was recognised due to the value of infrastructure assets being adversely affected in the March 2011 floods with grants for flood restoration of $3.3m received.

· When the Asset Revaluations are excluded, the underlying trend in all three years has been an increase in the infrastructure, property, plant and equipment (IPP&E) asset base with asset purchases being greater than the combined value of disposed assets and annual depreciation. Over the three years this amounted to a $16.6m increase, including impairments, in IPP&E assets.

· Council has total borrowings of $32.9m representing 4.0% of Net Assets.

3.5: Statement of Cashflows

Key Observations

· While cash and cash equivalents remained static between 2011, they increased by 12.7% between 2009 and 2010 due to the reduction in capital expenditure and investing activities.

· The cash balances along with the Unrestricted Current Ratio indicate Council had sound liquidity.

· Of the $45.5m in cash and investments, $32.6m is externally restricted, $11.3m is internally restricted and $1.6m is unrestricted.

· The investment portfolio comprises $5.2m held in long term deposits. Council do not hold any CDO’s or FRN’s.

3.6: Capital Expenditure

The following section predominantly relies on information obtained from Special Schedules 7 and 8 that accompany the annual financial statements. These figures are unaudited and are therefore Council’s estimated figures.

3.6(a): Infrastructure Backlog

Council reported a $64.9m infrastructure backlog in 2011, of which 57% ($37.0m) relates to public roads. Council are seeking to address part of their roads infrastructure backlog in their LIRS projects.

3.6(b): Infrastructure Status

Infrastructure Status	Year ended 30 June
	2011	2010	2009
Bring to satisfactory standard ($’000’s)	64,975	63,975	62,510
Required annual maintenance ($’000’s)	17,727	17,727	17,140
Actual annual maintenance ($’000’s)	15,766	17,525	12,786
Total value of infrastructure assets ($’000’s)	567,074	566,301	523,191
Total assets ($’000’s)	871,673	820,154	633,636
Infrastructure Backlog Ratio	0.11x	0.11x	0.12x
Asset Maintenance Ratio	0.89x	0.99x	0.75x
Building and Infrastructure Renewals Ratio	0.82x	0.89x	1.00x
Capital Expenditure Ratio	1.82x	1.15x	1.32x

The Infrastructure Backlog Ratio has improved since 2009 as the total value of infrastructure assets has increased due to the Asset Revaluation.

The Asset Maintenance Ratio, and Building and Infrastructure Asset Renewal Ratio indicate the Council is spending at levels marginally below the benchmark on asset renewal and asset maintenance.

The Capital Expenditure Ratio which takes into account capital expenditures which improve performance or capacity, indicate Council’s asset base is being enhanced over the last three years. However if capital expenditure priority remains on expenditure on new assets rather than asset renewal, the backlog is likely to increase.

Based on these figures, the quality of the existing asset base may decline and Council need to focus on improving this if current service levels are to be maintained.

3.6(c): Capital Program

The following figures are sourced from the Council’s Annual Financial Statements at Special Schedule No. 8 and are not audited. New capital works are major non-recurrent projects.

Capital Program ($’000’s)	Year ended 30 June
	2011	2010	2009
New capital works	20,765	8,327	9,355
Replacement/refurbishment of existing assets	13,249	10,568	11,498
Total	34,014	18,895	20,853

Major projects in 2012 included:

· Yellowpinch pipeline project. $11.2m

Major projects over the next 10 years include:

· Bridges $3.6m - upgrade

· Collector roads $10m - upgrade

· Bega town hall $5.5m - renewal

· Littleton gardens $0.6m - renewal

· Merimbula airport runway $4.5m – renewal

· Merimbula library $1.5m - renewal

· Merimbula bypass and Mobil site $5.4m - renewal - construction of bypass of Merimbula CBD

· Merimbula service road $1.2m - upgrade

· Pambula sports complex $0.75m - upgrade

· Bega and Merimbula CBD streetscapes $1m each - upgrade

· Bermagui and Eden CBD streetscapes $0.5m each - upgrade

3.7: Specific Risks to Council

· Expense growth. Expenses have increased by 27.0% since 2009 with an increase of 17.6% in 2011. Rising employee and materials and contractors costs (and depreciation) are the main drivers. As revenues are increasing at much lower rates than expenses, Council needs to develop strategies to address this imbalance between revenue and expense growth.

· Ageing population. The LGA has a high proportion of aged persons, which is growing at a rate greater than the average population growth for the LGA. It is predicted that 25.0% of the LGA population will be over the age of 65 by 2030. This will place additional pressure on existing infrastructure and services and also significantly increase Council’s expenditure due to increased pensions contributions.

· Tourism is a key driver of the local economy. Following national trends, the number of tourists are decreasing and adversely affecting the local economy. Council considers its long-term role in the industry is in the strategic development and placement of tourist/recreational infrastructure and signage to reflect the LGA’s ‘brand’. Council have submitted proposals to Local Government and hope to implement a more tiered rating structure where business’ pay pro-rata for maintaining tourism infrastructure.

· The LGA is subject to climate change and its impacts. The LGA has had six natural disaster declarations since 2009. These include four for storms and floods, and two for bushfires. Council is reliant on State and Federal grants for various natural disaster funds. A flood survey has been completed and Council is in the process of developing floodplain mapping to more accurately predict flood hazards and prepare for flood risks.

Section 4 Review of Financial Forecasts

The financial model shows the projected financial statements and assumptions for the next 10 years. The model includes the proposed $9.0m loan relating to the four proposed LIRS projects without any LIRS subsidy.

The LIRS loan relates to the General Fund, therefore we have focused our financial analysis solely upon this Fund. Council’s consolidated position includes both a Water and Sewer Fund however these are operated as independent entities, which unlike the General Fund are able to adjust the appropriate fees and charges to meet all future operating and investing expenses.

4.1: Operating Results

The Council’s operating results forecast a deficit position until 2014 when capital grants and contributions are excluded. From 2014 Council forecast a surplus each year with a total increase of 20.0% over the entire forecast period. Council have forecast Operating Revenue to increase at a faster rate than operating expenses. Whilst this is not in line with historic results, Council is actively engaged in reviewing its procurement practices, workplace agreements and other work practices which it believes will allow it to improve cost control.

4.2: Financial Management Indicators

Liquidity Ratios

The Cash Expense Ratio is above benchmark for the term of the forecast and indicates that Council will have sufficient liquidity.

Fiscal Flexibility Ratios

The Own Source Operating Revenue Ratio remains at benchmark levels from 2012 on following a forecast decrease in 2012. This is due to Council forecasting a much more conservative rates figure for the general fund than the audited figures for 2011.

The DSCR is above the benchmark of 2.00x for the 10 years of the forecast. This indicates that Council has the capacity to manage the additional debt cost that the LIRS applications relate to.

This also corresponds with Council having a relatively moderate level of borrowings at 4.00% of their Net Assets. The improving ratio over time is due to an increasing EBITDA and a decrease in debt service costs over time as Council pays down its debt.

The Interest Cover Ratio, similarly to the DSCR, shows the Council has sufficient capacity to service scheduled debt commitments, including the LIRS loans.

There is capacity to service further debt interest costs before the Council’s ratio decreases to the 4.00x benchmark.

4.3: Capital Expenditure

Capital expenditure is above the benchmark for the majority of the forecast. There is a spike in capex in 2014 due to work on projects such as Bega Depot, Town Hall, Merimbula Bypass, Merimbula Library and Merimbula Airport.

The total surplus for capital expenditure versus depreciation over the lifetime of the forecast amounts to $50.0m in nominal terms.

4.4: Financial Model Assumption Review

Councils have used their own assumptions in developing their forecasts.

In order to evaluate the validity of the Council’s forecast model, TCorp has compared the model assumptions versus TCorp’s benchmarks for annual increases in the various revenue and expenditure items. Any material differences from these benchmarks should be explained through the LTFP.

TCorp’s benchmarks:

· Rates and annual charges: TCorp notes that rates increased by 3.4% in the year to September 2011, and in December 2011, IPART announced that the rate peg to apply in the 2012/13 financial year will be 3.6%. Beyond 2013 TCorp has assessed a general benchmark for rates and annual charges to be increased by mid-range LGCI annual increases of 3%

· Interest and investment revenue: annual return of 5%

· All other revenue items: the estimated annual CPI increase of 2.5%

· Employee costs: 3.5% (estimated CPI+1%)

· All other expenses: the estimated annual CPI increase of 2.5%

Key Observations and Risks

· Rates and annual charges are forecast to decrease in 2012 and 2013. They increase in 2014 by 3.51% for the remainder of the forecast period. This is lower than historic increases and considered reasonable.

· User fees and charges are forecast to decrease in 2012 and increase by 7.7% in 2013. From 2014 they increase by 5.60%. The historical result is based on the consolidated fund and when looked at separately the revenue is forecast lower than the historical General Fund.

· Employee costs have been forecast to increase by 2.0% for the forecast period. While this appears conservative following the historical increases of 12.4% in 2011, this was an exceptional occurrence and will not be repeated. Council are also closely monitoring their employee costs and plan to cap their number of full time equivalent employees, implement a ratio of 40% staff to 60% contractors and the finishing of the flood renewal works.

· Materials and contracts expenses have been forecast to increase by 2.0% compared to 15.5% in 2009 and 23.5% in 2011. Council are currently reviewing their materials and contracts expenses and plan to reduce the number of contracting firms and invoicing costs. They are implementing a two year road map to centralise contract management.

· Council have set up an Expenditure Committee to monitor Council expenses and implement practices to reduce costs.

· Overall we feel Councils forecasts are achievable.

4.5: Borrowing Capacity

When analysing the financial capacity of the Council we believe Council will be able to incorporate additional loan funding in addition to the LIRS loan facilities, subject to our comments in section 4.4. Some comments and observations are:

· Based on a benchmark of DSCR>2x, $6.0m could be borrowed in addition to the $9.0m borrowings proposed under LIRS in 2013

· This scenario has been calculated by basing borrowing capacity on a 10 year amortising loan at 7.0% interest

· The Council’s capacity to borrow additional funds increases each year after 2014 as additional cashflow is forecast to become available for debt service

Section 5: Benchmarking and Comparisons with Other Councils

As discussed in section 2 of this report, each council’s performance has been assessed against ten key benchmark ratios. The benchmarking assessment has been conducted on a consolidated basis (that is, for councils that operate more than one fund, the results of all funds are included). This section of the report compares the Council’s performance with its peers in the same DLG Group. The Council is in DLG Group 4. There are 32 councils in this group and at the time of preparing this report, we have data for 19 of these councils.

In Figure 14 to Figure 20, the graphs compare the historical performance of Council with the benchmark for that ratio, with the average for the Group, with the highest performance (or lowest performance in the case of the Infrastructure Backlog Ratio where a low ratio is an indicator of strong performance), and with the forecast position of the Council as at 2016 (as per Council’s LTFP). Figures 21 to 23 do not include the 2016 forecast position as those numbers are not available.

Where no highest line is shown on the graph, this means that Council is the best performer in its group for that Ratio.

Financial Flexibility

Council’s Operating Ratio was above benchmark and the group’s average in the past three years. Council’s operating results are forecast to improve over the medium term, in contrast to the group average.

Council’s Own Source Operating Revenue Ratio has generally tracked the group’s average in the past three years. The proportion of own sourced revenue is forecast to increase significantly over the medium term, on a consolidated basis.

Overall, Council’s financial flexibility is sound and compares favourably to the other councils in the group.

Liquidity

The Council was the highest performer in the group for the Cash Expense Ratio.

Council’s Unrestricted Current Ratio tracked the group’s average over the review period and maintained above benchmark levels. Council has not provided sufficient data to calculate a forecast over the medium term.

Overall, Council’s liquidity position is strong and compares favourably to the council average in the group.

Debt Servicing

Council’s debt servicing capacity was above benchmark but slightly below the group’s average in the past three years, as indicated by its DSCR and Interest Cover Ratios.

Council’s debt servicing ratios are forecast to improve over the medium term due to an increasing EBITDA and a decrease in debt service costs over time as Council pays down its debt.

Overall, Council’s level of gearing is similar to its peers.

Asset Renewal and Capital Works

Council’s Capital Expenditure Ratio was above benchmark over the review period and generally outperformed the group’s average.

Overall, Council’s expenditure on asset maintenance and renewal needs to be a focus if it is to adequately improve the quality of its existing asset base and prevent the backlog from growing.

Council’s Infrastructure Backlog was well above benchmark and on par with the group’s average in the past three years. Council’s Asset Maintenance Ratio and Building and Infrastructure Renewal Ratio were below benchmark but above the average council in the group.

Section 6: Conclusion and Recommendations

Based on our review of both the historic financial information and the 10 year financial forecast within Council’s LTFP we consider Council to be in a satisfactory financial position in terms of their operating performance. Both past performance and the financial forecasts support our findings that Council has sufficient financial capacity to service the additional borrowings proposed under its LIRS application.

We base our recommendation on the following key points:

· Council has sufficient financial capacity to manage the additional $9.0m debt highlighted by a DSCR and Interest Cover Ratio above the benchmarks in all 10 years of its financial forecast

· Council has undertaken capital expenditure in the last three years at a level to enhance their IPP&E

· Council has engaged external advisers to provide assistance in reviewing its operating and capital investment position and options

· The quality of management plans, asset management plans, and operating plans also suggest that Council are well managed and adequately resourced

However we would also recommend that the following points be considered:

Appendix A Historical Financial Information Tables

Table 1- Income Statement

Income Statement ($'000)	Year ended 30 June			% annual change
	2011	2010	2009	2011	2010
Revenue
Rates and annual charges	37,284	35,385	32,826	5.4%	7.8%
User charges and fees	13,456	13,402	13,094	0.4%	2.4%
Interest and investment revenue	3,122	2,457	2,390	26.7%	2.8%
Grants and contributions for operating purposes	17,211	13,890	12,284	23.9%	13.1%
Other revenues	405	392	288	3.3%	36.1%
Total revenue	71,468	65,526	60,882	9.1%	7.6%

Employees	23,976	21,332	19,715	12.4%	8.2%
Borrowing costs	2,279	2,372	2,314	(3.9%)	2.5%
Materials and contract expenses	23,792	19,271	16,684	23.5%	15.5%
Depreciation and amortisation	18,174	14,012	14,032	29.7%	(0.1%)
Other expenses	4,788	5,083	4,827	(5.8%)	5.3%
Total expenses	73,009	62,070	57,572	17.6%	7.8%
Operating result	(1,541)	3,456	3,310	(144.6%)	4.4%

Table 2 - Items excluded from Income Statement

Excluded items ($’000)
	2011	2010	2009
Grants and contributions for capital purposes	13,291	8,129	10,831
Gain on recognition of interest-free loan
Increase (Decrease) in the fair value of investments
Net gain (loss) from discontinued operations	(6,159)	97	0
Net gain (loss) on disposal of assets	82	(22)	288

Table 3 - Balance Sheet

Balance Sheet ($’000)	Year Ended 30 June			% annual change
	2011	2010	2009	2011	2010
Current assets
Cash and equivalents	40,267	40,365	35,829	(0.2%)	12.7%
Investments	5,272	12,165	10,162	(56.7%)	14.6%
Receivables	9,896	7,891	4,568	25.4%	72.7%
Inventories	554	588	522	(5.8%)	12.6%
Other	494	0	0
Total current assets	56,483	61,009	51,531	(7.4%)	18.4%
Non-current assets
Investments	0	0	0
Receivables	99	94	28	5.3%	235.7%
Inventories	0	0	0
Infrastructure, property, plant & equipment	815,091	759,051	582,105	7.4%	30.4%
Investment property	0	0	0
Total non-current assets	815,190	759,145	582,105	7.4%	30.4%
Total assets	871,673	820,154	633,636	6.3%	29.4%
Current liabilities
Payables	5,753	5,969	5,114	(3.6%)	16.7%
Borrowings	2,353	2,971	2,529	(20.8%)	17.5%
Provisions	6,469	6,362	5,636	1.7%	12.9%
Total current liabilities	14,575	15,302	13,279	(4.8%)	15.2%
Non-current liabilities
Payables	0	0	0
Borrowings	30,541	31,616	33,587	(3.4%)	(5.9%)
Provisions	5,012	5,042	5,128	(0.6%)	(1.7%)
Total non-current liabilities	35,553	36,658	38,715	(3.0%)	(5.3%)
Total liabilities	50,128	51,960	51,994	(3.5%)	(0.1%)
Net assets	821,545	768,194	581,642	6.9%	32.1%

Table 4-Cashflow

Cashflow Statement ($'000)	Year ended 30 June
	2011	2010	2009
Cashflows from operating activities	17,498	23,776	26,460
Cashflows from investing activities	(15,903)	(17,711)	(22,239)
· Proceeds from borrowings and advances	936	1,000	1,000
· Repayment of borrowings and advances	(2,629)	(2,529)	(2,469)
Cashflows from financing activities	(1,693)	(1,529)	(1,469)
Net increase/(decrease) in cash and equivalents	(98)	4,536	2,752
Cash and equivalents	40,267	40,365	35,829

Appendix B Glossary

Asset Revaluations

In assessing the financial sustainability of NSW councils, IPART found that not all councils reported assets at fair value.^{^[1]} In a circular to all councils in March 2009^{^[2]}, DLG required all NSW councils to revalue their infrastructure assets to recognise the fair value of these assets by the end of the 2009/10 financial year.

Collateralised Debt Obligation (CDO)

CDOs are structured financial securities that banks use to repackage individual loans into a product that can be sold to investors on the secondary market.

In 2007 concerns were heightened in relation to the decline in the “sub-prime” mortgage market in the USA and possible exposure of some NSW councils, holding CDOs and other structured investment products, to losses.

In order to clarify the exposure of NSW councils to any losses, a review was conducted by the DLG with representatives from the Department of Premier and Cabinet and NSW Treasury.

A revised Ministerial investment Order was released by the DLG on 18 August 2008 in response to the review, suspending investments in CDOs, with transitional provisions to provide for existing investments.

Division of Local Government (DLG)

DLG is a division of the NSW Department of Premier and Cabinet and is responsible for local government across NSW. DLG’s organisational purpose is “to strengthen the local government sector” and its organisational outcome is “successful councils engaging and supporting their communities”. Operating within several strategic objectives DLG has a policy, legislative, investigative and program focus in matters ranging from local government finance, infrastructure, governance, performance, collaboration and community engagement. DLG strives to work collaboratively with the local government sector and is the key adviser to the NSW Government on local government matters.

Depreciation of Infrastructure Assets

Linked to the asset revaluations process stated above, IPART’s analysis of case study councils found that this revaluation process resulted in sharp increases in the value of some council’s assets. In some cases this has led to significantly higher depreciation charges, and will contribute to higher reported operating deficits.

EBITDA

EBITDA is an acronym for “earnings before interest, taxes, depreciation, and amortisation”. It is often used to measure the cash earnings that can be used to pay interest and repay principal.

Grants and Contributions for Capital Purposes

Councils receive various capital grants and contributions that are nearly always 100% specific in nature. Due to the fact that they are specifically allocated in respect of capital expenditure they are excluded from the operational result for a council in TCorp’s analysis of a council’s financial position.

Grants and Contributions for Operating Purposes

General purpose grants are distributed through the NSW Local Government Grants Commission. When distributing the general component each council receives a minimum amount, which would be the amount if 30% of all funds were allocated on a per capita basis. When distributing the other 70%, the Grants Commission attempts to assess the extent of relative disadvantage between councils. The approach taken considers cost disadvantage in the provision of services on the one hand and an assessment of revenue raising capacity on the other.

Councils also receive specific operating grants for one-off specific projects that are distributed to be spent directly on the project that the funding was allocated to.

Independent Commission Against Corruption (ICAC)

ICAC was established by the NSW Government in 1989 in response to growing community concern about the integrity of public administration in NSW.

The jurisdiction of the ICAC extends to all NSW public sector agencies (except the NSW Police Force) and employees, including government departments, local councils, members of Parliament, ministers, the judiciary and the governor. The ICAC's jurisdiction also extends to those performing public official functions.

Independent Pricing and Regulatory Tribunal (IPART)

IPART has four main functions relating to the 152 local councils in NSW. Each year, IPART determines the rate peg, or the allowable annual increase in general income for councils. They also review and determine council applications for increases in general income above the rate peg, known as “Special Rate Variations”. They approve increases in council minimum rates. They also review council development contributions plans that propose contribution levels that exceed caps set by the Government.

· Infrastructure Backlog

Infrastructure backlog is defined as the estimated cost to bring building, infrastructure and other structures to a satisfactory standard, measured at a particular point in time. It is unaudited and stated within Special Schedule 7 that accompanies the council’s audited annual financial statements.

Integrated Planning and Reporting (IP&R) Framework

As part of the NSW Government’s commitment to a strong and sustainable local government system, the Local Government Amendment (Planning and Reporting) Act 2009 was assented on 1 October 2009. From this legislative reform the IP&R framework was devised to replace the former Management Plan and Social Plan with an integrated framework. It also includes a new requirement to prepare a long-term Community Strategic Plan and Resourcing Strategy. The other essential elements of the new framework are a Long-Term Financial Plan (LTFP), Operational Plan and Delivery Program and an Asset Management Plan.

Local Government Cost Index (LGCI)

The LGCI is a measure of movements in the unit costs incurred by NSW councils for ordinary council activities funded from general rate revenue. The LGCI is designed to measure how much the price of a fixed “basket” of inputs acquired by councils in a given period compares with the price of the same set of inputs in the base period. The LGCI is measured by IPART.

Net Assets

Net Assets is measured as total assets less total liabilities. The Asset Revaluations over the past years have resulted in a high level of volatility in many councils’ Net Assets figure. Consequently, in the short term the value of Net Assets is not necessarily an informative indicator of performance. In the medium to long term however, this is a key indicator of a council’s capacity to add value to its operations. Over time, Net Assets should increase at least in line with inflation plus an allowance for increased population and/or improved or increased services. Declining Net Assets is a key indicator of the council’s assets not being able to sustain ongoing operations.

Roads and Maritime Services (RMS)

The NSW State Government agency with responsibility for roads and maritime services, formerly the Roads and Traffic Authority (RTA).

Section 64 Contribution

· Development Servicing Plans (DSPs) are made under the provisions of Section 64 of the Local Government Act 1993 and Sections 305 to 307 of the Water Management Act 2000.

· DSPs outline the developer charges applicable to developments for Water, Sewer and Stormwater within each Local Government Area.

Section 94 Contribution

· Section 94 of the Environmental Planning and Assessment Act 1979 allows councils to collect contributions from the development of land in order to help meet the additional demand for community and open space facilities generated by that development.

· It is a monetary contribution levied on developers at the development application stage to help pay for additional community facilities and/or infrastructure such as provision of libraries; community facilities; open space; roads; drainage; and the provision of car parking in commercial areas.

· The contribution is determined based on a formula which should be contained in each council's Section 94 Contribution Plan, which also identifies the basis for levying the contributions and the works to be undertaken with the funds raised.

Special Rate Variation (SRV)

A SRV allows councils to increase general income above the rate peg, under the provisions of the Local Government Act 1993. There are two types of special rate variations that a council may apply for:

· a single year variation (section 508(2)) or

· a multi-year variation for between two to seven years (section 508A).

The applications are reviewed and approved by IPART.

Ratio Explanations

Asset Maintenance Ratio

Benchmark = Greater than 1.0x

Ratio = actual asset maintenance / required asset maintenance

This ratio compares actual versus required annual asset maintenance, as detailed in Special Schedule 7. A ratio of above 1.0x indicates that the council is investing enough funds within the year to stop the infrastructure backlog from growing.

Building and Infrastructure Renewals Ratio

Benchmark = Greater than 1.0x

Ratio = Asset renewals / depreciation of building and infrastructure assets

This ratio compares the proportion spent on infrastructure asset renewals and the asset’s deterioration measured by its accounting depreciation. Asset renewal represents the replacement or refurbishment of existing assets to an equivalent capacity or performance as opposed to the acquisition of new assets or the refurbishment of old assets that increase capacity or performance.

Cash Expense Cover Ratio

Benchmark = Greater than 3.0 months

Ratio = current year’s cash and cash equivalents / (total expenses – depreciation – interest costs)*12

This liquidity ratio indicates the number of months a council can continue paying for its immediate expenses without additional cash inflow.

Capital Expenditure Ratio

Benchmark = Greater than 1.1x

Ratio = annual capital expenditure / annual depreciation

This indicates the extent to which a council is forecasting to expand its asset base with capital expenditure spent on both new assets, and replacement and renewal of existing assets.

Debt Service Cover Ratio (DSCR)

Benchmark = Greater than 2.0x

Ratio = operating results before interest and depreciation (EBITDA) / principal repayments (from the statement of cash flows) + borrowing interest costs (from the income statement)

This ratio measures the availability of cash to service debt including interest, principal and lease payments

Infrastructure Backlog Ratio

Benchmark = Less than 0.02x

Ratio = estimated cost to bring assets to a satisfactory condition (from Special Schedule 7) / total infrastructure assets (from Special Schedule 7)

This ratio shows what proportion the backlog is against total value of a council’s infrastructure.

Interest Cover Ratio

Benchmark = Greater than 4.0x

Ratio = EBITDA / interest expense (from the income statement)

This ratio indicates the extent to which a council can service its interest bearing debt and take on additional borrowings. It measures the burden of the current interest expense upon a council’s operating cash.

Operating Ratio

Benchmark = Better than negative 4%

Ratio = (operating revenue excluding capital grants and contributions – operating expenses) / operating revenue excluding capital grants and contributions

This ratio measures a council’s ability to contain operating expenditure within operating revenue.

Own Source Operating Revenue Ratio

Benchmark = Greater than 60%

Ratio = rates, utilities and charges / total operating revenue (inclusive of capital grants and contributions)

This ratio measures the level of a council’s fiscal flexibility. It is the degree of reliance on external funding sources such as operating grants and contributions. A council’s financial flexibility improves the higher the level of its own source revenue.

Unrestricted Current Ratio

Benchmark = 1.5x (taken from the IPART December 2009 Revenue Framework for Local Government report)

Ratio = Current assets less all external restrictions / current liabilities less specific purpose liabilities

Restrictions placed on various funding sources (e.g. Section 94 developer contributions, RMS contributions) complicate the traditional current ratio because cash allocated to specific projects are restricted and cannot be used to meet a council’s other operating and borrowing costs. The Unrestricted Current Ratio is specific to local government and is designed to represent a council’s ability to meet debt payments as they fall due.

Council 31 October 2012 Item 12.7

12.7. Community strategic plan review - community survey and special rate variation process

Council is required to review its Community Strategic Plan within the first nine months of its term. This report proposes actions associated with the planned community survey and special variation options outlined in the adopted operational plan and long term financial plan, to assist that review.

General Manager

Background

Council is required to undertake a review of the community strategic plan – ‘Bega Valley 2030’ – by June 2013. The Operational Plan 2012/13 identified the third triennial community survey is due to be undertaken in early November 2012.

Council has also adopted positions in relation to the long term financial plan (LTFP) relating to a s508A general rate special variation application over the period of Council’s adopted 2011-2016 Delivery Plan. This proposal includes two increases of 2% above rate pegging (the Local Government Cost Index - LGCI) and the continuation of an expiring special variation for recreation/community access. Council should consult with the community in relation to this proposal.

Bega Valley 2030- community strategic plan - Review

Council undertook considerable community consultation and engagement over the period 2009-2011 to review the previous 20 year plan and develop its first community strategic plan - Bega Valley 2030 and associated plans under the State Government’s integrated planning and reporting framework (IPR). Following the ‘assets and services review’ late in 2011, Council revised the asset standards and services priorities, and major projects to be funded in the LTFP, in accord with the second tranche (achievability and affordability) of its CSP schedule.

Accordingly, the Delivery Plan - Bega Valley 2016, the annual Operational Plan - Bega Valley 2013, the Resourcing Strategy (asset, financial, workforce) and the associated Long Term Financial Plan, Asset Management Plans and Workforce Plan were further refined and publicly exhibited in 2012 prior to adoption in June 2012.

Council is required to review its Community Strategic Plan under the IPR within the first nine months of its term. Following the election, Councillors have attended several induction sessions and a two day workshop focussing on the review framework.

Councillors are aware that the triennial community survey has been planned for November 2012. Councillors have indicated that in general there is no major divergence from the key directions outlined in the adopted Bega Valley 2030.

Councillors are also aware that in Council’s adopted LTFP and Operational Plan Bega Valley 2013, the adopted position is to consult the community and formally consider submitting a 508A special variation application to the Independent Pricing and Regulatory Authority (IPART).

It is suggested the formal Community Strategic Plan review process comprise:

· Re-appraisal by councillors of the asset and services review report and amendments to the CSP and related documents 2011/12

· Conduct the community survey (satisfaction with services and directions) and suggested deliberative survey (proposed rates special variation) - November

· Assess whether any substantive changes are required to the CSP, having regard to the surveys – December/January

· Adopt/readopt the CSP and related documents – February

Later in this report, the process for the survey and any application to IPART for the proposed rates special variations is outlined. Should Council resolve not to proceed with the IPART application, then the following is suggested:

· Consider results of surveys and determine whether to formally lodge the s508A application – November/December

· If Council chooses not to lodge, then the CSP and related documents will require substantial revision, as those plans are based on the premise of:

o managing the asset backlog at 2% over the next 20 years

o commencing scheduled renewals and upgrades (eg collector roads) from 2014

o borrowing debt to assist asset renewals and upgrades

o servicing debt in part by those rate variations

· Re-adopt CSP, but signal the removal of the rate variations and adjustments to asset renewal, upgrade and service schedules - March

· Schedule councillor workshops to revise asset renewal and upgrade schedules (scope and timing) to reflect timing and size of special rate variations (if removed or deferred) – April/May

o Adjust Asset Management Plans, associated works schedules and LTFP

o Adjust asset standards and service levels in AMPs and Delivery Plan

· Exhibit and adopt revised CSP and associated documents - June

It is proposed that Council resolve to commit to the direction of the current community strategic plan and consider the need to review further following receipt of the results of the community survey and the consultation in relation to the special variation application.

Community survey

Council has incorporated a triennial, independent community satisfaction survey into its community strategic planning regime since 2006. The planned 2012 community survey will be the third community satisfaction survey conducted by Bega Valley Shire Council. This independent monitoring and evaluation of community needs, aspirations and satisfaction with Council’s performance is a critical input to good local government.

The longitudinal survey results provided by undertaking an independent, statistically reliable community satisfaction survey in this manner enable the organisation to set improvement targets in relation to key service areas.

The community satisfaction survey provides Council with an understanding of the perceptions and needs of the local community with respect to both Council’s services and facilities, and to customer service and community information. The results of the survey assist in:

- Enabling Council to continue to plan for services and infrastructure to provide sustainable solutions to meet the needs of existing and future Shire residents

- Ensuring that the services Council delivers are well managed, responsive and effective

- Ensuring that the organisation and its staff maintain high standards of customer service.

The results of the 2009 community satisfaction survey were a major input into the development of the community strategic plan.

The survey format has been modified in 2012 to reflect the theme areas of Bega Valley 2030. As workshopped with councillors, the component parts of the survey will be expanded this year to include:

- the traditional landline telephone survey utilising a random sampling technique that delivers a final sample that is representative of the broader community. The final results will be weighted by Census proportions to ensure that sufficient unit cohorts are obtained within key demographic characteristics such as age group and gender; and

- the additional component of converting the survey to a format that can be hosted on Council’s consultation website so that Council can direct residents whom are not surveyed by telephone to complete the survey online. This allows individuals that become aware of the survey with an opportunity to participate.

A sample size of 750 (150 for each of Council’s five identified geographic areas) will be used with the average interview time of 15 minutes per survey. The identified geographic areas are: Eden & surrounds; Merimbula & surrounds; Bega & surrounds; Bermagui & surrounds; and Rural.

The results of the survey will also be benchmarked against like Councils using the Australian Classification of Local Government. This comparison will be clearly made in the area of overall satisfaction and performance scores for individual services/facilities. It is planned to undertake the survey in November with results presented to Council in December.

The issue of mobile phone use as well as landline contacts has been discussed with the consultants. With small area surveys, it is not currently possible to include mobile phones, as no locality identifier is known.

The consultants maintain that landline telephone calls provide by far the most cost effective mechanism to reach 80% of the population. Currently telephone surveying researchers do not have authorized access to Portable Navigation Device technology. The national body representing these types of research bodies - Australian Market and Social Research Organisation (AMSRO) - is currently working on approval for their members to access this technology. Mobile number use may be an option for the 2015 survey.

The consultants experience indicates that up to 30% of households do not have a listed telephone number The national body is working on this and trying to gain approval to have access to the PND. While this may be an issue for certain topics or target groups (i.e. young people), it doesn’t impact on the representativeness of results of a broad Council survey.

Special rate Variation

Most councils in NSW increase their general income (mainly rate income) in line with the rate peg percentage set by IPART each year. However, the Local Government Act 1993 provides for councils to apply for a ‘special variation’, which allows the council to increase its general income by more than the rate peg. Councils may apply for a special variation under section 508(2) or 508A to increase their general income in the next year or for a number of years (up to seven consecutive years). Bega Valley Shire Council has successfully applied for enduring s508(2) rate variations for a mix of asset renewals/upgrades, or retention of services (libraries/lifeguards/weeds/tourism). The variations for recreation/community access has a five year term, while the airport renewal variation has a 20 year term.

The rate variations are a one-off % lift in total general rate income. If they expire, the value of a rate variation (including effect of rate pegs) is removed from the total rate income. Applications to IPART include the anticipated value of the rate peg, plus the amount above rate peg that is sought. For example, while Council may lodge an application for the proposed 2% above rate peg for collector roads, the application will cite an increase of 5.5%, assuming the announced rate peg will be 3.5%.

IPART assesses council applications for special variations using criteria set by the NSW Government. The criteria are set out in guidelines provided by the Division of Local Government. The guidelines for 2013/14 have not been released at the time of preparing this report, however it is expected that they will be consistent with ‘The Guidelines for the preparation of an application for a special variation to general income 2012/13’ issued in 2011. One of the criteria relates to community consultation. Community consultation is one of the criteria that IPART uses in assessing councils’ applications:

There are two types of special variation applications s508(2) and s508A.

- S508(2) application – a one off increase to general rate income for a specific purpose that may be for a set time or a permanent increase

- S 508A application – a multiyear series of increases (for up to seven years) which may be for a set period or permanent.

For s508(2) applications, councils must show there has been ‘adequate community consultation regarding the special variation’. For 508A applications, councils must show ‘demonstrated community support for the special variation’.

In assessing whether a council’s application satisfies the relevant criterion for community consultation IPART will consider the following principles:

- that the council clearly communicated the impact of proposed rate increases on ratepayers about the special variation application, not just a small section of the community that attends a community meeting or undertakes a survey.

- that the council clearly communicated what the special variation will be used to fund.

In relation to lodging a s508A application Council must have completed its Community Strategic Plan and all associated plans and reports in particular outlining the special variation in the relevant Asset Management Plans and the LTFP. Bega Valley Shire has outlined within those documents the intent and focus of its proposal as required.

In discussions with IPART it is apparent that special variation applications will only be considered where they are linked to a Council’s forward planning.

IPART assessment criteria for a special variation application

IPART have provided the following information through the Division of Local Government in relation to the criteria they will use to assess applications. Councils will need to demonstrate where it is up to in its implementation of the Integrated Planning and Reporting Framework. The four assessment criteria are then:

- the need and purpose of a revenue path for the requested application is clearly articulated and identified in the Council’s adopted delivery plan and LTFP

- evidence that the community is aware of the need and extent of the rate rise

- outline of the impact on affected ratepayers which must be reasonable having regard to the purpose for the variation; and

- the delivery program and LTFP must evidence cost containment and productivity achievement.

Timeframe

- June 2012 Council adopted its revised Long Term Financial Plan and Delivery Plan and the 2012/13 Operational Plan in which the special variation application is outlined as proposed in this report to Council.

- November 2012 It is reasonable that Council consult with its community in November to gain input into its deliberations in relation to continuing with the application.

- December 2012 Council will need to advise IPART of its intention to lodge an application if following receipt of community input it resolves to do this. This will occur through resolution at the 12 December Council meeting.

- February 2013 Council is not fully committed until the lodgement of the application which it is expected will be required in late February 2013. Again this will be through formal decision and resolution of the Council.

Consulting with the community

Councils are required to engage with their community in relation to special variation applications. Councils may use a range of methods to consult with their community in relation to special variation applications. The manner in which Council does this may include, but is not limited to, mail outs to ratepayers, fact sheets, media releases, public meetings, listening posts, and online discussion forums. Information must be presented in a way that community members can understand, clearly explaining what the special variation is being sought for. For example, it may be for a program of works, to address infrastructure backlogs, or for service enhancements.

Councils must be able to show that the information they present to the community is transparent and clearly identifies the impact of any proposed rate increase on ratepayers. Information should not be presented so as to minimise the perceived impact of the increase. It must show:

- that the requested special variation includes the rate peg

- that multi-year increases in rates are cumulative

- if the rate increases will remain permanently in the rate base of the council or be removed after a fixed period (as section 508(2) applications may be for a fixed period only)

- if the council has an expiring special variation which it intends to continue or incorporate into general revenue into the future rates and rate increases should be presented on an annual and a weekly basis

- increases in other charges, such as for waste management, where these are likely to exceed CPI increases.

Councils should also show the impact of not applying for, or not having the special variation approved. For example if reductions in particular services are likely, or if certain projects will not go ahead if the special variation does not proceed, this should be made clear to ratepayers. Councils will need to present a realistic scenario to the community. Councils should not present a worst-case scenario or threaten ratepayers with unrealistic cuts in the most popular community services.

Expiring Special Variations

Councils need to explain clearly, where relevant, that a special variation is being used to replace an existing special variation, such as the recreation/community access levy. This is true whether the levy is to apply permanently or for a limited number of years.

Councils should inform their communities:

- that an existing special variation is about to expire or will do so during the period covered by the application for a special variation

- that the year-on-year impact on rates would not be as great or would decrease if the special variation is not approved and only the rate peg was applied

- if applicable, that an expiring special variation is being replaced with a permanent increase to the rate base

- that the special variation includes the value of any expiring special variation and any additional rate increase that is being sought by the council

- the effect of the special variation on rates may differ from the year-or-year change in rates if a special variation would have otherwise expired.

Bega Valley Shire Council s508A special variation proposal

As outlined in Council’s adopted LTFP and Bega Valley 2013 (Operational Plan) the following model is proposed:

- (1) New 2% one off ongoing increase above LGCI (rate pegging) in 2014 for transport renewal of collector roads (defined below). This variation will raise the general rate yield by an estimated $400,000 in 2014 and then be indexed by LGCI on an ongoing capacity.

- (2) Retained 2.4% one-off ongoing increase above LGCI (rate pegging) in 2015 to retain the expiring recreation and access approval with the options to use this amount for debt servicing or for annual project works in line with the LTFP for recreation asset renewals (defined below). This variation will retain the general rate yield at an estimated $507,000 and then be indexed by LGCI on an ongoing capacity.

- (3) New 2% one-off ongoing increase above LGCI (rate pegging) in 2016 for infrastructure renewal for public domain areas and buildings (defined below). This variation will raise the general rate yield by an estimated $440,000 and then be indexed by LGCI on an ongoing capacity.

Collector roads, recreation assets and public domain and public buildings

Collector Roads

Managed, maintained and funded by Council and can be both urban (Auckland Street, Monaro Street, Wallaga Street) and rural (Dr George Mountain Road, Upper Brogo Road, Burragate Road). They have the following functional characteristics:

· Link higher order roads

· Link population or activity centres

· Usually part of a loop road

· Carries significant through traffic

· Can be critical access

· Carries significant traffic

· Supports economic development

There are 20.77km of sealed collector roads in the urban areas of the Shire and in the rural area 87.95 km of sealed and 65.14 or unsealed collector roads.

The Transport Asset Management Plan covers in detail the priorities, assessment and adopted program for these critical assets. Attached is a graphic depiction of the impact of the program that can be achieved with the special variation program.

Recreation and sporting assets

The Recreation Asset Management Plan covers in detail the priorities, assessment and adopted program for these critical assets. Attached is a graphic depiction of the impact of the program that can be achieved with the special variation program.

Buildings

The Building Asset Management Plan covers in detail the priorities, assessment and adopted program for these critical assets. Attached is a graphic depiction of the impact of the program that can be achieved with the special variation program.

T-Corp Assessment

With reference to a separate report in the agenda, the T-Corp audit noted the Council has been well managed over the review period based on the following observations:

- Council has reported an operating surplus excluding capital grants and contributions in 2009 and 2010.

- Council’s underlying cash result (measured using EBITDA) remained consistent over the three year period

- Approximately 71.0% of the Council’s revenue base is derived from own sourced revenue (annual charges and user charges and fees).

Council reported an infrastructure backlog of $64.9m (9.4%) in 2011 with an infrastructure asset value of $687.3m. Other observations include:

- The Council’s infrastructure backlog is on an upward trend

- Compared to benchmark ratios Council appear to be underspending on building and infrastructure asset renewal and asset maintenance. However, Council has exceeded the Capital expenditure Ratio benchmark for the last three years indicating that they are spending on assets which improve performance or capacity

- The most significant proportion of the backlog relates to roads at 57%, with building and other structures at 17%. Both of these backlogs are being addressed in the LIRS applications

Impact of the special variation on rates

The amount and impact of these two new and one retained special variations is outlined in the table below. This table shows the impact on average rates as calculated using the preferred model by IPART - this is the amount of income derived by general rates from a rate category divided by the number of properties.

Council has traditionally used the land value method which is more accurate indicating the rate per category based on the average land value per category, together with the upper and lower thresholds (ie 10^th and 90^th percentiles). However it is appropriate to revert to the format IPART requires for its assessment.

Table 1 below shows the impact on average rates with and without a special variation of 2% for 2 years - 2013/14 and 2015/16 and the continuation of an expiring special variation in 2014/15. In this model rate peg of 3% per annum is assumed for all years.

	2012/13	2013/14 (1)	2014/15 (2) #	2015/16 (3)	2016/17
Residential rates without SV (rate peg only)	$901.50	$919.35	$913.65	$931.74	$950.19
Residential rates with SV	$901.50	$937.74	$956.31	$994.75	$1,014.45
Impact of SV	$0.00	$18.39	$42.66	$63.01	$64.26
Cumulative impact of SV	$0.00	$18.39	$61.05	$124.06	$188.32

Farmland rates without SV (rate peg only)	$1,742.07	$1,776.56	$1,765.54	$1,800.50	$1,836.15
Farmland rates with SV	$1,742.07	$1,812.10	$1,847.98	$1,922.26	$1,960.33
Impact of SV	$0.00	$35.54	$82.44	$121.76	$124.18
Cumulative impact of SV	$0.00	$35.54	$117.98	$239.74	$363.92

Business rates without SV (rate peg only)	$2,331.99	$2,378.16	$2,363.40	$2,410.20	$2,457.93
Business rates with SV	$2,331.99	$2,425.73	$2,473.76	$2,573.20	$2,624.16
Impact of SV	$0.00	$47.57	$110.36	$163.00	$166.23
Cumulative impact of SV	$0.00	$47.57	$157.93	$320.93	$487.16

# Impact of the expiring variation can be seen in 2014/15 as:

- A decrease in rates in the case without the 2.4% special variation

- A smaller increase in the case of the 2.4% special variation

Cost containment and productivity achievement

The DLG have included in Criterion 4 of the assessment guidelines that the Delivery Plan and LTFP must evidence realistic assumptions and show evidence of cost containment and productivity achievement. The LTFP must demonstrate intergenerational equity and sustainability.

Council staff have been working with Councillors since the December 2011 to:

- Identify additional revenue sources and include these in the LTFP review – this was achieved

- Apply productivity savings through maintenance rationalization, asset rationalisation and procurement enhancements – this has been applied to the adopted LTFP

- Review legal and consultancy services and staff following Council resolution to achieve a 5% saving in budgeted employment costs; 5% reduction in legal costs and consultancy costs. These have been included in the adopted LTFP.

Through the Asset and Services review, in the context of Achievability, councillors considered in relation to Services:

· Demand

· Usage, legislation, grant

· Change

§ Demography

§ Geography

§ Technology

· Availability

· Ageing

· Remoteness

· Cost

· Nett revenue recoveries

In relation to Assets:

· Scheduling and definitions:

§ Operations, maintenance, renewals, upgrade

· Revised GHD asset assessments and intervention levels

· Set the backlog target at 2% over 20 years

· Considered:

§ Demand

§ Usage, legislation

§ Risk

§ Change

§ Demography

§ Geography

§ Technology

Council has also commenced a major review of development contribution plans (s94/94A plans) and development servicing plans (s64), and associated charges as contributors to asset upgrades.

Consultation

A number of options for capturing community feedback have been considered and these include:

- a mail out to all ratepayers with a reply-paid survey

- an online survey

- rates fact sheets

- a deliberative random survey

- online discussion forums

- online rates calculator

- community meetings

- media briefings

- discussions with community meetings or particular community groups.

Deliberative survey

In order to meet the requirements of IPART in relation to consulting with the community in relation specifically to special rate variation options, councils can also include a deliberative poll as referred by IPART.

It is intended that Council include the following aspects in its community engagement:

- a deliberative independent survey

- development of a rates fact sheet

- online survey and rates calculator linked through Council’s website

- media briefing and information pack

- use of the fortnightly Community Link to outline the rates fact sheet, and

- online information pack

In relation to the deliberative survey, Council will provide an information pack to around 800 individuals recruited by IRIS, of which 400 will be surveyed. This sample is of sufficient size taking into account demographics and locality of residents. IPART recommend a sample size of at least 400 to ensure a 95% confidence interval, so that an estimate of the percentage supporting the proposed special variation will be no more than +/- 5%. The information pack will communicate the relevant information to survey participants and will be mailed to participants. The IPART guidelines provide advice in relation to preparing this information. A random survey is then conducted from within the database. Only contacts that have read the information will be surveyed. If the resident has not read the information when contacted, they are asked if they could read the information and a call back is arranged. It is expected that the survey will take no more than five minutes.

Survey participants who do not support the Council’s proposed special variation will also be asked the main reasons why not, and whether they could identify any circumstances where they would support the special variation.

Additionally, survey participants who do not support the proposed rate increase will be asked whether they would support a reduction in particular services instead, and how this reduction should be achieved.

IPART is aware that the costs involved in undertaking a comprehensive community consultation program, and in particular surveys, can be significant. Generally, the nature and extent of the consultation program undertaken should be commensurate with the size of the special variation being sought by the council. In undertaking a survey, respondents need to be provided with clear and transparent information on the special variation being sought, the impact on rates, and the services and /or works programs it is to fund (as outlined above). The information and the questions should be presented to participants in an objective way and not be leading or misleading.

Community satisfaction survey

The community satisfaction survey will measure the level of community support for different programs of expenditure by allowing respondents to rank services and/or proposed works in order of priority. By capturing the community’s priorities, Council may be able to identify different levels of services and/or proposed works which could be funded with a lower rate increase.

Reporting the outcomes of community consultation and engagement

If Council resolves at its December meeting to continue to move forward to lodge an application, Council must provide details of the consultation strategy undertaken, including the range of methods used to inform the community on the special variation proposal and to obtain community feedback on this proposal.

The information should clearly identify:

- key stakeholders in the consultation process

- the information that was presented to the community regarding the special variation proposal

- methods of consultation used by the council and why these were selected.

The council must also provide a summary of the outcomes from community consultations, for example:

- the number of attendees at workshops or meetings

- the percentage of respondents indicating support for the proposal

- the overall sentiment of representation

- the results of surveys undertaken.

For s508A special variation applications, Council must be able to demonstrate that there is community support for the special variation. The level of community support for the proposal should be detailed (including by relevant stakeholder group) and any action proposed by the council to address issues of common concern should be explained.

ISSUES

Legal

There is a statutory requirement to review the adopted Community Strategic Plan within the first nine months of a Council term. Councillors have initially indicated that the adopted Bega Valley 2030 meets the community’s articulated directions. If through the November community survey and the consideration of the special variation options major changes are identified, then a more thorough review will be undertaken in the first half of 2013.

Asset

The core intent of the special variation model is to address the growing maintenance backlog in the areas of collector roads, recreation assets and the public domains, and Council buildings.

Social / Cultural/Environmental/Economic

The intent to the community survey is to gain an update on the community’s satisfaction and ranking of importance with Council services and assets across all the key service delivery areas.

Strategic

The review of the community strategic plan, the community survey and the special variation consideration are key components of Council’s Integrated Planning and Reporting Framework.

Consultation

The community survey and the special variation community engagement processes will provide valuable, independently verified, information to add to Council’s

Financial

It is anticipated that the two surveys (the community satisfaction and the deliberative survey on the special variation) will cost in the order of $45,000. Revotes may also be assigned.

Funding source

Amount

Community survey is included in the review of the community strategic plan and the deliberative survey is covered in this allocation.

50k in 2012/13

$

Resources (including staff)

Staff in the Community Relationships and Finance section will be involved in this process.

Operational Plan

The process of review of the Community Strategic Plan, the undertaking of the community survey and the consideration of a special variation application are all actions adopted in the 2013 operational plan.

Conclusion

Council is required to review its Community Strategic Plan in the first nine months of its term. It is timely that the newly elected Council formally consider the triennial community survey, and gaining community opinion on the proposed special rate variation outlined in the operational plan and the Long Term Financial Plan.

There is no requirement for Council to commit to the special variation application at this time. The first stage of any formal consideration will be at the December Council meeting, when Council can determine whether to lodge and ‘intention to apply’.

ATTACHMENTS

Nil

Recommendation

1. That Council commit to the direction of the current Community Strategic Plan and consider the need to review further, following receipt of the results of the community survey and the consultation in relation to the special variation application.

2. That Council undertake a community engagement process to gather information in relation to the proposed special variation applications.

3. That Council receive a report at its 12 December meeting to formally consider the future of any special variation application.

1IPART “Revenue Framework for Local Government” December 2009 p.83

[2] DLG “Recognition of certain assets at fair value” March 2009

Contact	Phone	Email	Website
Bega Valley Shire Council	(02) 6499 2222	council@begavalley.nsw.gov.au	www.begavalley.nsw.gov.au
ICAC	8281 5999 Toll Free 1800 463 909	icac@icac.nsw.gov.au	www.icac.nsw.gov.au
Division of Local Government (DPC)	(02) 4428 4100	dlg@dlg.nsw.gov.au	www.dlg.nsw.gov.au
NSW Ombudsman	(02) 8286 1000 Toll Free 1800 451 524	nswombo@ombo.nsw.gov.au	www.ombo.nsw.gov.au

	Item no & subject
	Interest (tick one)	Pecuniary interest Non-pecuniary conflict of interest
	* Nature of interest
	If Non-pecuniary (tick one)	Disclose & vote Disclose & not vote Leave chamber

	Item no & subject
	Interest (tick one)	Pecuniary interest Non-pecuniary conflict of interest
	* Nature of interest
	If Non-pecuniary (tick one)	Disclose & vote Disclose & not vote Leave chamber

Criteria	Rating
(a) Presentation of the Expression of Interest	0%
(b) Quality of the design of the proposed new civic Centre	15%
(c) The lump sum prices and/or the proposed method of contract	20%
(d) Demonstrated capacity and technical ability to carry out the work under the Contract	15%
(e) Demonstrated managerial capability, qualifications, experience. Choice of the on and off site staff proposed and the experience and capability of the architect & consultants	15%
(f) Conformity with the request for Expression of Interest	5%
(g) Quality, Safety and Environmental Systems	10%
(h) Stability in financial position of the D & C team	10%
(i) Capacity to achieve the delivery program	5%
(j) Demonstrated ability to work with the client to develop a successful project outcome	5%

Criteria	Rating
(a) Presentation of the Expression of Interest	equal
(b) Quality of the design of the proposed new civic Centre	50%
(c) The lump sum prices and/or the proposed method of contract	20%
(d) Demonstrated capacity and technical ability to carry out the work under the Contract	10%
(e) Demonstrated managerial capability, qualifications, experience. Choice of the on and off site staff proposed and the experience and capability of the architect & consultants	equal
(f) Conformity with the request for Expression of Interest	equal
(g) Quality, Safety and Environmental Systems	equal
(h) Stability in financial position of the D & C team	equal
(i) Capacity to achieve the delivery program	5%
(j) Demonstrated ability to work with the client to develop a successful project outcome	15%

	Recommendation
	That the Ordinary meeting of the Council be adjourned for the purpose of dealing with staff reports to Standing Committees.

Council	31 October 2012
*Item 8.1 - Attachment 1*	*Proposed development plan*

Council	31 October 2012
*Item 8.1 - Attachment 2*	*Locality Plan*

Council	31 October 2012
*Item 8.1 - Attachment 3*	*Letter from Bermagui Surf Life Saving Club*

Council	31 October 2012
*Item 8.1 - Attachment 4*	*Draft Consent*

Council	31 October 2012
*Item 8.2 - Attachment 1*	*A New Planning System for NSW - Green Paper Frequently Asked Questions*

Council	31 October 2012
*Item 8.2 - Attachment 2*	*LGSA Submission to NSW Planning System Review - Green Paper September 2012*

Council	31 October 2012
*Item 10.1 - Attachment 1*	*Original site proposed for NBN installation - Wanatta Lane ( March 2012)*

Council	31 October 2012
*Item 10.1 - Attachment 2*	*Preliminary Engagement Overview - Satellite Network Deployment Bega Valley Shire Council*

Council	31 October 2012
*Item 10.1 - Attachment 3*	*National Broadband Network - Current Site Plan*

Signed
Print Name	Councillor

Funding source	July	August	September
General Fund	$32,412,682	$35,445,364	$35,726,596
Water Fund	$8,749,118	$8,749,118	$8,749,118
Sewer Fund	$5,844,348	$5,844,348	$5,844,348

Allison, Anthony	Hampshire, Jill	Robinson, Steve
Amberg, Penny	Hancock, Cecily	Sandford, Mike
Barnes, Leanne	Hicks, Rodney	Sartori, Wayne
Bogie Rebecca	Hicks, Tracy	Scarpin, Lucas
Blacka, Annadale	Jay, Lyn	Schweitzer, Simon
Browne Toby	Madigan, Danny	Slade, Colin
Canaider, Mark	McDermott, Tony	Slapp, Rob
Cattanach, Rob	Miles, Peter	Smith, Theresa
Collins, Jim	Murray, James	Stewart, Andrew
Churchward, Nina	Napal, Pankaj	Tegart, Peter
Cunningham, Richard	Newton, Peter	Thomson, Sophie
Dale, Ron	O’Donnell, Greg	Tipping, Jeff
Farram, Tait	Osborn, Brett	Tull, Keith
Fowler, Mark	Parker, Darrell	Van Bracht, Derek
Glover, Anna	Preo, Michelle	Van Tilburg, Michael
Griffin, Christine	Pyke, Jonathon	Williams, Graeme
Hankinson, Mark	Powell, Bruce	Woodley, Andrew
Herbert, Anne	Quick, Robert

Allen, Tony	Fitzpatrick, Russell	Seckold, Liz
Britten, Michael	Pincini, Paul	Hughes, Keith
Campbell, Pat	Hede, David	Wykes, Graeme

Council	31 October 2012
*Item 11.3 - Attachment 1*	*Developer Charges Guidelines Water Supply and Sewerage Key Modifications to the 2002 Guidelines*

Council	31 October 2012
*Item 11.3 - Attachment 2*	*Council Report - Water supply and sewer developer contributions: Infrastructure Committee 09 08 2012*

Council	31 October 2012
*Item 11.5 - Attachment 2*	*Bega Town Hall Development Functional Breif (rev 3 Dec 2010)*

Council	31 October 2012
*Item 12.1 - Attachment 1*	*Certificate of Investments*

Council	31 October 2012
*Item 12.3 - Attachment 1*	*Southern Phone 2011/12 Dividend Distribution*

Council	31 October 2012
*Item 12.4 - Attachment 1*	*ALGWA 2013 Conference Registration Form*

Council	31 October 2012
*Item 12.4 - Attachment 2*	*ALGWA 2013 Conference Program*

YES	15761
NO	3335
Formal	19096
Informal	627
TOTAL	19723

Council	31 October 2012
*Item 12.5 - Attachment 1*	*NSW Local Government Election LG 562 Declaration of Poll Bega Hospital September 2012*

Council	31 October 2012
*Item 12.6 - Attachment 1*	*LIRS DLG Media Release: Airport*

Council	31 October 2012
*Item 12.6 - Attachment 2*	*LIRS DLG Media Release: Roads*

Council	31 October 2012
*Item 12.6 - Attachment 4*	*LIRS Rd2 Circular 12-37*

Council	31 October 2012
*Item 12.6 - Attachment 5*	*LIRS Rd2 DLG Guidelines*

· Council reserving Water Fund “surplus” for future application post Strategic Business Plan.	$3,584
· Council reserving Sewer Fund “surplus” for future application post Strategic Business Plan.	$2,413
· Council reserving the Special Variation for the Merimbula Airport Renewal	$717K
· Council reserving “surplus” funds into the Asset Replacement Reserve for future use in funding the Asset Management Plans	$792K
· Council reserving the Cemetery Committee Funds for future use on the shires Cemeteries.	$136K
· Council having to accept and reserve the Federal Governments “advance” of the Financial Assistance Grants from 2013.	$3,452K
· Council having to drawdown its plant fund to meet a back log of capital purchases required to meet our works programs.	-$1,430K
· Council reserving the proceeds of Gravel sales in Quarries reserve to be used when the next round of extraction occurs.	$117K
· Waste Services reserving the funds committed to constructing the Central Waste Facility and the wider Waste Strategy. Council originally budgeted to withdraw funds from the Waste reserves to construct the CWF. That construction will take place 2012/13.	$1,222K

Council	31 October 2012
*Item 12.8 - Attachment 1*	*2012 Revotes List*

Council	31 October 2012
*Item 12.8 - Attachment 2*	*2012 Reserves List*

Fund	2011/2012	2010/2011	%
General	$5,283	$4,565	15.7%
Water	$2,599	$6,681	-61.1%
Sewer	$1,006	$586	71.7%
Total	$8,888	$11,832	-25.0%

Item	2012	2011	$ Mvmt	%
Rates & Annual Charges	$38,754	$37,284	$1,470	3.9%
Operating Grants & Contributions	$25,070	$17,211	$7,859	45.7%
User Charges	$14,206	$13,456	$750	5.6%
Investment Returns	$2,727	$3,112	-$385	-12.4%
Sale of Assets & Other	$1,500	$487	$1,013	300%
	$82,257	$71,550	$10,707	15.0%
Capital Grants	$5,734	$13,291	-$7,557	-56.9%
	$87,991	$84,841	$3,150	3.7%

Ratio	Rating
Outside Target Range
Requires Monitoring
Within Target Range