Glen Innes Severn Council Meeting 27 MARCH 2014 · 2015-06-27 · Council’s level of...
Transcript of Glen Innes Severn Council Meeting 27 MARCH 2014 · 2015-06-27 · Council’s level of...
Glen Innes Severn Council Meeting
27 MARCH 2014
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Glen Innes Severn Council
Financial Assessment and Benchmarking Report
21 March 2013
Prepared by NSW Treasury Corporation as part of the Local Infrastructure Renewal Scheme
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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 Glen Innes Severn Council the LIRS Assessment Panel and the
DLG. TCorp shall not be liable to Glen Innes Severn 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.
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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 ................................................................................................ 14
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 ............................................................................................... 18
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 ................................................................................................................. 35
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Section 1 Executive Summary
This report provides an independent assessment of Glen Innes Severn 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 two LIRS applications. One application is for CBD revitalisation for $1.8m and the
other application is for a Transport Infrastructure Renewal Program for $1.0m. Both loans are to be
repaid over 10 years.
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 loans will be attached to the General Fund
The Council has been effectively managed over the review period based on the following observations:
Council’s underlying cash result (measured using EBITDA) has been increasing over the
three year period
Council’s Unrestricted Current Ratio has been above benchmark each year indicating Council
had sufficient liquidity
Council’s Interest Cover Ratio and DSCR have been well above benchmark over the three
year period
Council’s reported Infrastructure Backlog of $37.7m in 2011 represents 16.5% of its infrastructure asset
value of $227.4m. Other observations include:
The Council’s Infrastructure Backlog is on an upward trend
Public road assets made up 54.0% of the Infrastructure Backlog and is being partly
addressed in both of the two LIRS projects
Council is not investing sufficient funds on asset renewals to keep the assets in their current
condition and it is likely that the backlog will grow
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The key observations from our review of Council’s 10 year forecasts for its General Fund are:
Cash Expense Ratios are above benchmark indicating Council will have sufficient liquidity
throughout the next 10 years to service short term liabilities and currently scheduled capital
expenditure
Council’s fiscal flexibility is low as their Own Sourced Operating Revenue Ratio is below
benchmark for the forecast period. We consider that rates and annual charges have been
forecast at conservative levels
In our view, the Council has the capacity to undertake the combined additional borrowings of $2.8m for
the LIRS projects. This is based on the following analysis:
The DSCR remains comfortably above the benchmark for the full 10 years of the model
The Interest Cover Ratio remains comfortably above the benchmark for the full 10 years of
the model
In addition, we consider that Council has sufficient capacity to manage additional borrowings
from 2012/2013 of up to $4.8m, based on our calculations and Council’s current financial
forecasts
In respect of the Benchmarking analysis TCorp has compared the Council’s key ratios, on a
consolidated basis, with other councils in DLG Group 10. The key observations are:
Council’s financial flexibility is moderate as indicated by the Operating Ratio which increases
above benchmark and its peer group in 2012 and is forecast to remain at this level in the
medium term. The Own Source Operating Revenue Ratio was below benchmark and the
group average over the review period. While it is forecast to improve in the medium term it
remains below benchmark
Council was in a sound liquidity position as indicated by the Cash Expense Ratio and
Unrestricted Current Ratio above benchmark and the group average for the past four years
and forecast to remain at this level in the medium term
Council’s DSCR and Interest Cover Ratio while below the group average tracked benchmark
level over the review period which indicates Council has the capacity to service their current
borrowings. They are forecast to remain at this level in the medium term
Council’s level of Infrastructure Backlog is well above benchmark The Asset Maintenance Ratio is below benchmark and underperformed against the group
average over the review period. Council’s Building and Infrastructure Asset Renewal Ratio was below benchmark over the past four years but has tracked the group average since 2011. The Capital Expenditure Ratio increased above benchmark and the group average in 2011 but is forecast to decrease below benchmark and its peer group in the medium term
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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
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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
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2.3: Overview of the Local Government Area
Glen Innes Severn LGA
Locality & Size
Locality New England Region
Area 5,487km²
DLG Group 10
Demographics
Population 8,656
% under 18 24%
% between 18 and 59 46%
% over 60 30%
Expected population 2021 10,000
Operations
Number of employees (FTE) 132
Annual revenue $21.5m
Infrastructure
Roads 758.3km
Bridges 141
Infrastructure backlog value $37.7m
Total infrastructure value $227.5m
Glen Innes Severn Council Local Government Area (LGA), known as the Celtic Country, is located in
the Northern Tablelands in the New England Region of New South Wales, near the crest of the Great
Dividing Range.
The LGA contains the township of Glen Innes, and the villages of Emmaville, Deepwater, Red Range
and Glencoe. Glen Innes is located at the intersection of the New England Highway and the Gwydir
Highway.
The current population of 8,656 is expected to grow by 15.3% to 10,000 by 2021.
Council had 132 full-time equivalent employees at the end of 2011.
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2.4: LIRS Application
Council has made two LIRS applications.
Project 1: CBD Revitalisation Program
Description: The renewal and upgrade of the Glen Innes CBD including pavements, footpaths, street
lighting, and stormwater drainage.
Amount of loan facility: $1.8m
Term of loan facility: 10 years
Project 2: Transport Infrastructure Renewal Program
Description: The renewal of urban and rural sealed roads, and footpaths, and a specific improvements
program targeted at reducing maintenance expenditure on unsealed rural roads.
Amount of loan facility: $1.0m
Term of loan facility: 10 years
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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
Rates and annual charges increased by 5.2% in 2011 with a similar increase of 5.9% in 2010.
Farmland rates increased in 2011 due to the revaluation of farmland in 2010 which increased
the value of farmland from $438.0m in 2010 to $717.0m in 2011. Due to an error Council
overcharged on farmland rates in 2011 and this has been rectified in the 2012 financial year
and is reflected in the LTFP. The 2010 increase was driven by an increased number of
assessments for that year.
User fees and charges have been decreasing year on year with a cumulative decrease of
$0.5m since 2009. In 2011 this is driven by decreases in income from water supply services,
private works and RMS fees, with reduced RMS fees also driving the 2010 decrease.
Operating grants and contributions rose for two consecutive years. Following an increase of
7.2% in 2010, 2011 saw an increase of 16.8% to $10.7m. The 2011 increase was due to
Council being allocated an additional $1.0m in operating grants for flood restoration and
$0.3m in bushfire services.
Other revenue remained static between 2010 and 2011. In 2010 a one off increase of 72.8%
in other revenue was driven by Section 355 Committee revenue of $0.4m.
6,914 6,574 6,207
2,281 2,678 2,808
611 485 460
10,6889,147 8,529
1,078
1,163673
0
5,000
10,000
15,000
20,000
25,000
2011 2010 2009
Figure 1 - Revenue Sources for 2008/09 to 2010/11 ($'000s)
Rates and annual charges User charges and fees
Interest and investment revenue Grants and contributions for operating purposes
Other revenues
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3.2: Expenses
Key Observations
Employee costs have increased by over 8.0% p.a. for the last two years, higher than NSW
wage indexation rates. The 2011 increases were driven by salary increases, and increases in
employee leave entitlements (ELE). In 2011 Council reviewed their ELE which highlighted
that they had under-provided in previous years hence the increase in 2011. 2010 saw
increases in superannuation costs.
In 2010 the Asset Revaluation process increased the value of Council’s infrastructure assets.
This resulted in the annual depreciation charge increasing 49.3% in 2011 to $6.4m.
Other expenses have increased year on year driven by rising utility costs and emergency
services levies.
9,170 8,455 7,812
516 536 556
5,148 5,3105,302
6,4334,310
3,871
2,909
2,5201,952
0
5,000
10,000
15,000
20,000
25,000
30,000
2011 2010 2009
Figure 2 - Expenses for 2008/09 to 2010/11 ($'000s)
Employees Borrowing costs Materials and contract expenses
Depreciation and amortisation Other expenses
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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 has consistently posted net operating deficits excluding capital grants and
contributions for the last three years. The deficits are increasing year on year. The deficit
increased in 2011 due to increased depreciation charges.
Council expenses include a non-cash depreciation expense, ($6.4m in 2011), which has
increased substantially over the past three years following the Asset Revaluations process.
Whilst the non-cash nature of depreciation can favourably impact on ratios such as EBITDA
that focus on cash, depreciation is an important expense as it represents the allocation of the
value of an asset over its useful life.
(2,604)
(1,084)
(816)
(2,136)
(645)
147
(3,000)
(2,500)
(2,000)
(1,500)
(1,000)
(500)
0
500
2011 2010 2009
Figure 3 - Operating Results for 2008/09 to 2010/11 ($'000s)
Operating result (excluding capital grants and contributions)
Operating result (including capital grants and contributions)
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3.4: Financial Management Indicators
Performance Indicators Year ended 30 June
2011 2010 2009
EBITDA ($’000s) 4,345 3,762 3,611
Operating Ratio (12.1%) (5.4%) (4.4%)
Interest Cover Ratio 8.42x 7.02x 6.49x
Debt Service Cover Ratio 5.13x 4.44x 3.94x
Unrestricted Current Ratio 2.40x 2.83x 1.84x
Own Source Operating Revenue Ratio 31.5% 32.2% 31.7%
Cash Expense Ratio 6.8 months 7.0 months 7.4months
Net assets ($'000s) 269,414 252,880 165,678
Key Observations
Council’s underlying operating performance (measured using EBITDA) has increased year on
year.
The Operating Ratio for 2011 is well below the benchmark each year and is trending
downwards with the decrease in 2011 driven by increased depreciation charges.
Council’s Interest Cover Ratio and DSCR were above their respective benchmarks indicating
Council had flexibility in regard to carrying more debt.
The Unrestricted Current Ratio has been above benchmark each year indicating Council had
sufficient liquidity.
The Own Source Operating Revenue Ratio is below the 60% benchmark. This indicates that
Council did not have sufficient financial flexibility, and rely on revenue streams outside of their
control.
The Cash Expense Ratio was above benchmark in all three years indicating Council had
sound liquidity.
Council’s Net Assets have increased by $103.7m between 2009 and 2011 due to Asset
Revaluations which have increased the value of roads, bridges and drainage infrastructure.
When the Asset Revaluations are excluded, the underlying trend in all three years has been a
decrease in the infrastructure, property, plant and equipment (IPP&E) asset base with asset
purchases being less than the combined value of disposed assets and annual depreciation.
Over the three years this amounted to a $3.1m decrease in IPP&E assets.
Council has total borrowings of $7.3m representing 2.7% of Net Assets.
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3.5: Statement of Cashflows
Key Observations
Cash and cash equivalents have been marginally increasing year on year
The cash balances along with the Unrestricted Current Ratio indicate Council had sound
liquidity.
Of the $10.6m in cash and investments, $7.0m is externally restricted, $3.5m is internally
restricted and $0.1m is unrestricted.
In 2011, part of Council’s investment portfolio of $0.9m was invested in a CDO. Council is
expecting to receive full recovery of their CDO on 20 June 2012, being $1.0m.
9,794
9,474
9,343
9,100
9,200
9,300
9,400
9,500
9,600
9,700
9,800
9,900
2011 2010 2009
Figure 4 - Cash and Cash Equivalents for 2008/09 to 2010/11 ($'000s)
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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 $37.7m Infrastructure Backlog in 2011, of which 54.0% ($20.3m) related to public
roads. Council is seeking to address part of their roads infrastructure backlog in both of their LIRS
projects.
0
5,000
10,000
15,000
20,000
25,000
Buildings and other
structures
Public roads (inc.
footpaths and car parks)
Water Sewerage Drainage works
Figure 5 - Infrastructure Backlog for 2008/09 to 2010/11 ($'000s)
2011 2010 2009
19%
54%
9%
17%
1%
Figure 6 - Infrastructure Backlog Composition for 2010/11
Buildings and other structures
Public roads (inc. footpaths and car
parks)
Water
Sewerage
Drainage works
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3.6(b): Infrastructure Status
Infrastructure Status Year ended 30 June
2011 2010 2009
Bring to satisfactory standard ($’000s) 37,745 34,987 23,134
Required annual maintenance ($’000s) 3,412 3,257 2,977
Actual annual maintenance ($’000s) 2,103 2,021 1,963
Total value of infrastructure assets ($’000s) 227,488 215,177 132,400
Total assets ($’000s) 280,817 263,674 177,298
Infrastructure Backlog Ratio 0.17x 0.16x 0.17x
Asset Maintenance Ratio 0.62x 0.62x 0.66x
Building and Infrastructure Renewals Ratio 0.57x 0.07x 0.39x
Capital Expenditure Ratio 1.10x 0.51x 0.63x
The Infrastructure Backlog Ratio has remained static over the three year period as the increase in the
value of the infrastructure has increased at a slightly higher rate than the increase in the value of the
Infrastructure Backlog.
The Asset Maintenance Ratio and Building and Infrastructure Asset Renewal Ratio indicate the Council
is spending at levels below the benchmark on asset renewal and asset maintenance.
The Capital Expenditure Ratio, which takes into account assets which improve performance or
capacity, was at benchmark level in 2011 but well below benchmark in 2009 and 2010
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3.6(c): Capital Program
The following figures are sourced from the Council’s Annual Financial Statements at Special Schedule
No. 8 and are not audited. New capital works are major non-recurrent projects.
Capital Program ($’000s) Year ended 30 June
2011 2010 2009
New capital works 0 239 590
Replacement/refurbishment of existing assets 4246 2090 2114
Total 4246 2329 2704
Along with the Capital Expenditure Ratio, the above table shows how Council had prioritised asset
renewal in the last three years rather than new capital works projects. Examples of major capital works
include
Capital Works Projects 2009/2010
Replacement of Glen Elgin Road, Timbarra River bridge, $0.6m
Road Rehabilitation $1.6m
Replace waterway crossing Homestead Road, Grahams Valley Creek, $0.1m
Deepwater Water treatment Plant $0.3m
Emmaville Upgrade of the Emmaville Memorial Hall $ 0.6m
Capital Works Programs 2010/2011
Replacement of Glen Elgin Bridge $0.6m
Sewer Extensions and Renewals $0.2m
Replacement of Pinkett Road, Sara River bridge, $0.5m
Rehabilitation/renewal of Tent Hill Road, Beardy River bridge, $0.5m
Future Capital Works Programs 2012/2020
Roads to recovery expenditure $3.0m
CBD Road and Pavement Renewal $1.9m
Bridge R ehabilitation $2.3m
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3.7: Specific Risks to Council
Reliance on grants. Grants and contributions for operating purposes remains Council’s largest
source of revenue at 49.5% of total revenue excluding capital grants in 2011. Operating
grants revenue is greater than rates and annual charges combined with user fees and
charges, and are forecast to remain at this level. The primary source of Councils operating
grants are financial assistance grants, aged care grants, flood restoration grants and roads to
recovery grants. Council have forecast continued assistance in these areas in their LTFP
however any decrease in operating grants will have a significant negative impact on the
overall operating result.
Own source revenue. Rates and annual charges contribute only 32.0% of overall revenue,
and user fees and charges have been decreasing. The forecast for both is relatively
conservative and Council needs to consider its options to improve its performance in this
areas. In their LTFP Council have forecast in increase in user fees and charges from 2012
onwards.
Population growth. The LGA’s population is forecast to increase by 15.3% over the next 10
years. This will place additional pressure on existing assets and services. With Council
forecasting a decrease in capital expenditure, the Infrastructure Backlog will likely continue to
increase and services could be affected. Council has an Asset Management Strategy in place
to assess their existing assets, and will prioritise the most urgently needed works that provide
the greatest benefit to the community. However this is dependent on funding available.
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Section 4 Review of Financial Forecasts
The financial forecast model shows the projected financial statements and assumptions for the next 10
years. The model includes the $2.8m loan 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 more able to adjust the
appropriate fees and charges to meet all future operating expense and investment spending.
4.1: Operating Results
The Council’s operating ratio forecasts a deficit position until 2014 when capital grants and
contributions are excluded. From 2014 the Ratio increases above benchmark with a total increase of
15.0% over the entire forecast period. A decrease in depreciation in 2013 of $1.7m and increase in
operating grants of $1.0m in 2015 are causing the ratio to increase.
In 2012 due to the large increase in depreciation in 2011 Council reassessed their unit rate for
construction and found that they had been over estimating their true depreciation expense. In order to
correct this they have forecast a decrease in depreciation for 2013.
Operating grants have been forecast to increase by $1.0m in 2015. The LGA is currently campaigning
for increased local grant funding. Operating grants is and will continue to be a considerable proportion
of Council’s income and Council do not consider it unreasonable to forecast an increase in their
operating grants.
(16.0%)
(14.0%)
(12.0%)
(10.0%)
(8.0%)
(6.0%)
(4.0%)
(2.0%)
0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Figure 7- Operating Ratio for General Fund
Operating Ratio Benchmark
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4.2: Financial Management Indicators
The financial management indicators are linked to the utilisation of debt in early years and improve
over time as the amortising debt reduces and operating deficits also improve.
Liquidity Ratios
The Cash Expense Ratio is above benchmark for the lifetime of the forecast and indicates that Council
will have sufficient liquidity.
The Unrestricted Current Ratio indicates that Council will have sound liquidity. Council should be able
to service all short and long term liabilities and currently scheduled capital expenditure.
0.0 months
2.0 months
4.0 months
6.0 months
8.0 months
10.0 months
12.0 months
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Figure 8 - Cash Expense Ratio for General Fund
Cash Expense Ratio Benchmark
2.40x
1.88x2.01x
2.19x
2.49x2.74x
2.87x 2.90x 3.01x 3.11x 3.16x
3.55x
0.00x
0.50x
1.00x
1.50x
2.00x
2.50x
3.00x
3.50x
4.00x
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Figure 9 - Unrestricted Current Ratio for General Fund
Benchmark
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Fiscal Flexibility Ratios
The Own Source Operating Revenue Ratio remains below benchmark for the entire forecast period. In
2011 Council purchased a quarry and the $1.5m increase in user fees and charges in 2012 is the
increase in revenue expected from the quarry.
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. It dips
to 3.48x in 2014 which corresponds to the LIRS loan repayment. Outstanding borrowings will peak in
2013 at $8.3m reducing to a low of $5.7m in 2022.
30%
35%
40%
45%
50%
55%
60%
65%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Figure 10 - Own Source Operating Revenue Ratio for General Fund
Own Source Operating Revenue Ratio Benchmark
5.80x5.29x
5.01x
3.48x
4.19x
3.50x 3.52x3.23x 3.26x
3.03x 3.00x 2.96x
0.00x
1.00x
2.00x
3.00x
4.00x
5.00x
6.00x
7.00x
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Figure 11 - DSCR for General Fund
Benchmark
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11.12x
8.49x7.94x
6.17x
7.78x
6.43x6.99x 6.81x
7.47x 7.29x8.07x
9.15x
0.00x
2.00x
4.00x
6.00x
8.00x
10.00x
12.00x
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Figure 12 - Interest Cover Ratio for General Fund
Benchmark
The Interest Cover Ratio, similar 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
The Capital Expenditure Ratio is below benchmark for the entire forecast period with the exception of
2015. The forecast levels of capital expenditure will increase pressure on existing assets. While
depreciation is forecast to increase between 2012 and 2022, capital expenditure is decreasing resulting
in a cumulative deficit for depreciation versus capital expenditure of $12.7m.
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The Capital Expenditure spikes in 2015 due to $2.9m being spent on roads renewal and $1.1m on
renewal of other structures that year.
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 increase by mid-range LGCI annual increases of 3.0%
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 increase by 3.0% for the forecast period. Given the
rate peg of 3.6% announced this is considered reasonable. User fees and charges are
forecast to increase over 90.0% in 2012 due to increased revenue from new quarry
operations. The 10.0% increase forecast for 2013 is due to forecast increases in water
access charges. A 2.8% p.a. increase is forecast for the remainder of the forecast period and
this is considered reasonable.
Employee costs have been forecast to increase by 3.5% p.a. which is in line with the historic
results for the General Fund.
Materials and contracts expenses are forecast to decrease in 2012 and 2013 in line with
historic results. From 2013 they are forecast to increase up to 4.6% p.a. which we consider
reasonable.
Operating grants have been forecast to increase by $1.0m in 2015. With the LGA
campaigning for more local grant funding this increase is not considered unreasonable.
Due to the reassessment of Council’s construction rate they have forecast a decrease in
depreciation for 2013
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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. Some comments and observations are:
Based on a benchmark of DSCR>2x, $4.8m could be borrowed in addition to the $2.8m
borrowings proposed under LIRS in 2013
This scenario has been calculated by basing borrowing capacity on a 10 year amortising loan at
a rate of 7.81%
5.80x
2.54x 2.54x2.10x
2.52x2.26x 2.26x 2.15x 2.17x 2.07x 2.05x 2.02x
0.00x
1.00x
2.00x
3.00x
4.00x
5.00x
6.00x
7.00x
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Figure 14 - DSCR for General Fund
Benchmark
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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 10. There are 25 councils in this group and at the time of preparing this report, we have data
for all of these councils.
In Figure 15 to Figure 23, 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. For the Interest Cover Ratio and Debt Service Cover Ratio, we have excluded from the
calculations, councils with very high ratios which are a result of low debt levels that skews the ratios.
Financial Flexibility
Council’s Operating Ratio, while below benchmark generally tracks the group average over the review
period. Following a decrease in 2011 as a result of increased depreciation expense the ratio improves
above benchmark and the group average in 2012 following a subsequent reduction in depreciation and
increase in operating grants. Council is forecast to remain at this level in the medium term.
(15.0%)
(10.0%)
(5.0%)
0.0%
5.0%
10.0%
15.0%
20.0%
2009 2010 2011 2012 2016
Figure 15 - Operating Ratio Comparison
Benchmark Highest Average Glen Innes Shire Council
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Council’s Own Source Operating Revenue Ratio was below benchmark and the group average over the
review period. The proportion of own sourced revenue is forecast to increase over the medium term
consistent with other councils in the group.
Overall Council’s financial flexibility is moderate.
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
2009 2010 2011 2012 2016
Figure 16- Own Source Operating Revenue Ratio Comparison
Benchmark Highest Average Glen Innes Shire Council
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Liquidity
Council’s Cash Expense Ratio has been above benchmark and tracked the group average over the since
2010. The ratio is forecast to improve slightly in the medium term and outperform the group average.
The Unrestricted Current Ratio was below the group average but above benchmark level for the past four
years , indicating Council’s ability to meet its debt payments is sufficient. The ratio is forecast to
decrease slightly in the medium term but remains above benchmark and the group average.
Overall, Council’s liquidity position is sound.
0.0 months
5.0 months
10.0 months
15.0 months
20.0 months
25.0 months
2009 2010 2011 2012 2016
Figure 17 - Cash Expense Ratio Comparison
Benchmark Highest Average Glen Innes Shire Council
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
2009 2010 2011 2012 2016
Figure 18 - Unrestricted Current Ratio Comparison
Benchmark Highest Average Glen Innes Shire Council
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Debt Servicing
Council’s debt servicing capacity was sound over the review period, as indicated by DSCR and Interest
Cover Ratios tracking benchmark level. Overall, Council’s debt servicing ratios are forecast to remain
acceptable over the medium term.
-
20.00
40.00
60.00
80.00
100.00
120.00
140.00
2009 2010 2011 2012 2016
Figure 19- Debt Service Cover Ratio Comparison
Benchmark Highest Average Glen Innes Shire Council
-
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
2009 2010 2011 2012 2016
Figure 20 - Interest Cover Ratio Comparison
Benchmark Highest Average Glen Innes Shire Council
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-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2009 2010 2011 2012 2016
Figure 21 - Capital Expenditure Ratio Comparison
Benchmark Highest Average Glen Innes Shire Council
-
0.50
1.00
1.50
2.00
2.50
2009 2010 2011 2012
Figure 22 - Asset Maintenance Ratio Comparison
Benchmark Highest Average Glen Innes Shire Council
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Council’s Infrastructure Backlog Ratio was well above benchmark but tracked the group average over the
review period.
Council’s Asset Maintenance Ratio was below benchmark and the group average over the review period.
The Building and Infrastructure Asset Renewal Ratio has been below benchmark for the review period
but increased to track the group average in 2011 and remains at this level.
Council’s Capital Expenditure Ratio increases above benchmark and the group average in 2011 and this
performance is maintained in 2012. The ratio is forecast to decrease below benchmark and the group
average in the medium term.
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
2009 2010 2011 2012
Figure 24 - Building and Infrastructure Asset Renewal Ratio
Benchmark Highest Average Glen Innes Shire Council
-
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
0.18
0.20
2009 2010 2011 2012
Figure 22 - Infrastructure Backlog Ratio Comparison
Benchmark Lowest Average Glen Innes Shire Council
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Section 6 Conclusion and Recommendations
Based on our review of both the historic financial information and the 10 year financial forecast within
Council’s long term financial plan we consider Council to be in a satisfactory financial position. 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 $2.8m debt highlighted by a
DSCR and Interest Cover Ratio above the benchmarks in all 10 years of its financial forecast
Based on our analysis Council could also incorporate an additional $4.8m before it reaches
benchmark of 2.00x
However we would also recommend that the following points be considered:
Council’s rates and annual charges and user fees and charges make up only 42.0% of their
overall revenue. We recommend Council considers its options for improving its performance in
this area, either by securing new or additional revenue
Council is reliant on Operating Grants as a key source of revenue. While this is not unusual for
rural LGA’s it is an area that requires monitoring
While Council has forecast increases in operating grants Council should continue to source
additional revenue streams should this not eventuate
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Appendix A Historical Financial Information Tables
Table 1- Income Statement
Income Statement ($'000s) Year ended 30 June % annual change
2011 2010 2009 2011 2010
Revenue
Rates and annual charges 6,914 6,574 6,207 5.2% 5.9%
User charges and fees 2,281 2,678 2,808 (14.8%) (4.6%)
Interest and investment revenue 611 485 460 26.0% 5.4%
Grants and contributions for operating purposes 10,688 9,147 8,529 16.8% 7.2%
Other revenues 1,078 1,163 673 (7.3%) 72.8%
Total revenue 21,572 20,047 18,677 7.6% 7.3%
Employees 9,170 8,455 7,812 8.5% 8.2%
Borrowing costs 516 536 556 (3.7%) (3.6%)
Materials and contract expenses 5,148 5,310 5,302 (3.1%) 0.2%
Depreciation and amortisation 6,433 4,310 3,871 49.3% 11.3%
Other expenses 2,909 2,520 1,952 15.4% 29.1%
Total expenses 24,176 21,131 19,493 14.4% 8.4%
Operating result (2,604) (1,084) (816) (140.2%) (32.8%)
Table 2 - Items excluded from Income Statement
Excluded items ($’000s)
2011 2010 2009
Grants and contributions for capital purposes 468 439 963
FV adjustments on Investments 81 203 (141)
Net gain/(Loss) on disposal of assets (17) 22 36
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Table 3 - Balance Sheet
Balance Sheet ($’000s) Year Ended 30 June % annual change
2011 2010 2009 2011 2010
Current assets
Cash and equivalents 9,794 9,474 9,343 3.4% 1.4%
Investments 905 832 629 8.8% 32.3%
Receivables 2,001 1,592 1,002 25.7% 58.9%
Inventories 304 334 299 (9.0%) 11.7%
Other 24 16 30 50.0% (46.7%)
Total current assets 13,028 12,248 11,303 6.4% 8.4%
Non-current assets
Investments 0 0 0 0 0
Receivables 156 108 152 44.4% (28.9%)
Inventories 0 0 0 0 0
Infrastructure, property, plant & equipment 267,443 251,128 165,653 6.5% 51.6%
Investment property 190 190 190 0.0% 0.0%
Intangible Assets 28 62 96 (54.8%) (35.4%)
Non-current assets clarified as ‘held for sale’ 82 82 82 0.0% 0.0%
Other 58 0 0 0 0
Total non-current assets 267,789 251,426 165,995 6.5% 51.5%
Total assets 280,817 263,674 177,298 6.5% 48.7%
Current liabilities
Payables 1,590 941 1,521 69.0% (38.1%)
Borrowings 313 331 313 (5.4%) 5.8%
Provisions 2,144 1,921 1,880 11.6% 2.2%
Total current liabilities 4,047 3,193 3,714 26.7% (14.0%)
Non-current liabilities
Borrowings 6,994 7,307 7,637 (4.3%) (4.3%)
Provisions 362 294 269 23.1% 9.3%
Total non-current liabilities 7,356 7,601 7,906 (3.2%) (3.9%)
Total liabilities 11,403 10,794 11,620 5.6% (701%)
Net assets 269,414 252,880 165,678 6.5% 52.6%
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Table 4-Cashflow
Cashflow Statement ($'000s) Year ended 30 June
2011 2010 2009
Cashflows from operating activities 4,805 2,541 5,175
Cashflows from investing activities (4,154) (2,098) (2,229)
Proceeds from borrowings and advances 0 0 0
Repayment of borrowings and advances (331) (312) (360)
Cashflows from financing activities (331) (312) (360)
Net increase/(decrease) in cash and equivalents 320 131 2,586
Cash and equivalents 9,794 9,474 9,343
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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 20092, 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.
1IPART “Revenue Framework for Local Government” December 2009 p.83
2 DLG “Recognition of certain assets at fair value” March 2009
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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.
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Infrastructure Backlog
Infrastructure backlog is defined as the estimated cost to bring infrastructure, building, other structures
and depreciable land improvements 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.
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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.
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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, building, other structures and depreciable land improvement assets (from note 9a)
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.
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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.
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