Late Items Agenda of Ordinary Council Meeting

Late Items Agenda

Item 10 Urgent Business

CS01-02/21 Long Term Financial Plan and 20 Year Capital Works Program 2021/22 - 2040/41

File Ref: 41219 – 21/17748

Responsible Officer: Director Corporate Strategy & Performance

Disclosure of Interest: Nil

Attachments: 1

Issue

To approve the development of the City’s Long Term Financial Plan (LTFP) 2021/22 - 2040/41 and the 20 Year Capital Works Program (CWP) based on the balanced approach scenario.

Background

The 2020/21 Integrated Planning & Reporting (IPR) development process commenced early 2020 with a series of Workshops with Council Members. There were five Budget Workshops and three Forum discussions, with subsequent adoption of the City’s Annual Budget on the 20 July 2020. Three additional LTFP Workshops and one Forum were held focusing on strategic direction, compliance with Strategic Budget Policy, assumptions, parameters, various scenarios of the LTFP and priorities for 20 year CWP.

Council Members were requested to consider the LTFP review in light of the likely environment of lower general rates increases as the new normal for the short-term period of up to four years, while the general economy improves. This changed model has a significant impact on funding of the City’s Capital Works Program (CWP), Asset Maintenance Condition Assessments and Service Levels to the community. The discretionary activities within City Services may also need to be reviewed.

Reflecting a prudent approach, CWP Municipal funding component for the first five years of the plan was set at $20 million. The CWP has been developed in line with the following broad master plans of the City:

· The Active Reserves Masterplan;

· Alkimos/Eglington Development Contribution Plan;

· Northern Coastal Growth Corridor Community Facilities Plan;

· Northern Corridor Regional Active Reserve;

· East Wanneroo District Structure Plan (relevant to the LTFP timeframe); and

· Strategic Waste Management Initiatives.

Detail

The Long Term Financial Plan (Attachment 1) uses the 2020/21 Budget to reflect the current financial position (‘the baseline”). The estimates for future years use this baseline as the starting point and then projects future years using assumptions from a variety of sources including:

· The City’s Strategies and Planning documents;

· 20 Year Capital Works Programs;

· Asset Management Plans;

· id forecast;

· State and Federal Budgets;

· Community Expectations; and

· Economic Forecasts from West Australian Treasury Corporation (WATC).

The key set of inputs to the LTFP is the City’s Strategic Community Plan, Corporate Business Plan, and 20 Year Capital Works Program.

The variables have been adjusted to enable the City to present a stable financial result which provides the community services and required capital works over the next 20 years. To achieve this result a realistic Rating scenario has been developed which adjusts Rates within an acceptable range to achieve the desired outcome.

The supporting narrative has been updated in the LTFP to reflect these changes. Consideration has also been given to ensure compliance with the Local Government Act 1995, Sections 6.34 (a) and (b) that the proposed rating strategy is within the limit on income from general Rates of not less than 90% or more than 110% of the net operating result.

Reserves

Reserves are an important source of funding that has been set aside by Council to finance future expenditures, including unbudgeted or unforeseen events that may result in a budget deficit, and to also smooth out expenditures that tend to fluctuate annually. Reserves receive contributions from the operating Budget and other sources to assist with creating a solid and sustainable financial position. The majority of reserves funds are committed or designated for special purposes over the long-term.

The reserves summary (Attachment 1) is aligned to the 20 year CWP, noting that the Strategic Projects/ Initiatives Reserve balance is significantly higher in the outer years to further support the Capital Works Program for projects that are at the moment un-identified in and funding potentially further transfers to other reserves, such as, Asset Management and Asset Replacement Reserves.

The Loan Repayment Reserve has been created to set aside adequate funds to repay WATC loan of $60 million which falls due in the financial year 2026/27. Any shortfall of Loan Repayment Reserve by end of 2025/26 is expected to be supplemented by the Strategic Projects/ Initiatives reserve. Consequently, any funds generated from Tamala Park land sales post 2025/26 can be directed to the Strategic Projects/ Initiatives reserve.

Reserves are reviewed regularly to confirm that they are being utilised when necessary, to confirm that the reserve purpose is still relevant, and to ensure the balances are sufficient for the requirements of the City, without being excessive.

The following assumptions form the basis upon which this LTFP has been constructed:

General

This LTFP covers a period of 20 years. All escalation, inflation and growth factors and percentages used in this model are summarised under ‘variables’ below.

Variables

Detail below refers to the “Balanced Operating Scenario”.

Population Growth The population forecasts by id Forecast as of May 2020 have been applied from year 2023/24 (year three). High growth at 2.0% - 3.0% has been applied in the first two years and then matched with id forecast. The high growth is due to the Federal and State government’s respective stimulus incentives which ended in March 2021 and December 2020 respectively.

Consumer Price Index -(CPI) Department of Treasury have provided forecast data up to 2023/24. Perth CPI is forecasted to gradually increase to 1.75% in 2021/22 and remain as is for 2022/23, then to 2.00% in the third year, 2023/24. The model takes a more conservative approach by applying the low-point (i.e. 2.0%) of the Reserve Bank of Australia (RBA) CPI target range of 2.0% and 3.0% for the rest the years. This rate is used to determine: Fees and Charges, other revenue, materials and contracts, insurance, and other expenditure.

Rates Base Based on a modified rate increase for 2021/22 at 1% whilst withdrawing the one of COVID-19 concession given in 2020/21, with future increases set to CPI +0.5% to 1%. This is based on a balanced approach to achieve either a small operating surplus or a minimal deficit.

Rates Growth Based on the population growth forecast as stated by Id Forecast mentioned above, adjusted upwards to reflect current conditions for building approvals from the government stimulus programs for 2021/22 and 2022/23.

Waste Fee With the City moving to a Three Bin Model, conservative modelling shows a saving of up to $30 per household. While a certain amount be used to reduce the Waste Fee in the future, at least 50% will be retained to build up the waste reserve to replenish it and build up to allow the City to fund other waste strategies for which business cases are being worked on.

For 2021/22 it is proposed to leave the Waste Fee as is to bed down the Three Bin Model which will go live from June 2021.

Operating Grants etc. For, operating grants, subsidies and contributions, no increases are applied to reflect a reducing income pool for this income stream.

Fees and Charges Based on the Perth CPI figures as quoted above.

Interest Yield Based on the current yield adjusted for recent RBA Cash Rate announcements, at between 0.50% to 1.25% for the first six years increasing to 2.75% in year seven and eight after which increasing to 2.0% from 2028/29 (year eleven) for the life of the Plan as economic conditions and market expectations improve.

Other Revenue Based on the Perth CPI figures as quoted above.

Employee – Establishment The City has four Enterprise Agreements and in 2019, the City finalised two Enterprise Agreement negotiations, with two remaining to be negotiated during 2020/21. The City remains committed to ensuring employee benefits are reflective of community expectations, and align with national and local economic conditions. For the projected years the current CPI index rate is applied with the exception of 2021/22 to 2024/25 where CPI index rate + 0.06% is applied to account for the proposed superannuation guarantee increases from 9.5% to 12%.

Employee – Growth The City’s Workforce Plan anticipates minimal growth in staff numbers, to be achieved by the Executive effectively assessing each vacancy and re-assigning it to areas of greatest need. The exception being for areas of growth, which continues to be risk based. With the City having completed a comprehensive analysis of roles engaged under the Salaried Officers Enterprise Agreement during 2019, The City is now in a stronger position to pre-plan for areas/ roles where there is likely to be future capability and capacity gaps of corporate risk or impact.

From a strategic workforce planning perspective, the focus for ongoing years will be to consolidate effective change management through the implementation of new technologies, with a view to improving business systems and technology as a way of improving our overall efficiency and the customer experience. It is a priority for the City to continually improve residents’ and customers’ access to services 24/7, removing the need to physically visit City offices.

It is intended to minimise growth of employee numbers by funding improvements to technology, whilst taking into consideration the City’s expansion including new facilities. With the intention of minimising growth in employee numbers, this has been set at one third the Rates growth for the life of the plan.

Materials & Contracts Based on the current CPI as quoted above.

Materials & Contracts

– Asset Growth Calculation of historical data has shown that the increase in maintenance and other materials costs has been consistently in line with asset growth conservatively set at 2.5% for the first five year and then 4.0% for the remainder of the plan.

Utility Charges With regular annual increases in Government charges, plus consistent increases in City growth, the variable has been kept at 4.5% to 5% for the life of the LTFP. Higher increases in Street Lighting charges are being offset by future energy saving initiatives that will be implemented by the City.

Whilst there are expectations that Western Power is converting street lamps to LED which have a low consumption costs, the supply charge for maintaining the infrastructure will increase resulting in minimal changes in costs over the plan.

The assumption is that there is no cost effective disruptive technology for the City to take advantage off to bring down the Utility costs significantly.

Depreciation Is calculated from current asset values and future assets from the capital works program.

Insurance Based on the Perth CPI figures as quoted above.

Other Expenditure Based on the Perth CPI figures as quoted above.

Consultation

This document has been prepared in consultation with the Executive Leadership Team and the Council Members.

Comment

It is anticipated that the 20 Year LTFP and associated 20 Year Capital Works Program will provide some clarity for the long term financial sustainability of the City.

During 2021/22 Annual Budget process, it is anticipated that the 2021/22 Capital Works Program will be reviewed and prioritised based on project readiness in addition to funding, community priorities and capacity constraints.

Statutory Compliance

As per the Department of Local Government, Sport and Cultural Industries guidance notes and the Integrated Planning & Reporting Framework.

Strategic Implications

The proposal aligns with the following objective within the Strategic Community Plan 2017 – 2027:

“4 Civic Leadership

4.2 Good Governance

4.2.2 Provide responsible resource and planning management which recognises our significant future growth”

Risk Management Considerations

Risk Title	Risk Rating
Integrated Reporting	Low
Accountability	Action Planning Option
Executive Leadership Team	Manage

Risk Title	Risk Rating
Financial Management	Low
Accountability	Action Planning Option
Executive Leadership Team	Manage

Risk Title	Risk Rating
Long Term Financial Plan	Moderate
Accountability	Action Planning Option
Director Corporate Strategy and Performance	Manage

Risk Title	Risk Rating
Strategic Asset Management	Moderate
Accountability	Action Planning Option
Director Assets	Manage

The above risk relating to the issue contained within this report has been identified and considered within the City’s Strategic and Corporate risk register. Action plans have been developed to manage this risk to support existing management systems.

In pursuing growth under the Economic objectives of the existing Strategic Community Plan, Council should consider the following risk appetite statements:

“Local Jobs

The City is prepared to accept a high level of financial risk provided that the City implements a risk management strategy to manage any risk exposure.

Strategic Growth

The City will accept a moderate level of financial risk for facilitating industry development and growth.

Any strategic objective including ongoing planning, funding and capital investment to develop infrastructure strategic assets carries financial risks.”

Policy Implications

This report and attachments are aligned to the guidelines identified with the Strategic Budget Policy.

Financial Implications

As outlined in the attachment to this report.

Voting Requirements

Simple Majority

Recommendation

That Council APPROVES the Long Term Financial Plan 2021/22 – 2040/41 as detailed in Attachment 1.

Attachments:

1 ⇩.

Attachment 1 - 2021/22 - 2040/41 Long Term Financial Plan

21/56568