Long Term Financial Plan Scenarios as at 7th May 2019

Notice Contact District Council of Coober Pedy
Phone 08  8672 4600
Notice Address Lot 773 Hutchison Street
Australia
Notice Email dccp@cpcouncil.sa.gov.au

 

YOUR VIEWS ARE SOUGHT

Dear Citizen,

This is a special notice that focuses on the Council’s finances. The normal monthly newsletter will come out as usual later in the month.

I hope you are aware of the financial challenges faced by the community in respect of your Council. The State Auditor General highlighted this in his report on the financial affairs of the Council.

The bottom line is that Council is currently living beyond its means by approximately $1 million per year. I refer to this as the structural deficit. This has been the case over the last ten years hence the Council net debt of approximately $9 million.

The financial forecast for this year is a deficit of approximately $1.4 million. This is a disappointing forecast result after the Council budgeted for a surplus of approximately $0.6 million but is consistent with the structural deficit.

To alter this position on an ongoing basis will require significant change. As a consequence, four financial scenarios have been developed. They are outlined in further detail elsewhere in this newsletter. More information is available in the information pack, a hard copy can be supplied on request at the Council Office.

Essentially the Council operates three funds - municipal, water and electricity. Currently only the electricity fund breaks even due to significant financial assistance from the State Government. It is proposed that all funds break even in future.

The municipal fund will only break even if municipal rates in three of the scenarios are increased significantly.

The water fund will only break even if the State Government provides a substantial subsidy or takes over the operation and funding of the water business. All scenarios provide for one of these approaches. Representations have been made to the State Government regarding this.

I have indicated a preference for scenario four - see later on for more detail - but I am open to changing my mind if there is good reason.

I favour scenario four as it:

  • raises rates to fund all municipal services;
  • keeps municipal rates at or about State levels;
  • does not reduce further the current rudimentary levels of municipal service;
  • simplifies the Council’s business which in turn allows it to focus all of its effort on municipal activities;
  • eliminates the risk associated with running essential services;
  • reduces potable water prices to Adelaide prices; and
  • eliminates debt which provides the Council with an opportunity to invest in community infrastructure rather than essential services infrastructure.

I am very conscious of municipal rate levels. While three of the scenarios proposed include significant municipal rates increases this is substantially offset by a decrease in potable water supply charges. 

In my preferred scenario the net impact of the increase in municipal rates and the decrease in water charges equates to approximately a six percent increase in municipal rates.

On state-wide basis residential municipal rates take between two and three percent of median household income. All scenarios developed for Coober Pedy are under three percent.

We need to settle on one of these scenarios to ensure the Council is financially sustainable in the future.

Until next time.
Tim Jackson 
Administrator 
tjackson@cpcouncil.sa.gov.au
0417 016 161

 

 

 

 


Draft Long Term Financial Plan

For some time Council has been examining and analysing a range of options and scenarios for the Long Term Financial Plan (LTFP).  

 Four Scenarios are currently under consideration.  They are:

  • Scenario 1 – Providing in 2019/20 for:
    • a decrease in water charges of 27% ($422k), based on the adoption of SA Water charges;
    • an increase in general rates of 44% ($691k);
    • this is equivalent to an increase of 17%  general rates;
    • full cost recovery for sewerage , airport and child care (2020/21). 
  • Scenario 2 – Providing in 2019/20 for:
    • a decrease in water charges of 27% ($422k), based on the adoption of SA Water charges;
    • an increase in general rates of 2% ($34k);
    • this is equivalent to a decrease of 25%  general rates;
    • reduction of tourism, library and works services;
    • full cost recovery for sewerage, airport and child care (2020/21). 
  • Scenario 3 – Providing in 2019/20 for:
    • a decrease in water charges of 27% ($422k), based on the adoption of SA Water charges;
    • an increase in general rates of 36% ($565k);
    • this is equivalent to an increase of 9%  general rates;
    • reduction of tourism, library and works services;
    • full cost recovery for sewerage, airport and child care (2020/21). 
  • Scenario 4 – Providing in 2019/20 for:
    • a decrease in water charges of 27% ($422k), based on the adoption of SA Water charges;
    • an increase in general rates of 33% ($518k);
    • this is equivalent to an increase of 6%  general rates;
    • full cost recovery for sewerage, airport and child care(2020/21);
    • the sale of the Water, Sewerage and Electricity businesses.

 

Scenarios 1, 3 and 4 provide for the long term financial sustainability of the council. 

 

Scenario 2 results in the Council being unable to pay its debts or staff, effectively bankrupt.

 

The Administrator has expressed a preference to adopt Scenario 4.

 

Scenario 4, a summary of which is attached, is based on:

  • An increase in general rates of 33% in 2019/20, followed by CPI (2%) increases in subsequent years, which provides an extra $518k in the first year.
  • The adoption of SA Water charges in 2019/20, results in a 27% reduction in water rates in 2019/20, a reduction of $422k in the first year, significantly offsetting the increase in general rates.
  • CPI (2%) increases applied to Airport charges and Childcare Fees for 2019/20 and full cost recovery in succeeding financial years.
  • CPI (2%) increases applied to all expenditure items, and all other revenue items, excluding general rates.
  • From 2020/21 the sale of Water, Sewerage and Electricity with revenue of $13.8 million, equating to the book value of the assets, of which $7.8 million will be immediately applied to Council’s debt and approximately $2 million applied to outstanding invoices for electricity. Charges for the services provided by the businesses are expected to continue at state government pricing after the sale.
  • Transitioning out of the provision of Childcare Services by June 2023.

 

The scenario provides for a reduction in administration costs as a result of the sale of the Water, Sewerage and Electricity businesses but no allowance has been made for the sale of surplus plant and equipment or for other efficiencies that might occur from the sale. 

 

Capital expenditure for the renewal/replacement of existing assets over the 10-year period is expected to be $6.5 million (as against depreciation charges of $7.5 million) and $1.0 million is provided for upgraded or new assets, a total of $7.5 million.  There will be a significant surplus from the sale of the water, sewerage and electricity businesses that can be applied to capital renewal or upgrade.

 

Public consultation on Scenario 4 commences on 9th May 2019.   Written submissions are invited from interested persons from Thursday 9th May 2019 and should be directed to Colin Pitman, Acting Chief Executive Officer PO Box 425 Coober Pedy SA 5723 or email cpittman@cpcouncil.sa.gov.au to be received by close of business on Thursday 30th May 2019.  There will be an opportunity for comment and discussion on Scenario 4 at the Town Hall meeting of 28th May 2019.  A further opportunity to make a verbal submission will be available at the Council meeting to be held on 4th June 2019.

 

All four (4) scenarios have been uploaded to the Council’s website.  Copies are also available for perusal at the Council Offices, the Post Office and the IGA Supermarket.  A hard copy can be supplied on request to the Council Office. 

 

Attachments

singleFileLong Term Financial Plan Scenarios as at 7 May 2019_with cover.pdf (697 kb)

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