Draft Operational Plan 2021-22

Draft Operational Plan 2021-22

Draft Operational Plan 2021-22
Public exhibition

At its meeting, held 27 April 2021, Council resolved to put on exhibition the draft Operational Plan for 2021-22. The Operational Plan sets out the activities and infrastructure projects, budget, rating structure and fees and charges for the 2021-22 financial year. 

The draft Operational Plan provides a roadmap for Council’s services for the 2021-22 financial year and includes an overview of our:

  • essential services
  • planned programs and capital works projects
  • financial position (both short and long term)
  • statement of revenue
  • fees and charges.

As part of Council’s plan towards financial recovery, the Operational Plan 2021-22 forecasts Council’s operating income as $666.8 million (if IPART determine a 15% Special Variation). Of this, Council will spend $659.8M on services and operational costs, resulting in a modest surplus of $7M. This excludes capital grants and contributions, which will be allocated towards the repayment of the restricted reserves debt. 

It is also proposed that $173.5M will be spent on capital works projects, with a focus on maintaining Council’s existing infrastructure. This includes over 350 capital works projects in 2021-22, with the draft Operational Plan 2021-22 also including details of capital works projects for the following three years.

Should IPART’s determination differ from a 15% Special Variation, the above numbers Council is working to would reduce accordingly.

Have your say

Submissions should be addressed to the Chief Executive Officer, Mr David Farmer and will be accepted until 5pm 26 May 2021, via: 

Council will receive a further report for consideration of any submissions in respect of the plan following the public exhibition period. 

Something you need to know: Under the Government Information (Public Access) Act, 2009 (GIPA ACT), members of the public can seek access to the submissions and Council cannot give assurance that the document will remain confidential.
 

Why is the Operational Plan necessary?

The Operational Plan details the actions that Council must carry out to achieve the objectives outlined in Council’s Community Strategic Plan and is essential in effective workforce management. 

What is Council’s current financial position?

Council’s current position as reported to Council in the Q1 Business Report on 2 December 2020 is a projected financial position at 30 June 2021 of a loss of $115M (this loss includes $45M of one-off restructuring costs).

While borrowings have been arranged and savings have been identified, Council’s position remains unsustainable without a rate variation. Not only would basic services be in jeopardy, but Council may be unable to meet its borrowing obligations. Without the rate variation Council would certainly be unable to repay the funds unlawfully spent from reserves.

Why is Council applying for a Special Rate Variation?

Central Coast Council is in a very serious financial crisis. Urgent and strong action is required to both address the current issues and build long term financial sustainability.

Council requires additional revenue generated from the special variation for the following purposes:

  • provide financial sustainability
  • maintain existing services and service levels generally
  • meeting special cost pressures faced by the Council
  • enable Council to repay restricted funds unlawfully accessed.
Why is the Special Rate Variation 15%?

Council originally considered applying for a 10% one-off increase to its rate income on 26 November 2020, with that increase to cease after seven years.

Since that resolution, further work was undertaken on Council’s long-term financial plan. This included forecasting the reductions in the levels of service to achieve sustainable long-term financial plans and to repay the restricted reserves. As a result, it became apparent that a larger and permanent increase of 15% is necessary in order to maintain a level of service the community expect (albeit at a level lower than that currently provided), to be able to repay borrowings and to repay reserve funds accessed unlawfully.

The reason a rate variation of 15% is considered appropriate is that this is the level that secures Council’s long-term financial future (through the repayment of approximately $200M of unlawfully accessed restricted cash) while continuing to provide services valued by our community at an acceptable level.

What actions have been taken to resolve the current financial situation?

Council’s approach to the current financial situation has been to explore all available options. This has resulted in sale of assets, reduced workforce and reduced expenditure (further details listed below).

The focus has clearly been on reducing costs, but it is also necessary that a proportion of the funds come from increased revenue. It is estimated that around 70% will come from reducing costs and only 30% from increased revenue.

Actions taken include:

 

  • Sale of assets: On 30 November 2020, Council resolved to undertake the sale of assets to address the financial situation. This sale of assets is estimated to result in one-off income of $49M, which would be directly applied towards the repayment of restricted reserves. The process of selling these assets has commenced.
  • Structural reduction in staff expenses: On 30 November 2020, Council resolved a revised organisation structure which was identified as providing significant savings to Council. While the exact savings realised will not be determined until the finalisation of the restructure at all levels, initial estimates are that the changes will result in savings of $30M. This program of savings has started with a voluntary redundancy program having commenced in late 2020 for implementation before 30 June 2021. Budget provisions have been made in 2020-21 for the purpose of funding redundancies. This process will result in a reduced headcount from over 2,500 staff to under 2,000 staff. Prior to this, in October 2020, Council determined to cease recruitment where possible. At that time there were 385 vacant positions for which recruitment was not to proceed.
  • Cessation of temporary employees and contractors: 51 temporary employees or contractors were terminated by 31 December 2020 resulting is savings of $4.678M (being the difference of the amount actually paid compared to the expected contract term. Further savings of approximately $1M will be realised over the current financial year as contracts are wound up.
  • Overtime: Overtime was restricted from October 2020 to only that required for safety or emergency requirements. As a result, in Q2 of 2020-21 overtime reduced to $440k (compared to $1.2M for the same quarter the previous year) being a 63% reduction. Annualising these figures, Council’s overtime costs will reduce from $14.4M per annum to $5.28M per annum, a saving of $9.1M per annum.
  • Seeking bank loans: On 11 November 2020, Council resolved to accept a loan from one of the four major banks in Australia of $50M on a fixed five-year term amortising over 15 years. On 18 December 2020, Council resolved to accept a loan of $100M from one of the four major banks in Australia on a fixed three-year term, amortising over 15 years. The loans were provided on the basis of Council seeking and receiving a 15% rate variation. There is a very real risk that should Council not obtain a 15% increase this will impact the status of the loans.
  • Reduced operating expenditure: A review of general expenditure on materials and contracts has resulted in estimated ongoing savings from 2021-22 of $20M. Reduced expenditure on operating expenditure has been included in Council’s long-term financial planning.
  • Reduced capital expenditure: Council has reduced the capital works program from $242M in 2019-20 to $170M in 2020-21 and this will be the amount at which infrastructure will be maintained into the future, of which $101.1M is for general fund works. Details of this reduced capital works program are set out in the amended Delivery Program and Operational Plan.
  • Reduced service levels: Some services and projects have been delayed or deleted from the Delivery Program and Operational Plan to address the financial situation. This information is set out in the amended Delivery Program and Operational Plan. There will also be service reductions against current levels. This will result in slower response times to community requests for service. This reduction in service levels has been balanced against the size of a potential rate increase.
  • Review of fees and charges: A review of fees and charges indicated that for those governed by regulation, there is minimal opportunity to increase. In most cases Council is currently towards the maximum end of relevant scales.

These measures will not be enough to support the financial recovery and for this reason a rate variation is being sought for the long-term sustainability of Council finances, to repay borrowed restricted funds and for Council to be able to deliver services.
 

How will the Special Rate Variation improve Council’s Financial Position?

The intention of the application is to improve the long-term financial sustainability of Central Coast Council, with the objective of repaying restricted reserves accessed unlawfully through the delivery of operating surpluses, maintaining adequate services and delivering $170M per annum in infrastructure.

Council is currently not financially viable and the need for the rate variation has been demonstrated by the current situation in which Council finds itself. Even with actions including staff, expenses and capital expenditure reductions and raising $150M in external borrowings, Council’s long-term financial viability is not achievable without a Special Rate Variation.

Rates income represents 29% of Council’s income. A rate variation will improve the underlying position for the General Fund. This would allow the provision of services, the repayment of borrowings and the eventual repayment of the funds spent from restricted funds.

Without the variation, Council would need to reduce its operating expenses further which would mean a further reduction of the workforce by a third. This would potentially result in significantly reduced services below acceptable levels. It would impact the ability to deliver services and works. The staff levels would be below those at amalgamation, which themselves were artificially low as identified in the Administrator’s 30-day report.

Commercial loans have been secured on the basis that Council sells assets, cuts costs and increases revenue. If Council fails to meet its targets with regard to these measures, the loans can be called in.

The cost savings will largely be met through cutting staff numbers. The planned asset sales are progressing, including the sale of the former Gosford Council building and surrounding properties. However, there are limited opportunities for any Council to increase revenue without a rate rise.

Will there be ongoing financial management and monitoring?

In developing the longterm financial plan, Council has made the following assumptions, which will require ongoing financial management and monitoring:

  • Ongoing management and monitoring of staff costs: Over the next five years, staff cost increases of 2% (being the Award provision) and 0.5% being the Superannuation Guarantee Contribution. No allowance has been made for further increases which will require Council to maintain a strong focus on staffing levels and costs.
  • No further borrowings: It is not planned that there be any additional borrowings beyond those to date. However, it is noted that it will be necessary to re-finance the balloon loan repayments.
  • Ongoing management of materials and contracts: Over the long-term financial plan there is a provision for 0.5% increase in the cost of materials and contracts. This is a deliberately conservative provision in an effort to drive operational efficiencies that have not been optimised since amalgamation.

Even with a rate variation, Council will need to continue to reduce and manage expenditure and find efficiency gains.
 

Will there be service level reductions across Council?

It is important to note that even with the actions being undertaken and even if successful in the Special Rate Variation, service levels will still need to change. Details of these changes are available in the introduction section of the draft Operational Plan noting that further changes may be necessary.

What will happen if Council are unsuccessful in their Special Rate Variation application to IPART?

Council have developed an assumptions summary which takes into account the two scenarios i.e. a one-off 15% and standard rate peg. These are available in the Long Term Financial Plan section within the draft Operational Plan 2021-22. 

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