Woollahra Municipal Council's application for a special variation - Local Government - Determination June 2011 - IPART
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Independent Pricing and Regulatory Tribunal Woollahra Municipal Council’s application for a special variation Local Government — Determination June 2011
Woollahra Municipal Council’s application for a special variation Local Government — Determination June 2011
© Independent Pricing and Regulatory Tribunal of New South Wales 2011
This work is copyright. The Copyright Act 1968 permits fair dealing for study, research,
news reporting, criticism and review. Selected passages, tables or diagrams may be
reproduced for such purposes provided acknowledgement of the source is included.
ISBN 978-1-921929-23-6
The Tribunal members for this review are:
Mr Rod Sims, Chairman
Mr James Cox PSM, Chief Executive Officer and Full Time Member
Ms Sibylle Krieger, Part Time Member
Inquiries regarding this document should be directed to a staff member:
Alison Milne (02) 9290 8443
Owen Shu (02) 9113 7739
Independent Pricing and Regulatory Tribunal of New South Wales
PO Box Q290, QVB Post Office NSW 1230
Level 8, 1 Market Street, Sydney NSW 2000
T (02) 9290 8400 F (02) 9290 2061
www.ipart.nsw.gov.au
ii IPART Woollahra Municipal Council’s application for a special variationContents
Contents
1 Determination and executive summary 1
1.1 Summary of Woollahra Municipal Council’s application 2
1.2 IPART’s determination 5
1.3 Summary of IPART’s assessment 6
1.4 Structure of this report 7
2 Background 8
2.1 Sources of revenue 9
2.2 Expenditure and revenue trends 10
2.3 Previous special variation applications 10
3 Woollahra Municipal Council’s 2011/12 application 12
3.1 Summary of Woollahra Municipal Council’s application 12
3.2 How does Woollahra Municipal Council propose to allocate the rate increases
among ratepayers? 13
3.3 Why does Woollahra Municipal Council consider the requested increases are
necessary? 14
4 IPART’s assessment of Woollahra Municipal Council’s special variation
application 16
4.1 Summary of findings against the 6 criteria 16
4.2 Criterion 1 – Demonstrated need for the rate increases derived from the
council’s IPRF 17
4.3 Criterion 2 – Demonstrated community support 23
4.4 Criterion 3 – Reasonable impact on ratepayers 26
4.5 Criterion 4 – Sustainable financing strategy consistent with intergenerational
equity 28
4.6 Criterion 5 – Productivity improvements 29
4.7 Criterion 6 – Implementation of the Integrated Planning and Reporting
Framework (IPRF) 32
Appendices 35
A Woollahra Municipal Council’s Proposed Environmental and Infrastructure
Renewal Works 37
B Community Strategic Plan, Delivery Program and Operational Plan 39
C Key financial assumptions underlying the Long Term Financial Plan 40
D Minimum and Ordinary Rates 43
Glossary 45
Woollahra Municipal Council’s application for a special variation IPART iii1 Determination and executive summary
1 Determination and executive summary
The Independent Pricing and Regulatory Tribunal (IPART) is responsible for setting
the amount by which councils can increase their general income each year. General
income mainly includes rates income. We set a rate peg amount each year that
applies to all councils. In addition, councils can apply to us for a special variation,
which allows councils to increase their general income, by more than the rate peg
amount.
We have assessed and made a determination regarding Woollahra Municipal
Council’s application for a special variation to its general income for the period from
2011/12 to 2012/13.
We have decided to accept the special variation as requested by the council. We are
allowing a special variation to its general income of 9.82% in 2011/12 and 10.41% in
2012/13. The council’s general income will increase by an average of 7.2% a year
above the rate peg amount in each of these 2 years.
We assessed the application against criteria included in the Guidelines for the
preparation of an application for a special variation to general income in 2011/20121 (the
Guidelines) issued by the Division of Local Government, Department of Premier and
Cabinet.
The determination was made under section 508A of the Local Government Act 1993
(the Act). By the operation of the Act, any increases in income determined by us
under section 508A of the Act are permanently incorporated into the council’s
general income.2
This report sets out our determination and the conditions we have attached to it, and
explains the council’s application and our assessment of it.
1 Division of Local Government (DLG), Department of Premier and Cabinet, December 2010.
2 Implied by Sections 509(1) and (2) of the Act and also included in the Guidelines.
Woollahra Municipal Council’s application for a special variation IPART 11 Determination and executive summary
1.1 Summary of Woollahra Municipal Council’s application
Woollahra Municipal Council applied to IPART for a special variation under section
508A of the Act to increase its general income by:
9.82% in 2011/12, and
10.41% in 2012/13.
These increases represent a cumulative increase of 21.3% for these 2 years (including
the assumed rate peg increases), or 14.5% above the assumed rate peg increases.
These increases represent an annual average increase of 7.2% above the assumed rate
peg increase over the 2 years.
1.1.1 Components of special variation
The special variation reflects the total amount by which the council proposes to
increase its general income. It includes the rate peg and the value of 2 expiring
special variations.
Rate peg
The special variation incorporates the rate peg increases that would otherwise be
available to the council. IPART has set the rate peg increase for 2011/12 at 2.8%. We
will set the rate peg increases for financial years from 2012/13 in December of the
preceding year. For the purpose of this application the council has assumed the rate
peg will be 3.0% from 2012/13. If it is higher or lower than assumed, this will
generally have no impact on the council’s future general income, as the special
variation percentage has been determined and will apply in the period specified.3
Expiring special variations
The increases in 2011/12 and 2012/13 include the value of 2 existing Environmental
and Infrastructure Renewal Levies (EIRLs) that are due to expire in June 2011 and
June 2012. Thus the council is effectively seeking to continue these existing 2 levies
and these will be incorporated into its rates base permanently.
The annual increases sought by the council, including the rate peg increase, are
presented in Table 1.1 below.
3 Under the Act, a council may apply to IPART to vary or revoke a special variation made under
section 508A in any year. Any application will be assessed against any applicable Guidelines.
2 IPART Woollahra Municipal Council’s application for a special variation1 Determination and executive summary
Table 1.1 Summary of Woollahra Municipal Council’s application for a special
variation
Component 2011/12 2012/13
% %
Renewal of the Environmental and Infrastructure Renewal Levies 5.84 6.27
Partly offset increases in EMC 1.18 1.14
Rate peg 2.8 3.0
Total increase 9.82 10.41
Note: IPART has set the rate peg for 2011/12 at 2.8%. For the purpose of this application, both IPART and the council
have assumed the rate peg will be 3.0% in 2012/13.
Source: Woollahra Municipal Council, Section 508A Special Variation Application Form - Part B – Appendix A, Table A-1.
1.1.2 Purpose of special variation
The main reasons for the requested special variation are to:
allow the council to continue to fund environmental and infrastructure works
once 2 expiring levies expire, by continuing the EIRLs
partly fund increases in the State Government’s Emergency Management
Contribution (EMC) that is escalating at a much faster rate than the rate peg for
Woollahra because the levies are based in part on land values and Woollahra’s
land values have been increasing rapidly.
The requested increases include the rate peg increase, the existing EIRLs and the
emergency management contributions.
1.1.3 Revenue impact of special variation
Table 1.2 includes the council’s estimate4 of the total allowable increase in the
council’s permissible general income in the period 2011/12 to 2012/13. This estimate
has been verified by the DLG.
4 It is not possible to determine the council’s future general income with precision. A council’s
actual general income is affected by many factors, including the number of rateable properties
and adjustments for previous under-collection or over-collection of rates made by councils. The
DLG is responsible for monitoring and ensuring compliance.
Woollahra Municipal Council’s application for a special variation IPART 31 Determination and executive summary
Table 1.2 Woollahra Municipal Council’s requested special variation
Year Annual Cumulative Annual Cumulative Decrease Permissible
increase increase in increase in increase in from the general
in general general general general expiry of a incomea
income income income income prior
special
variation
(%) (%) ($) ($) ($) ($)
Y1 2011/12 9.82 9.82 2,922,000 2,922,000 -1,691,742 32,688,029
Y2 2012/13 10.41 21.25 3,207,424 6,129,424 -1,877,040 34,018,413
a Permissible general income refers to the maximum general income the council can generate in the year. It equals
the previous year’s notional general income level (2010/11) plus the annual dollar increase permitted by the special
variation percentage.
Source: Woollahra Municipal Council, Section 508A Special Variation Application - Part A, 25 March 2011, Worksheets 1
and 4.
Woollahra Municipal Council would have additional general income of $2.9m in
2011/12, rising to $6.1m per annum from 2012/13, including the rate peg increases,
than would otherwise have been the case for 2011/12 and 2012/13. The net impact
on permissible general income would be $1.2m in 2011/12, rising to $2.6m per
annum from 2012/13, including the rate peg increases, due to the impact of the
expiring special variations in each of these years. This increase would then be built
into the council’s revenue base.
1.1.4 Impact on rates
Under the requested special variation, average residential rates would increase by an
estimated:
3.94% (or $44) in 2011/12
4.07% (or $47) in 2012/13.
Under the requested special variation average general business rates would increase
by an estimated:
3.94% (or $80) in 2011/12
4.07% (or $86) in 2012/13.5
The estimated percentage increases in average residential and business rates for
2011/12 and 2012/13 are lower than total percentage increases in general income.
This is because the requested special variation amount includes (and effectively
replaces) the increases associated with the EIRLs in 2011/12 and 2012/13.
5 Woollahra Municipal Council, Section 508A Special Variation Application – Part A, Worksheet 5,
and IPART calculations.
4 IPART Woollahra Municipal Council’s application for a special variation1 Determination and executive summary
1.2 IPART’s determination
Based on our assessment of Woollahra Municipal Council’s application in line with
the requirements of the Act and the Guidelines, IPART has decided to approve the
special variation percentages, as shown on Table 1.3 below, subject to the conditions
listed in Box 1.1.
The approved special variation percentage includes the value of the expiring levies
and the rate peg increase. These increases represent a cumulative increase of 21.3%
for these 2 years, or 14.5% above the assumed rate peg increase.
Table 1.3 Approved special variation for Woollahra Municipal Council, including the
rate peg
Year Annual increase in general Cumulative increase in general
income (%) income (%)
Y1 2011/12 9.82 9.82
Y2 2012/13 10.41 21.25
Source: IPART calculations.
The determination is consistent with the application. This means that the council’s
general income will increase by $2.9m in 2011/12 than would otherwise have been
the case, and average residential rates are estimated by the council to increase by $44.
Box 1.1 Conditions attached to approved special variation for Woollahra Municipal
Council
IPART’s approval of Woollahra Municipal Council’s application for a special variation over the
period 2011/12 to 2012/13 is subject to the following conditions:
The council uses the additional income from the special variation for the purposes of
funding the expenditures on environmental and infrastructure renewal works outlined in
the council’s application as listed in Appendix A.
The council reports in its annual report for each rating year over the period 2011/12 to
2020/21 on:
– the program of expenditure on environmental and infrastructure renewal works listed in
Appendix A
– the outcomes achieved as a result of the special variation
– its asset renewal and maintenance expenditure
– its actual productivity savings achieved, and
– any significant variations from its financial results as forecast in its Long Term Financial
Plan and any corrective action taken or to be taken.
Woollahra Municipal Council’s application for a special variation IPART 51 Determination and executive summary
1.3 Summary of IPART’s assessment
In assessing Woollahra Municipal Council’s special variation, we found that the main
purpose is to continue the program of environmental and infrastructure maintenance
and renewal works. The council has demonstrated, through a community survey
and other public consultation activities, that there is a relatively high level of
community support for the continuation of this program.
Table 1.4 summarises our findings in relation to each of the section 508A assessment
criteria.
Table 1.4 Assessment of Woollahra Municipal Council’s special variation application
Criteria Assessment summary
1. Demonstrated need for the The council demonstrated that the special variation flows from its
rate increase derived from strategic planning and delivers community priorities.
the council’s Integrated The program of works appears to be feasible.
Planning and Reporting
Framework Assumptions regarding financial forecasts are reasonable.
The special variation would improve recurrent and capital
sustainability.
2. Demonstrated community The council’s community survey shows significant support for the
support for the special special variation.
variation The council does not appear to have offered the community the
option of financing priorities through the prudent use of debt or
expenditure savings, rather than a rate increase.
3. Reasonable impact on The impact on ratepayers is not unreasonable considering the size
ratepayers of the increase, the capacity to pay and the council’s Financial
Hardship Policy.
4. Sustainable financing The council has not used debt for the expenditure associated with
strategy consistent with the special variation.
the principles of The financing strategy appears to be sustainable and consistent
intergenerational equity with the principles of intergenerational equity, given debt will only
be used for long-term capital projects.
5. An explanation of the The council has made reasonable productivity improvements.
productivity improvements The council’s planned productivity improvements appear to be
the council has realised in reasonable, but its ratio of staff to residents appears high
past years, and plans to compared with other councils.
realise over the requested
special variation period. The council has scope to achieve further productivity
improvements.
6. Implementation of the The council is an IPRF Group 1 Council and has implemented the
Integrated Planning and IPRF. DLG noted some areas in which the council could improve
Reporting Framework its documentation.
(IPRF)
6 IPART Woollahra Municipal Council’s application for a special variation1 Determination and executive summary
1.3.1 Impact of the determination
Table 1.5 includes an estimate of the general income resulting from our
determination in Section 1.2.
Table 1.5 Woollahra Municipal Council’s special variation
Year Annual Cumulative Annual Cumulative Decrease Permissible
increase increase in increase in increase in from the general
in general general general general expiry of a incomea
income income income income prior
special
variation
(%) (%) ($) ($) ($) ($)
Y1 2011/12 9.82 9.82 2,922,000 2,922,000 -1,691,742 32,688,029
Y2 2012/13 10.41 21.25 3,207,424 6,129,424 -1,877,040 34,018,413
a Permissible general income refers to the maximum general income the council can generate in the year. It equals
the previous year’s notional general income level (2010/11) plus the annual dollar increase permitted by the special
variation percentage.
Source: Woollahra Municipal Council, Section 508A Special Variation Application - Part A, 25 March 2011, Worksheets 1
and 4.
1.4 Structure of this report
The remainder of this report details the council’s application and our assessment.
Chapter 2 provides background information on Woollahra Municipal Council,
including its profile, sources of revenue, and recent revenue and expenditure
trends
Chapter 3 summarises the council’s 2011/12 application for a special variation
Chapter 4 discusses in detail our assessment of the application against the
6 criteria in the Guidelines.
Woollahra Municipal Council’s application for a special variation IPART 72 Background
2 Background
Located immediately to the east of the Sydney CBD, Woollahra Municipal Council
occupies a very small geographic area and has an urban population of approximately
55,000 residents. Woollahra has a high average annual income and the council area
has high average property values. It has NSW’s third highest Socio-Economic
Indexes for Areas (SEIFA) ranking,6 indicating that, on average, it is one of the least
disadvantaged communities in the state.
In 2009/10, average residential rates were $937. This is higher than the average
residential rate for other councils in the same Division of Local Government (DLG)
grouping ($886)7 and the average for all councils in NSW ($643).8
Table 2.1 provides an overview of Woollahra Municipal Council’s profile.
6 SEIFA is the Socio-Economic Indexes for Areas published by the Australian Bureau of Statistics
and incorporates a number of individual indexes and can be used to determine the level of
social and economic well-being in regions relative to one another. One of the indexes is the
Index of Relative Socio-economic Advantage & Disadvantage for NSW in 2006. The SEIFA used
in this report ranks Local Government Areas from 1 to 153 (includes 1 ranking for
"unincorporated NSW"). A rank of 1 means the council is least advantaged relative to all the
other councils in NSW. A ranking of 153 means it is least disadvantaged relative to all the other
councils in NSW.
7 DLG, Snapshot of NSW Councils: Comparative Information on NSW Local Government Councils
2008/09, p 11. The Australian Classification of Local Governments (ACLG) system classifies
councils into 22 categories according to their socio-economic characteristics and their capacity to
deliver a range of services to the community. DLG has reduced this to 11 groups because some
of the ACLG categories contained few or no councils in New South Wales. DLG Group 2
Councils are: Ashfield Council, Botany Bay Council, Burwood Council, Hunters Hill Council,
Kogarah Council, Lane Cove Council, Leichhardt Council, Manly Council, Mosman Council,
North Sydney Council, Pittwater Council, Strathfield Council, Waverley Council, Willoughby
City Council, and Woollahra Council.
8 DLG, unpublished comparative data, 2009/10.
8 IPART Woollahra Municipal Council’s application for a special variation2 Background
Table 2.1 Woollahra Municipal Council profile (2009/10)
Area (km2) 12
Population 55,228
Average annual income, 2008 ($) 117,823
Growth in average annual income, 2005 to 2008 (%) 5.7
Ratio of average residential rate (2009/10) to
average annual income, 2008 (%) 0.8
SEIFA 2006 (NSW ranking)a 151 (third highest)
No of annual rate assessments 25,699
Average rate level – residential ($) 937
Annual operating expenditure ($m) 66.33
Staff (FTEs) 362
DLG groupingb Group 2 – Urban Small/Medium Metropolitan
IPRF groupingc 1
a See footnote 6.
b See footnote 7.
c The IPRF is currently being delivered in phases over a 3-year period. DLG has classified councils into 1 of 3 groups:
Group 1 Councils have joined the Framework; Group 2 will join in 2011; and Group 3 will join from 2012.
Source: ABS National Regional Profiles, NSW councils, November 2010 and DLG, unpublished comparative data,
2009/10.
2.1 Sources of revenue
Woollahra Municipal Council receives approximately 53.5% of its revenue from rates
and annual charges (Figure 2.1). This is similar to the Group 2 average of 53.2%, but
higher than the NSW average of 47.4%.
Figure 2.1 Woollahra Municipal Council revenue sources, 2009/10
Other Revenue
15.4%
Contributions
9.5%
Grants Revenue Rates Revenue
6.4% 53.5%
Interest Revenue
4.3%
User Charges and
Fees
Note: Rates revenue includes revenue from ordinary rates, special rates and annual charges.
Data source: DLG, unpublished comparative data, 2009/10.
Woollahra Municipal Council’s application for a special variation IPART 92 Background
2.2 Expenditure and revenue trends
The council’s historical data shows that its total revenue has been below total
expenditure for most of the past 12 years (see Figure 2.2).
Figure 2.2 Woollahra Municipal Council’s ordinary expenditure and revenue
growth, $ million, 2009/10 dollars
80
70
60
50
40
30
20
10
0
1998/99 2000/01 2002/03 2004/05 2006/07 2008/09
Total Revenue Total Expenditure Rates revenue
Note: Total revenue includes revenue from ordinary and special rates, annual charges, interest, grants, contributions
and other revenue. It does not include sewerage and water charges. Total expenditure also excludes water and
sewerage expenditures.
Data source: DLG, unpublished comparative data, 2009/10. IPART has converted revenue and expenditure figures into
real terms using the Sydney CPI as a deflator.
2.3 Previous special variation applications
Woollahra Municipal Council has applied for 8 special variations in the past 10 years
(see Table 2.2). Of these applications, 4 were successful, 2 were partially successful
and 2 were rejected. Four of the special variation applications were for
environmental and infrastructure purposes and 3 related to fire brigade
contributions (now the EMC).
Two time-limited special variations are still in effect; these arise from the council’s
applications in 2006/07 (9.58%) and 2007/08 (9.69%). They are due to expire in June
2011 and June 2012 respectively. The purpose of these 2 special variations was to
fund environmental and infrastructure works via the creation of Environmental and
Infrastructure Renewal Levies (EIRLs).
10 IPART Woollahra Municipal Council’s application for a special variation2 Background
Table 2.2 Woollahra Municipal Council’s special variation history
Year Amount Outcome Rate Type Term Purpose
sought (%) (%) Peg (%)
2001/02 3.77 3.77 2.8 508(2) Ongoing Contribution to Fire Levy
since 1998/99
2002/03 7.82 7.82 3.3 508(2) 3 years Environmental projects
2003/04 4.06 4.06 3.6 508(2) Ongoing Maintain income
2004/05 - - 3.5 - -
2005/06 13.31 7.90 3.5 508(2) 2 years Environmental and
infrastructure levies
2006/07 14.28 9.58 3.6 508(2) 5 years Infrastructure and
environmental works
2007/08 9.69 9.69 3.4 508(2) 5 years Infrastructure
maintenance/renewal
2008/09 - - 3.2 - -
2009/10 6.04 - 3.5 508(2) - To fund NSW Fire Brigade
contributions and street
lighting charges
2010/11 5.45 - 2.6 508(2) - To fund increases in NSW
Fire Brigade Contribution
and street lighting
charges
Note: Amounts in the table include the rate peg.
Source: DLG, unpublished comparative data, 2009/10.
Woollahra Municipal Council’s application for a special variation IPART 113 Woollahra Municipal Council’s 2011/12 application
3 Woollahra Municipal Council’s 2011/12 application
Woollahra Municipal Council applied to IPART for a special variation to its
permissible general income in 2011/12 under section 508A of the Act. The sections
below summarise the council’s application, then explain how the council proposes to
allocate the rate increases implied in its application among ratepayers, and why it
considers these increases are necessary.
3.1 Summary of Woollahra Municipal Council’s application
Woollahra Municipal Council applied for a special variation to increase its general
income by 9.82% in 2011/12 and 10.41% in 2012/13. The requested increases will be
permanently incorporated into the rate base from 2011/12 onwards. These increases
represent a cumulative increase of 21.25% over 2 years. They incorporate an
assumed rate peg increase for each year,9 and therefore reflect the total amount by
which the council proposes to increase its general income.
The requested increases include the rate peg increase, the existing EIRLs and the
emergency management contributions. Table 3.1 provides a breakdown of the
special variation application.
Table 3.1 Woollahra Municipal Council’s requested special variation
Component 2011/12 2012/13
% %
Renewal of the Environmental and Infrastructure Renewal Levies 5.84 6.27
Partly offset increases in EMC 1.18 1.14
Rate peg 2.8 3.0a
Total increase 9.82 10.41
a Both IPART and Woollahra Municipal Council have assumed the rate peg to be 3.0% for 2012/13.
Source: Woollahra Municipal Council, Section 508A Special Variation Application Form – Part B, Appendix A, Table A-1.
9 IPART has set the rate peg increase for 2011/12 at 2.8%. We will set the rate peg increases for
2012/13 and 2013/14 in December 2011 and 2012 respectively. For the purpose of this
application, both IPART and the council have assumed it will be 3.0%. If it is higher or lower
than assumed, this will have no impact on the council’s future permissible general income, as
the special variation amount has been determined and will apply in future years.
12 IPART Woollahra Municipal Council’s application for a special variation3 Woollahra Municipal Council’s 2011/12 application
If we were to disallow the continuation of the EIRLs, the council’s general income
will experience a decrease of $1.74m in 2011/12 and a further $1.93m decrease in
2012/13.10
3.2 How does Woollahra Municipal Council propose to allocate the rate
increases among ratepayers?
The council’s rating structure includes a Residential category, a General Business
category and 13 location-specific Business categories. A minimum rate applies only
for business ratepayers. Ratepayers pay ordinary or minimum rates and the EIRLs.
The increase to ordinary and minimum rates would incorporate the rate peg and the
increase for the EMC.
The council proposes to allocate the rate increases implied by its special variation
application fairly evenly among its ratepayer categories. All rate payers will
experience an increase of approximately 4% for both years. Given that ratepayers are
already paying the existing EIRLs, the continuation of the EIRLs will not increase
rates apart from the allowed rate peg amount. The average amount for the EIRLs is
estimated to be $136 for 2011/12 and $140 for 2012/13.11 If the EIRLs are not
renewed, ratepayers will experience a decrease in rates in 2011/12 and 2012/13.
Table 3.2 shows the impact of the special variation on average residential ratepayers
and average business ratepayers paying general business rates.
Table 3.2 Impact of the special variation on residential and business rates
2010/11 2011/12 2012/13
Average residential rates 1,107 1,150 1,197
including EIRLs ($)
$ increase 44 47
% increase 3.94 4.07
Average business general rates 2,035 2,115 2,201
including EIRLs ($)
$ increase 80 86
% increase 3.94 4.07
Notes: 2010/11 does not apply to the special variation but is included for comparative purposes. The figures for
2011/12 and 2012/13 include the EIRLs, the EMC and rate peg amounts.
The actual percentage increases for each ratepayer category differ from the special variation amounts due to the
impact of expiring special variations in both years.
Source: Woollahra Municipal Council, Section 508A Special Variation Application Form – Part A, Worksheet 5.
10 Woollahra Municipal Council, Section 508A Special Variation Application Form – Part B,
Appendix A, Table A-1.
11 Woollahra Municipal Council, Section 508A Special Variation Application Form – Part B,
Appendix A, Table A-3.
Woollahra Municipal Council’s application for a special variation IPART 133 Woollahra Municipal Council’s 2011/12 application
3.3 Why does Woollahra Municipal Council consider the requested
increases are necessary?
Woollahra Municipal Council sought the increase to fund environmental and
infrastructure works once 2 EIRLs expire. The council also needs to partly fund
increases in the State Government’s Emergency Management Contributions (EMC),
which are escalating at a much faster rate than the rate peg. This is because the EMC
is based, in part, on land values and these have been rapidly increasing in Woollahra.
3.3.1 Renew time-limited environmental and infrastructure levies that are due to
expire
Woollahra Municipal Council has 2 time-limited EIRLs that were approved as special
variations to fund infrastructure maintenance and environmental works. These
levies are due to expire in June 2011 and June 2012.12 The existing EIRLs for 2010/11
will raise $3.4m, which is equivalent, on average, to $132 per assessable property.13
For 2011/12 and 2012/13, the EIRLs would raise $3.5m and $3.6m respectively,
which is equivalent to an average of $136 and $140 per assessable property. The
continuation of the EIRLs would allow the council to fund the renewal and
replacement of roads, kerbs, guttering, footpaths, seawalls, environmental
sustainability programs and other facilities.
If the EIRLs are not approved as a special variation the council’s general income
would experience:
a decrease of $1.74m in 2010/11
a decrease of $1.93m in 2011/12.14
Council rates will also decrease over the same period to reflect the expiry of the time-
limited EIRLs.
12 Special variations for these levies were approved in 2006/07 and 2007/08 for 9.58% and 9.69%
respectively. The percentage increases sought for the EIRLs have changed due to the increase in
the council’s rate base since the previous special variations.
13 Woollahra Municipal Council, Section 508A Special Variation Application Form – Part B,
Appendix A, Table A-1.
14 Woollahra Municipal Council, Section 508A Special Variation Application Form – Part B,
Appendix A, Table A-1.
14 IPART Woollahra Municipal Council’s application for a special variation3 Woollahra Municipal Council’s 2011/12 application
3.3.2 Emergency Management Contribution (EMC)
The EMC is a NSW Government levy collected from all councils to help meet the
costs of emergency services, specifically NSW Fire Brigades, the Rural Fire Service
and the State Emergency Service. The aggregate levy is calculated based on each
council’s population, the number of assigned fire districts and the land values in the
council area. Due to increases in both the levy rate and land values in Woollahra, the
cost of the levy has grown from $1.44m in 2001/02 to $2.48m in 2010/11 - a real
increase of approximately 27% above the rate peg.15
15 Woollahra Municipal Council, Section 508A Special Variation Application Form – Part B,
Appendix A, Table A-4.
Woollahra Municipal Council’s application for a special variation IPART 154 IPART’s assessment of Woollahra Municipal Council’s
special variation application
4 IPART’s assessment of Woollahra Municipal Council’s
special variation application
We have assessed and made a determination on Woollahra Municipal Council’s
application for a special variation to its general income for the period from 2011/12
to 2012/13.
We have decided to accept the special variation requested by the council. We are
allowing a special variation to its general income of 9.82% in 2011/12 and 10.41% in
2012/13. The council’s general income will increase by an average of 7.2% a year
above the rate peg amount in each of these 2 years.
We have assessed Woollahra Municipal Council’s application for a special variation
as a whole and against the 6 criteria in the Guidelines. These are:
demonstrated need for the rate increases derived from the council’s IPRF
demonstrated community support for the special variation
reasonable impact on ratepayers
sustainable financing strategy consistent with the principles of intergenerational
equity
an explanation of the productivity improvements the council has realised in past
years, and plans to realise over the special variation period
implementation of the IPRF.
The sections below summarise our overall findings against these criteria, then
explains our assessments and findings on each criteria.
4.1 Summary of findings against the 6 criteria
Woollahra Municipal Council is seeking a modest increase in its permissible general
income in addition to the continuation of existing EIRLs. The main purpose of this is
to continue its program of environmental and infrastructure maintenance and
renewal works.
16 IPART Woollahra Municipal Council’s application for a special variation4 IPART’s assessment of Woollahra Municipal Council’s
special variation application
The proposed program of works appears to be feasible and the special variation
would improve recurrent and capital sustainability. The council has demonstrated,
through a community survey and other public consultation activities, that there is a
relatively high level of community support for these activities. The impact on
ratepayers does not appear unreasonable and the council has made reasonable
productivity improvements. IPART is satisfied that the council meets all 6 criteria in
the Guidelines.
4.2 Criterion 1 – Demonstrated need for the rate increases derived from
the council’s IPRF
Councils seeking special variations must demonstrate that their proposed increase in
general income is necessary. This includes supporting their application with relevant
strategic and financial planning information, and providing evidence that the income
raised by the special variation will be used to fund an efficient and feasible program
of expenditure, and (if possible) that the special variation will improve their financial
sustainability.
Woollahra Municipal Council stated that it needed the special variation for
infrastructure maintenance and renewal, and environmental works (to be partly
funded by the continuation of the EIRLs); and to restore annual general revenue by
offsetting part of the increase in EMC costs levied by the NSW Government.
We are satisfied that the council has adequately demonstrated a need for the rate
increase implied by the special variation. We note that:
the council has demonstrated that the special variation flows from its strategic
planning and delivers community priorities
the program of works appears to be feasible
assumptions regarding financial forecasts are reasonable
the special variation would improve recurrent and capital sustainability.
4.2.1 Consistency with community objectives flowing from strategic plans
The purpose of the special variation is broadly consistent with the community’s
expenditure priorities, which is evident from the council’s survey results.
The environmental and infrastructure spending was included in the council’s
strategic planning documents. The special variation was identified in the
Community Strategic Plan Woollahra 2025 and reflected in the council’s Delivery
Program and Operational Program. Relevant extracts from these plans are included
in Appendix B, Table B.1. We consider that the council’s environmental and
infrastructure program is consistent with the community’s priorities as identified in
its Community Strategic Plan (see Box 4.1).
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special variation application
Box 4.1 Woollahra Municipal Council’s Community Engagement Strategy
In early 2010 Woollahra Municipal Council implemented a Community Engagement Strategy to
identify the community’s strategic needs, which were then incorporated into its Community
Strategic Plan.
The Community Strategic Plan was developed with regard to intercept surveys conducted
between 24 February and 24 March 2010 by People for Places & Spaces (PPS) consultants. The
sample of 1,015 participants included residents, business owners, workers and visitors across
the municipality.
The Community Intercept Survey Report identified that poorly maintained infrastructure
was a major concern of most demographic groups.
This issue was consistently ranked amongst the top 3, although it ranked fifth with
residents.
Micromex Research also conducted a random telephone survey of 800 residents from the
council area. The survey revealed the community’s preference for renewing and maintaining
local infrastructure, as well as implementing environmental pollution controls. The following
issues were listed as high priorities:
renewing and maintaining footpaths and pedestrian ramps
renewing and maintaining local roads
renewing and maintaining kerbs and guttering
implementing water pollution controls
improving stormwater drainage
encouraging sustainable development
maintaining foreshores and beaches
maintaining harbour-side facilities.
Source: Woollahra 2025 Community Intercept Survey Volume 1 and Woollahra Municipal Council Community Research
Report
18 IPART Woollahra Municipal Council’s application for a special variation4 IPART’s assessment of Woollahra Municipal Council’s
special variation application
4.2.2 The proposed program of expenditure is reasonable
We have not carried out a detailed evaluation of each capital work in Woollahra
Municipal Council’s proposed program of expenditure; rather we have examined the
information the council provided in its application. Woollahra Municipal Council
provided yearly work schedules detailing the projects, type of work and
descriptions, cost estimates and any supplementary grant funding. The council is
proposing to spend the special variation funds on the following environmental and
infrastructure programs or works:
35% on renewing approximately 27 kilometres of roads
20% on renewing approximately 18 kilometres of kerbs and guttering
15% on replacing more than 15 kilometres of footpaths
10% on reconstructing seawalls
10% on environmental and sustainability programs
10% on maintaining harbour-side and municipal facilities.16
IPART has not undertaken a detailed analysis of this program of works but we note
it appears to be feasible as:
the timing and cost of works were derived using an asset management model
from the Institute of Public Works Engineering Australia, with reference to the
International Infrastructure Management Manual
the program of works is based on renewing infrastructure assets that have
reached the end of their useful or economic lives or have deteriorated below an
acceptable standard
the capital works program will be rolled out over 5 years, which will spread out
the asset maintenance and renewal costs.17
In relation to the EMC, the council proposes to recover $700,000 over the 2 years of
the special variation – $350,000 in each of 2011/12 and 2012/13.
16 Woollahra Municipal Council, Section 508A Special Variation Application Form – Part B, pp 4-5.
17 Woollahra Municipal Council, Section 508A Special Variation Application Form – Part B, p 11.
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4 IPART’s assessment of Woollahra Municipal Council’s
Table 4.1Summary of proposed expenditure and associated special variation revenue ($000s)
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
Environmental and infrastructure renewal 5,981 $5,101 5,254 5,411 5,574 5,741 5,913 6,090 6,273 6,461
works
Sources of funding other than the requested
special variation:
Loans - - - - - - - - - -
Grants and contributions 1,013 - - - - - - - - -
Existing EIRLs 1,822 - - - - - - - - -
Other internal sources 1,406 1,428 1,461 1,494 1,528 1,561 1,596 1,632 1,668 1,705
Subtotal of funding 4,242 1,428 1,461 1,494 1,528 1,561 1,596 1,632 1,668 1,705
(1) Unfunded environmental and infrastructure 1,739 3,672 3,793 3,917 4,046 4,179 4,317 4,458 4,605 4,756
renewal works
(2) Plus EMC amount 350 700 721 743 765 788 811 836 861 887
Amount to be funded by s508A special 2,089 4,372a 4,514 4,660 4,811 4,967 5,128 5,294 5,466 5,643
variation (1)+(2)a
a A section 508A special variation is a permanent cumulative increase. The figure for 2012/13 includes the previous year’s increase of $2,089,000.
Source: Woollahra Municipal Council, Section 508A Special Variation Application Form - Part B, Appendix E, Table E-1.4 IPART’s assessment of Woollahra Municipal Council’s
special variation application
4.2.3 Impact on the council’s financial sustainability
We have not undertaken a detailed review of the financial sustainability of
individual councils. It is the responsibility of each council to manage council budgets
and to make financial decisions regarding revenue and expenditure. We have not
been asked to undertake this function, only to review applications for rate increases
against certain criteria.
We have undertaken a broad assessment of some key financial ratios to assess the
impact of the special variation on Woollahra Municipal Council’s financial position
(see Table 4.2 and Appendix C for modelling assumptions). The modelling
assumptions appear to be reasonable and the special variation will have a positive
effect on the council’s financial sustainability, both recurrent (operating balance ratio
in particular) and capital (asset renewal and broad liabilities ratios).
In addition we note that in its Long Term Financial Plan, Woollahra Municipal
Council stated that projected increases in the EMC would have a significant negative
impact on its financial position.
The EMC has increased from $1.44m in 2004/05 to almost $2.48m in 2010/11. The
council sought a special variation to help fund the increase on 3 occasions, with only
1 being successful (2001/02). The EMC amount absorbed by the council represents
almost 15% of the council’s environmental and infrastructure renewal budget for
2010/11.18 The council forecasts that the EMC will increase by approximately 8.3%
annually or 5.3% above the forecast rate peg. We consider that the impact of the
EMC is material in Woollahra Municipal Council’s case.19
4.2.4 Alternative funding options
Woollahra Municipal Council has very low debt and is not proposing to use debt
funding for its program of expenditure. The council has considered using debt as an
alternative funding option where it is experiencing an operating deficit due to
revenue shortfalls or unexpected cost rises. It has budgeted for supplementary
grants funding, although only for the first year (2011/12). Other internal sources will
be used to fund the proposed schedule of the works in addition to the special
variation (see Table 4.1).
18 This figure is calculated by comparing the EMC amount absorbed by the council ($0.693m) to
the budget for the EIRLs work program. Woollahra Municipal Council, Section 508A Special
Variation Application Form – Part B, Appendix A, Table A-4 and Appendix C, p 99.
19 Woollahra Municipal Council, Section 508A Special Variation Application Form – Part B, Appendix
D, p 19.
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4 IPART’s assessment of Woollahra Municipal Council’s
Table 4.2 Financial sustainability forecasts (%)
2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
1. Baseline scenario
Operating balance ratio -3.1 -9.1 -11.1 -11.2 -12.0 -12.2 -14.4 -12.3 -12.8 -12.5
Unrestricted current ratio 2.42 2.55 1.38 1.35 1.31 1.28 1.21 1.25 1.08 0.86
Rates and annual charges outstanding ratio 4.5 4.5 4.5 4.4 4.4 4.3 4.3 4.2 4.2 4.0
Asset renewal ratio 44 11 17 13 16 6 17 2 21 18
Broad liabilities ratio 22 33 42 49 53 65 67 81 87 94
Debt service ratio 2.15 2.16 2.14 2.53 2.46 1.79 1.74 0.4 0.39 0.37
Infrastructure backlog ratio 12.9 25.0 32.4 42.1 48.3 62 65.1 79.7 85.6 93.3
Rates and annual charges coverage ratio 57 58 59 59 59 59 60 59 59 59
2. Special variation scenario
Operating balance ratio 0.3 -1.6 -3.3 -3.3 -3.7 -3.8 -5.7 -3.7 -3.9 -3.5
Unrestricted current ratio 2.42 2.55 1.38 1.35 1.32 1.29 1.23 1.28 1.12 0.93
Rates and annual charges outstanding ratio 4.5 4.5 4.5 4.4 4.4 4.3 4.3 4.2 4.2 4.0
Asset renewal ratio 70 65 100 82 100 63 100 59 100 100
Broad liabilities ratio 18 21 22 22 18 22 15 21 17 16
Debt service ratio 2.08 2.02 2.00 2.37 2.30 1.67 1.63 0.37 0.36 0.35
Infrastructure backlog ratio 9.3 13.6 13.4 15.3 13.4 18.5 13.3 19.1 16.2 14.9
Rates and annual charges coverage ratio 58 60 61 61 62 62 62 62 62 62
Note: Operating balance ratio is the net operating result (excluding capital items) as a percentage of operating revenue (excluding capital items). Unrestricted current ratio is the unrestricted
current assets divided by unrestricted current liabilities. ‘Unrestricted’ means there is no restriction on the asset or liability imposed by regulation or some other externally imposed constraint. Rates
and annual charges ratio is the rates and annual charges divided by operating expenses. Debt service ratio is the net debt service cost divided by revenue from continuing operations. Asset
renewals ratio is asset renewals expenditure divided by depreciation, amortisation and impairment expenses. Broad liabilities ratio is the total debt plus cost to clear infrastructure backlogs (Special
Schedule 7) divided by operating revenue. Infrastructure backlog ratio is the total infrastructure stock (at replacement cost) as divided by total operating revenue.
Source: Woollahra Municipal Council, Section 508A Special Variation Application Form - Part B, Appendix D, pp 35 and 44; Appendix I, Table I-1.4 IPART’s assessment of Woollahra Municipal Council’s
special variation application
4.3 Criterion 2 – Demonstrated community support
Councils seeking special variations must demonstrate that they have undertaken
extensive community consultation and obtained community support for the special
variation and the associated program of expenditure. The consultation material
should be clear and accurate and explain clearly what the special variation will be
used for and the impact on ratepayers.
Overall, we consider that Woollahra Municipal Council has engaged with the
community through its commissioned community survey to determine whether or
not there is support for the requested rate increases and in the process, satisfactorily
demonstrated significant support for the special variation.
4.3.1 Community consultation on the special variation and proposed expenditure
program
In March 2011 Woollahra Municipal Council engaged Micromex Research to conduct
a random sample telephone survey to gauge the level of community support for the
requested special variation, which would involve increasing council rates to renew
EIRLs and recover funds for the EMC.
A statistically significant sample of 400 adult residents within the municipality was
surveyed. The participants represented a broad cross-section of the Woollahra
municipality on the basis of age, area of work, suburb of residence and length of
residence. In our opinion, the survey conveyed information which was reasonably
accurate and in a way that was reasonably comprehensible.
In addition to the Micromex survey the council released detailed reports on its
website and published the Mayor’s regular column in the local newspaper (the
Wentworth Courier) as part of its Community Engagement Strategy.
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special variation application
4.3.2 Community support for the special variation and the associated proposed
program of expenditure
The Micromex community survey revealed a relatively high level of community
support for the continuation of the EIRLs. The survey also indicated support for
recouping EMC funds through the special variation (see Table 4.3).
The results were as follows:
84% of respondents supported the renewal of the EIRLs and 68% supported an
increase in rates to account for increases in the EMC
69% stated that the continuation of the EIRLs was important and 12% said that it
was not very important or not important at all
of the 68% supporting the EMC, 40% indicated that the council needed the extra
EMC monies so it would not have to divert funding from elsewhere
only 5% commented that rates were high enough.20
However, we noted there was no evidence that the survey included business
ratepayers within the municipality. Business ratepayers represent 15% of total rates
revenue and should have formed part of the council’s community survey.
We also noted the Vaucluse Progress Association outlined concerns regarding the
increase in the EMC. In particular, the Association suggested that productivity
savings should be considered as an alternative to the special variation. This
suggestion was not considered in the community survey.
Table 4.3 Summary of findings supporting the special variation
Support Does not support Total
Continuation of the EIRLs 335 (84%) 65 (16%) 400 (100%)
A 1.1% increase to account for 272 (68%) 128 (32%) 400 (100%)
increases in the EMC
Note: A sample size of 400 residents provides a maximum sampling error of approximately +/- 4.9% at 95%
confidence.
Source: Woollahra Municipal Council, Section 508A Special Variation Application Form - Part B,
Appendix M2, pp 34-35.
The structure of the survey is outlined in Box 4.2.
20 Woollahra Municipal Council, Section 508A Special Variation Application Form - Part B,
Appendix M2, pp 18-24.
24 IPART Woollahra Municipal Council’s application for a special variation4 IPART’s assessment of Woollahra Municipal Council’s
special variation application
Box 4.2 Structure of the survey by Micromex Research
The questionnaire included specific questions about residents’ satisfaction with the quality of
infrastructure and services and whether they believed it was important to provide better and
infrastructure and services. The following information was conveyed to participants in relation
to the renewal of the EIRLs:
The levy has been in place for the past 5 years and the amount being paid is equivalent to
$130 per annum or $2.50 a week.
The continuation of the levy will not result in an increase in existing rates above the normal
Consumer Price Index (CPI) increase.
The types of infrastructure the council has funded in the past.
The types and proportions of works for which the levy will be used (eg, upgrading roads,
kerbs, guttering, footpaths, seawalls, environmental sustainability programs and harbour-
side infrastructure).
The questionnaire asked:
whether the resident supported the continuation of the EIRLs
whether it is important to continue this rate levy
the reasons for the respondent’s position.
In relation to the increases for the EMC, the survey conveyed information about:
increases in the EMC from $1.4m to $2.4m over the last 6 years
the general impact of these increases on funding infrastructure and environmental
programs
the amount to be recovered for the EMC: a 1.1% increase for each of the next 2 years or $13
per annum for each of the next 2 years.
In relation to the EMC, the questionnaire asked:
whether the resident supported the increase
the reasons for their position.
Demographic information was collected to determine whether the sample was representative
of the entire municipality.
Source: Woollahra Municipal Council, Section 508A Special Variation Application Form - Part B, Appendix M2, pp 30-32.
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4.3.3 Representations from the public to IPART
IPART received one direct representation from the public regarding Woollahra
Municipal Council’s special variation application. A submission was made by the
Vaucluse Progress Association outlining the following concerns:
The 1.1% increase for the EMC can be absorbed by the council from increases in
total revenue. The submission notes that the council’s revenue for 2009/10 was
revised upwards by almost $3.8m or 5.7%.
Alternatively, the EMC can be accommodated by a 0.5% reduction in total
expenditure through cost savings, which the council did not consider.
The council’s minutes disclose that support for the application was not
unanimous.
The validity of the community survey could not be tested.21
We have considered the points made in the submission in making our assessment.
4.4 Criterion 3 – Reasonable impact on ratepayers
This criterion is important, given that the primary purpose of regulating council
revenues is to protect ratepayers from unreasonable increases in rates. To assess
whether a council’s application meets the criterion, we considered the magnitude of
the impact of rate rises resulting from the requested special variation, the ratepayers
capacity to pay the increased rates, and evidence of community support for the
requested special variation (as discussed in section 4.3 above).
Overall, we are satisfied that Woollahra Municipal Council’s requested special
variation and rate increases will have a reasonable impact on ratepayers. In
particular, we consider this impact will be low to moderate given:
the small increases in minimum and ordinary rates
the residents’ high capacity to pay, as supported by income and socio-economic
indicators
the council’s Financial Hardship Policy and full pensioner rebates for the EIRLs,
which would continue to apply to the renewed EIRLs.
IPART notes that the EIRL component of the special variation does not represent an
effective increase in rates, as it is a continuation of the existing EIRL.
21 Letter received from the Vaucluse Progress Association on 4 April 2011.
26 IPART Woollahra Municipal Council’s application for a special variation4 IPART’s assessment of Woollahra Municipal Council’s
special variation application
4.4.1 The magnitude of the rate increases is moderate
The increase above the rate peg increase for all ratepayers is approximately 1% each
year for both years.
The council’s rating structure includes a Residential category, a General Business
category and 13 location-specific Business categories. A minimum rate applies only
for business ratepayers. Ratepayers pay ordinary or minimum rates and the EIRLs.
The increase to ordinary and minimum rates would incorporate the rate peg and the
increase for the EMC. Therefore, all residential and business ratepayers would be
required to pay the EIRLs and the EMC.
Table 4.4 shows the impact of the special variation on average residential ratepayers
and average business ratepayers paying general business rates. For further details of
the impact on other ratepayer categories, see Table D.1 and D.2 in Appendix D.
Table 4.4 Impact of the special variation on residential and business rates
2010/11 2011/12 2012/13
Average residential rates 1,107 1,150 1,197
including EIRLs ($)
$ increase 44 47
% increase 3.94 4.07
Average business general rates 2,035 2,115 2,201
including EIRLs ($)
$ increase 80 86
% increase 3.94 4.07
Note: 2010/11 does not apply to the variation but is included for comparative purposes. The figures for 2011/12 and
2012/13 include the EIRLs, the EMC and rate peg amounts.
The actual percentage increases for each ratepayer category differ from the special variation amounts due to the
impact of expiring special variations in both years.
Source: Woollahra Municipal Council, Section 508A Special Variation Application Form – Part A, Worksheet 5.
4.4.2 Assessment of capacity to pay
In assessing residents’ capacity to pay the increased rates, we considered several
socio-economic indicators including the latest ABS data on average income levels for
local government areas and information provided by DLG, as well as the council’s
hardship policies. Table 4.5 summarises the income and socio-economic indicators
for Woollahra Municipal Council.
In our opinion, ratepayers within the council area have the capacity to pay for the
requested increase for the following reasons:
the average annual income of residents is almost triple that of the state average
and is significantly higher than other Group 2 councils
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