Audit Committee Agenda 9.411 April 2018

Item No: / 9.4
To: / Audit Committee
Date: / 11 April 2018
Author: / Nigel Morris, Chief Executive
Gary Lewis, Manager Finance and Procurement
Subject: / 2018/19 draft AnNUAL BUSINESS pLAN and budget
Attachments: / A - 2018/19 Draft Annual Business Plan and Budget
B - 2018-2028 Draft Long Term Financial Plan
Prev. Resolution: / Nil
Officer’s Recommendation
  1. That the Report be received.
  2. That the Audit Committee endorses the draft 2018-2028 Long Term Financial Plan.
  3. That the Audit Committee endorses the draft 2018/19 Annual Business Plan and Budget.
  4. That the draft 2018/19 Annual Business Plan and Budget and the draft 2018-2028 Long Term Financial Plan be presented to Council at the April 2018 meeting for consideration.
Purpose
  1. To present to the Audit Committee the draft 2018/19 Annual Business Plan and the Draft 2018-2028Long Term Financial Plan for endorsement.
Strategic Plan
  1. The following Strategic Plan provisions are relevant:
GOVERNANCE/ FINANCIAL SUSTAINABILITY: Provide leadership, good governance, and efficient, effective and responsive Council services
Proposal Impacts
Asset Management / Legislation/Statutory/Policies / √
Budget/Annual Business Plan / √ / Long Term Financial Management Plan / √
Community Engagement / √ / Risk Assessment
Economic Growth / Service Standards
Environment / Social
Legal Advice / Staff Resources
Discussion
  1. Section 123 of the Local Government Act 1999 sets out a requirement for the Council must for each financial year produce an Annual Business Plan and Budget including a summary of the Council’s long term objectives as set out in its Strategic Management Plan.
  2. The Annual Business Plan and Budget 2018/19 have been prepared in accordance with the priorities of our Strategic Plan, Infrastructure Asset Replacement Schedules, our Long Term Financial Plan and feedback from the community.
  3. The Annual Business Plan and Budget includes a series of statutory financial statements and an analysis of each of those statements. These financial statements comprise the Statement of Comprehensive Income, Balance Sheet, Cash Flow Statement, Statement of Changes in Equity and Uniform Presentation of Finances. These statements will form part of the Council budget adoption papers in June 2018.
  4. TheAnnual Business Plan and Budget document provides a complete overview of Council’s financial position and highlight our proposed budget in reader friendly format. The proposed budget aims to ensure Council’s financial sustainability in the medium to long term while still achieving the objects of Council’s Strategic Plan 2014-2018 “Looking to the horizon”. The focus of this year’s budgetcontinues our program to increase asset replacement, putting into action existing plans, planning for the future, implementation of innovative projects, making a difference in the community and generally just getting on and getting things done.
  5. In 2016/17 Council were presented the updated Asset Management Plans (AMP) to ensure that we replaced our assets as they wore out. The proposed budget allocates funding to ensure that the replacement of assets occurs at a level that maintains existing assets and continues to “catch up” on the current back-log of asset replacement.

  6. The presented Asset Management Plans consisted ofStormwater, Transport, CWMS and Wirrina Services. These four plans represented 91% of Council’s approximately $149 million worth of infrastructure assets under its care and control, the breakdown of these is illustrated below:
  7. At the March 2018 Council meeting the Buildings Infrastructure Asset Management Plan was presented and resolved to go out to consultation. The figures from this IAMP has been used in the construction of the draft Annual Business Plan and Budget and draft Long Term Financial Plan.
  8. The completion of the Buildings IAMP means Council will have in place IAMPS covering over97% (by value) of Council’s Infrastructure assets and leaving only the Recreation IAMP representing 1.9% for completion. An individual plan will not be performed on Furniture and Fittings.
  9. The proposed spend on Asset Replacement includes expenditure on the four existing AMP of Stormwater, Transport, CWMS and Wirrina Services along with costing from the Facilities currently out to consultation and estimates for Recreation and that for the plant replacement of fleet, Depot, Information Technology and Furniture and Fittings. An amount of $3,732,000 for Asset Replacement has been proposed in the 2018/19 Annual Business Plan:

  1. The Annual Business Plan and Budget proposes to continue to introduce new initiatives to the Community and implement projects where plans and designs have previously been finalised. A complete list of all our proposed projects with their link back to the Strategic Plan are provided in plan. The proposed expenditure on New Upgrade Projects is illustrated below:

  1. Through the implementation of a savings and efficiency program Council is now achieving more with existing resources and maintaining our Operating Expenditure at a level significantly less than what was estimated to be achieved for 2015/16 prior to the commencement of the program.

  1. The difference between the proposed budget in 2018/19 to the estimated amount in 2015/16 is $312,000:
  1. When reviewing the differences from 2015/16 to 2018/19 it is worth nothing that in 2018/19 Council will be introducing a Green Organics Bin Service at an estimated cost of $273,000, Grant Funding has increased from the 2015/16 amount of $55,000 to now at $145,000, an increase of $90,000. In 2017/18 the waste costs increased by $214,000 due to the solid waste fee along with Council putting in an additional $200,000 for operational budgets for roads including for materials. It is also worth noting the CPI and Salary increases during the past three years as follows:

  1. This Savings and Efficiency program has been a major success allowing Council to keep rates increases at a minimum, while still achieving an Operating Surplus and delivering on an extensive capital expenditure program.
  2. The setting of the rates increase was based upon the following Council resolution (discussed in item 9.5 in this Audit Committee Agenda)

  1. When applying the resolution, the following revenue is generated:

  1. The proposed rates increase before applying the differentials and rebates is 2.2% with the minimum rate being raised 1.1%. The rates increases have continued to decrease over the past four years:
  1. In 2016/17 Council has worked extensively with the Local Government Association (LGA), Essential Services Commission of South Australia (ESCOSA) and an independent external reviewer to meet the requirement of raising Water and Sewerage charges to meet the expenditure of providing the service. The CWMS annual service charge for receiving CWMS services was increased from $550 per property to $650 in 2017/18 but in 2018/19 it is proposed that only a minor increase of 1.5% be applied from $650 to $660.

  1. The fees and charges levied in respect of the Wirrina Water Supply Scheme are calculated to recover the cost of operating the water supply, including asset renewal, and to ensure that this service is not subsidised by the general rate revenue. This is required by State legislation.
  2. To ensure the ESCOSA requirement for income to meeting current and future costings the Sewer charge received a significant increase in 2017/18 but in 2018/18 it is proposed that the Sewer charge be increased by the CPI figure of 2.3% and the Water Charge be increased by 2% as follows:
  1. A summary of the proposed 2018/19 Annual Business Plan and Budget is illustrated below. The full document is provided in Attachment A:
  1. A copy of the draft 2018-2028 Long Term Financial Plan is provided in Attachment B.
  2. The assumptions used are contained within the plan with the results produced that exceeds the Local Government Association recommended ratios:
  3. The ratios, including the expected current year result are illustrated below.
LGA Financial Ratios
(Consolidated) / 2015/16
Adopted Budget / 2016/17 Adopted
Budget / 2017/18
Adopted
Budget / 2018/19
Proposed
Budget / Forecast Budget Years 1 to 5 Average / Forecast Budget Years 6 to 10 Average
Operating Surplus / (Deficit)
(< 0) / -$438,000 / $120,955 / $483,478 / $202,327 / $299,000 / $370,000
Operating Surplus / (Deficit) Ratio
(>0%) / -4% / 0% / 4% / 2% / 2.3% / 2.53%
Net Financial Liabilities Ratio
(<100%) / 31% / 26.4% / 29% / 38% / 48% / 59%
Asset Sustainability Ratio
(100%) / 51% / 78% / 78% / 101% / 100% / 106%
Asset Sustainability Ratio compare to AMP (100%) / 100% / 100% / 100%

Operating Surplus Ratio - %


Net Financial Liability Ratio %

Asset Sustainability Ratio %

Conclusion
  1. It is recommended that the Draft 2018/19 Annual Business Plan and Budget and Draft 2018-2028 Draft Long Term Financial Plan be endorsed by the Audit Committee and with their comments be presented to Council for consideration.
  2. Following Council consideration, it will go out to public consultation for the month of May and into June prior to presentation at the June meeting of Council.