Armidale's local government has been operating on an income provided by a special rate variation (SRV) for nearly two decades and Armidale Regional Council says it will be unable to continue to provide the current level of services and asset renewal unless a rate increase of 20.5 percent is approved and implemented next year.
The other options being proposed are to either replace the loss of the current SRV of 10.5 percent to maintain council services in the short term (but increase the backlog of asset renewal) or cease the rate variation and cut back on council services and infrastructure maintenance.
At council's ordinary meeting last week Kelly Stidworthy, the manager of financial services at Armidale Regional Council, said that the process was critical for the council at this time.
"In 2021 a temporary SRV of 10 percent above the rate peg applied by the former Armidale Dumaresq Council over a seven year period will expire," she said.
"This will reduce council's overall rate revenue by $1.5 million per annum."
In the 2014/15 financial year, the former Armidale Dumaresq and Guyra Shire Councils were successful in applying for SRVs. Guyra Shire Council implemented a permanent 5.7 percent increase, while Armidale Dumaresq Council introduced a temporary seven year SRV of 10 percent plus the rate peg.
To maintain current levels of service, council must apply to have the temporary SRV made permanent and it has also proposed an option of a higher SRV amount to improve services.
"Value to (at a minimum) secure the funding provided by the temporary SRV will result in council occurring significant operating deficits and unrestricted cash reserves would fall into an overdraft deficit position very quickly," Ms Stidworthy told the October council meeting.
"This outcome would be financially unsustainable and would require significant cuts to services."
Ms Stidworthy then advised that although three options had been modelled for the community engagement process, none of them would be proposed until a thorough community consultation had taken place.
Interim administrator Viv May noted this but suggested there was no option other than to go for at least maintaining the 10 percent SRV to which Ms Stidworthy agreed.
"That currently forms part of our rate base," she said.
"We have had funding from Special Rate Variations in place for both the former Armidale Dumaresq and Guyra Councils for at least the last 16 years."
Mr May then queried why the former Armidale Dumaresq Council hadn't started preparing to get approval for an extension of the SRV some years ago but suggested Ms Stidworthy had probably not been around long enough to be able to answer the question.
"Normally councils who have temporary extensions start to plan some years beforehand - anyhow we have to live with it," he said.
Finally Mr May endorsed Ms Stidworthy's recommendation to commence consultation and formally advise the Independent Pricing and Regulatory Tribunal (IPART) before November 27, 2020 of Council's intention to submit an SRV application.
The three SRV options which are currently being presented to the community are outlined below.
Option 1 - a continuation of the temporary SRV plus an additional SRV increase. Council will apply for a permanent SRV of 18.5% plus 2.0% rate peg (total 20.5%) commencing in 2021-22 to improve services.
This will replace the funding currently provided by the temporary SRV and increase total rate revenue by $1.8 million per annum.
Council says this option will result in the current level of assets and services maintained and will also allow it to fund additional asset renewals and reduce its medium to long term financial risk.
Roads, bridges, buildings and community facilities maintenance and renewal will be the focus of additional funds raised it says.
Option 2 - a continuation of the temporary SRV - does not address future growth but will maintain service in the short term
Under this option council will apply for a Special Rate Variation of 8.5% plus the 2.0% rate peg (total of 10.5%). This will replace the loss of the current SRV which is due to stop in 2021.
It says this option will result in current levels of service maintained in the short term; however the asset renewal backlog will increase.
This option will increase costs in the medium to long term, place a financial burden on future generations and mean council has limited options to fund new assets as the region grows.
Option 3 will result in a decrease of services through a discontinuation of the temporary SRV - and is financially unsustainable. In this scenario council will not apply for a SRV and revenue from ordinary rates will drop by $1.5 million per annum.
This option will see a significant reduction in the services provided by council and its asset renewal backlog will increase.
Roads, buildings and public spaces would deteriorate placing a significant financial burden on future generations and threaten council's medium and long term financial sustainability.
To maintain current levels of service Council must apply this year to IPART to have the existing temporary SRV made permanent (Option 2). Council will also consult with the community on a higher SRV amount (Option 1) to allow for further investment in maintaining its infrastructure, in particular the renewal of roads, bridges and community facilities.
Acting General Manager John Rayner said Councils across NSW were struggling to continue to provide the broad range of services without increased revenue.
"In NSW a rate peg is set annually each year by IPART that limits the amount a Council can increase rates. Unfortunately this has not kept pace with the increase in costs of maintaining our assets and providing essential services," said Mr Rayner
It has been a difficult few years for the Armidale region and Council revenue has been significantly impacted by drought and now COVID-19.- John Rayner
"Our priority is to get back to basics in delivering services to the community and ensure we have enough revenue to do that."
Council started community engagement this week on the three SRV options for consideration in its final proposal to IPART and to provide further clarity on the mandatory process for harmonisation of rates.
All ratepayers will have information on the proposed options for an SRV and rates harmonisation mailed to them and formal submissions to council will close on Thursday, December 10.
A series of community meetings at venues across the shire will begin next week.
Everyone has a story to tell and I like to help them do it.
Everyone has a story to tell and I like to help them do it.
Sign up for our newsletter to stay up to date.