Securing your future with a rate rise

A Special Variation allows councils to increase ordinary rates (excludes waste and annual charges) above the rate peg increase which is set by the Independent Pricing and Regulatory Tribunal (IPART). There are two types of special variations that a council may apply for: 

• A single year variation
• A multi-year variation 

Local councils wanting to increase the minimum rate levels - above the rate peg - need to submit an application to the Independent Pricing and Regulatory Tribunal (IPART).  Applications to IPART closed on 8 February 2021.

IPART is the Independent Pricing and Regulatory Tribunal, a State Government Agency responsible for determining the maximum price increase for a number of utilities and services including local government rates. For more information on IPART visit www.ipart.nsw.gov.au

An SV is needed to help address Council’s current financial situation. Council received the Q1 Business Report on progress against Council's 2020-21 Operational Plan at an Extraordinary Meeting held on Wednesday 2 December 2020. The report indicates that Council's projected financial result for the year ending 30 June 2021 will be a loss of $115.1M. At the end of this financial year, accumulated losses over the past four years will be more than $200M. Accumulated debt (including the owed restricted reserves) will be in the order of $565M.

Council is taking a number of measures to address the financial situation including:  

• Reducing headcount back to pre-amalgamation numbers from over 2,500 to under 2000 – cost savings of $30M
• Reducing materials and contracts by $20M
• Maintaining infrastructure spending at $170M
• Obtaining $150M in bank loans 
• Selling $40-$60M in underperforming assets
• Generating additional revenue

These measures will not be enough to help with financial recovery and an SV is required for the long-term sustainability of Council finances, to repay borrowed restricted funds and for Council to be able to deliver the services the community need and want.

Council is in the current financial situation as it spent more money on capital projects and expenses than it had money coming in. The money was not lost, rather it was spent on infrastructure and services, in fact 1,383 capital projects were delivered. This money came from restricted funds. The community has received significant benefits from this new infrastructure and services.

There have been other significant factors that have impacted Council’s budget including increased in staffing costs resulting from the merger of the two Councils. Both Councils had less staff than they needed, to look ‘fit for the future.’ Wages were also harmonised at amalgamation so that people doing the same job, got the same wages and conditions. A great deal of staff time and energy was needed to harmonise policies and procedures yet only $10M was provided by the State Government for amalgamation costs. Cost shifting by the State Government to Councils impacted Central Coast Council by $45M in the 2017-18 financial year. 2020 was also a year of emergencies – bushfires, storms/flooding, coastal erosion and COVID that has also impacted the budget.

All of these impacts combined is how Council has found itself in its current financial situation. Council is doing everything we can to find savings without impacting service delivery but it will not be possible to continue service delivery without a significant increase in our rates income.

While we understand many in our community do not want a rate rise, this is not a viable option. Council needs a rate rise to repay the restricted funds spent on community infrastructure and services and to deliver a level of service to the community that ensures our assets and essential services are maintained. 

The two options Council considered were:  

• Option 1 Temporary Fix Option – 10% - On 26 November 2020, Council considered applying for a 10% one-off increase to its rate income, remaining in the rate base for 7 years. In 2021-22 this increase would consist of the annual 2% rate peg and a further 8% SV that would be applied once in 2021-22 and will remain in the rate base for seven years. This option forecasts substantial reductions in the levels of service provided to the community and some elimination of services.
• Option 2 Securing Your Future Option – 15% – On 14 December 2020, Council considered applying for 15% one-off increase to its rate income, remaining in the rate base permanently. In 2021-22 this increase would consist of the annual 2% rate and a further 13% SV that would be applied once in 2021-22 and will remain permanently in the rate base. This option forecasts the maintenance of the current levels of service.

The estimated additional ordinary rates income across the options presented for community consultation for the next 2 financial years is as follows:

  In considering a possible rate variation, Council looked at the rate levels of our neighbouring Councils. Even with a 15% rate increase, Central Coast ratepayers will still be paying less than our neighbours.

At the time of amalgamation, the NSW Government introduced a ‘rate freeze’ policy. This meant that Council could not adjust rates beyond the rate peg in the first four years after amalgamation. Under current legislation, Council must maintain one consistent rating structure to ensure a fairer and more equitable system across all rating categories within the Central Coast Local Government Area. That is why the average rates for each area are currently different.   Our community have raised their concerns in the past on this inequity.

The rating structure will be harmonised for the 2021-22 financial year and is a separate process to the SV, but it will also take effect from 1 July 2021 and will only affect ordinary rates.  To help you understand the change the image below shows the difference of the current average and minimal annual rates across the four categories.

Bill impacts vary depending on where you live or the location of your business and the value of your land as determined by the NSW Valuer General. 

We calculated that with a 10%SV there will be an increase in average residential rates of $2.13 a week and the increase in average business rates will be $6.11 per week.  For a 15% increase the average residential ratepayer would pay $3.20 a week and the average business increase will be $9.30* a week (*Correction: Council's letter to ratepayers dated 7 January 2020 incorrectly stated that the average business increase was $8.30 a week under Option 2).

Further detail is provided in our Fact sheet: Impacts on rates and Council services.

The new proposed amount of income Council can raise for ordinary rates is now pending approval by the State Government agency, IPART..

The averages quoted in Council's materials have been developed from financial modelling based on property data as at December 2020. Regular updates are received from the NSW Valuer General to update property values based on the latest issue date of 1 July 2019 for application from the rating year commencing 1 July 2020. A new set of land values will be supplied by the NSW Valuer General and applied from 1 July 2023. The final 2021-22 rates levied may vary due to Independent Pricing and Regulatory Tribunal (IPART) decisions, the specific category your property falls in and marginal movements due to model sensitivity.

With the above in mind, the impact of the proposed changes for the 2021-22 financial year, for the average ratepayer, are outlined below:

Note: The figures contained above are based on a harmonised rating system and the application of Special Variation (SV) to increase Council’s total rate income above the rate peg. The proposal includes a permanent one-off of 15% (inclusive of 2% rate peg and 13% SV). The temporary option was a temporary 10% increase (inclusive of 2% rate peg and 8% SV).

Council undertakes a Customer Satisfaction Survey through a representative sample of our community by telephone, this has occurred each year for the past three years. The latest results, from June 2020 revealed what the Central Coast community need, which is; 

• Good governance
• Connectivity, particularly roads, footpaths and parking
• Focus on natural environment: particularly management of lakes and foreshores and the provision of parks, gardens and reserves.

From these results Council has a good understanding of the services and infrastructure that the community need and value. Without a rate rise many of these services will be significantly impacted and those impacts are detailed in the table below:

If the 15% rate increase is accepted by IPART it will generate an extra $25.9M in income for Council. The primary purpose of the Special Variation is to reimburse the overspent restricted funds that have been spent on the projects already delivered. The funds will also be used to ensure we have enough funds to provide an appropriate level of service to the community that we can afford. 

We have a legal obligation to reimburse the restricted funds that were unlawfully accessed to bring forward projects and infrastructure that has undoubtedly benefited the community. We have a Plan and we have taken swift action already. We are selling our underutilised assets; reducing our workforce and reducing spending on infrastructure, materials and contracts and securing bank loans. These decisions alone are not enough for us to be financially sustainable and reimburse the restricted funds. We need to apply for a rate rise as well.

If Council does not have a substantial increase in the total rate income, then we will need to reduce the standard and range of services we provide to you, our community. It could also see the condition of our assets deteriorate as there would be an ever-increasing gap in the funds required to maintain our existing infrastructure assets. Council’s fees and charges will need to increase, more staff will need to be let go and the support Council provides to many organisations would decline. Many services may even cease altogether. Our priority has to be the repayment of restricted funds so that does not become a burden for future generations.

Were Council unable to secure a rate variation the impact upon Council and service provision would be catastrophic. The cuts needed to be financially viable would have an irreparable and irrevocable impact.

Rates are an important source of Council and represent 29% of Council’s income. Council also receives grant funding from State and Federal Governments and from fees and charges. The graph below demonstrates where our income comes from.

Council is already working on sourcing more income for Council, through our Business Recovery Plan, which includes the sale of underutilised assets, reducing staff numbers and our capital works program, looking closely at our fees and charges and securing more bank loans. 

Below is a pie chart highlight where Council’s income was sourced in the current financial year – 2020-21:

Your rates enable Council to deliver essential services, ensure ongoing maintenance of facilities and infrastructure, manage growth and encourage economic development. The pie chart below details how every $100 of your rates is being spent this financial year, 2020/21 This represents both operational and capital expenditure less other sources of revenue such as fees, user charges, operational and capital grants and contributions. Your annual and usage charges for water, sewer, drainage and domestic waste fund are not included in the totals.

A rate rise is on the table to help secure Council’s long-term financial future. Our long-term financial plan sets out the funding needed to secure this future. The Plan includes selling assets, securing loans, reducing our workforce, materials and contracts and also a rate rise.

Council’s current financial situation is due to spending more money than we had coming in, both before and after amalgamation. Money was not lost, rather, it was spent on infrastructure and services that directly benefited the community. This money came from restricted funds. For example, in 2019-20 $242M was spent on infrastructure and services, delivering 1,383 projects including a new pipeline between Mardi and Warnervale, resurfacing of 107km of roads, drainage infrastructure and upgrade to wharves, parks, playgrounds and sporting fields.

To deliver this infrastructure, along with maintaining high-quality services to the community such as libraries, cultural events, aquatic centres and outdoor recreation spaces, more people have been employed at Central Coast Council than at the time of amalgamation. While this practice impacted Council’s finances negatively, these staff were active and productive members of the organisation delivering services to the Central Coast.

Our community deserves a high level of service and our goal is to continue to provide these services for the benefit of the entire community and to the standard that they expect.

If Council does not receive an SV, we will have to close or reduce the standard and range of services provided. It would also see the condition of the Central Coast’s assets deteriorate as there would be an ever-increasing gap in the funds required to maintain our existing infrastructure assets. Council’s fees and charges would increase significantly, and the level of subsidies and support Council provides to many organisations would decline.

The full detail of Council’s current financial situation and the reasons for it are outlined the Administrator’s reports:

• Administrator’s 30 Day interim report – 2 December 2020
• Administrator’s 3 Month Progress report – 3 February 2021

Council at first considered applying for a 10% one-off increase to its rate income, in November 2020, that would stop after seven years. Since that initial resolution, further work was done 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 needed to be considered in order to maintain a level of service our community expect and repay restricted funds sooner. A 15% one-off permanent increase will get us there.

With the one-off 10% increase that would remain in the rate base for seven years we would be able to reduce some of the debt but only if services are significantly reduced or eliminated and no new services or infrastructure could be funded.
 
With the 15% one-off SV increase that remains permanently in the rate base we will be able to pay off our debt, maintain services and then start to upgrade and create new assets to meet the needs of the growing community. But this will take some time. 

Were Council unable to secure a rate variation the impact upon Council and service provision would be catastrophic. The cuts needed to be financially viable would have an irreparable and irrevocable impact.

Council understands that a rate rise will hit sections of the community harder than others. Council provides rebates and hardship assistance for those having trouble paying their rates – please refer to the Debt Recovery and Hardship Policy. This includes pensioner rebates as well as personalised payment plans.  

Were Council unable to secure a rate variation the impact upon Council and service provision would be catastrophic. The cuts needed to be financially viable would have an irreparable and irrevocable impact.
To be able to make ends meet, there would need to be a further 30% of staff cuts. Cutting resources and expertise to this extent would fundamentally change Council and its services. 
The following impacts were considered should there not be a rate variation:

• Service closures including some library branches and community facilities
• Significant reduction in maintenance of facilities and infrastructure
• Significant deterioration of assets
• Significant reduction in road, footpath and drainage maintenance
• Significant reduction to environmental programs
• Longer processing times for customer requests, development applications, and
• permits, closure of service points.
• Further staff reductions and resultant service reductions
• Reduced maintenance of sporting facilities, parks and playgrounds
• No new facilities or major upgrades
• No community events run by Council
• No grants program or sponsorship of events
• Further sale of assets and land (beyond those already resolved)
• Significant increases in fees and charges

It should be noted that a variation of 15% will see some service reductions from the levels currently. This is because Council as tried to strike a balance between a rate increase and service levels. Even with a 15% increase, there remain further staff cuts to be made and this will result in some services being affected. There are likely to be slower response times to our customers and to requests for service. 

Since the merger Council has been required to maintain two rating systems. This was due to a four-year rate freeze imposed by the NSW Government. This meant that Council could not adjust rates beyond the rate peg in the first four years after amalgamation. Under current legislation Council must maintain one consistent rating structure to ensure a fairer and more equitable system across all rating categories within the Central Coast Local Government Area. This will be a separate process to the SV and will also take effect from 1 July 2021 and will only affect general rates. 
 

For detail on what you would have paid under each of the options Council considered, please view the Fact sheet: Impacts on rates and Council services.

The proposed SV is now pending approval of the Independent Pricing and Regulatory Tribunal (IPART).

The averages quoted within Council's materials have been developed from financial modelling based on property data as at December 2020. Regular updates are received from the NSW Valuer General to update property values based on the latest issue date of 1 July 2019 for application from the rating year commencing 1 July 2020. Updated land values are provided to Council regularly (due to changes in development, to correct errors or as a result of objections) which Council must use until the new set of land values are issued. The NSW Valuer General issues Councils with new land values every 3 years. A new set of land values will be supplied by the NSW Valuer General and applied from 1 July 2023. 

The final 2021-22 rates levied may vary due to Independent Pricing and Regulatory Tribunal (IPART) decisions, the specific category your property falls in and marginal movements due to model sensitivity. If you are unsure of the current value of your property, you can use the land value search tool available on the NSW Valuer General website. 

Find out more and how rates are calculated using land values in our Rates FAQs.