A report presented to the Narrandera Shire Council last week provided a detailed analysis of Council’s current and long-term financial position and outlined drivers for those outcomes.

It was tabled together with the recommendation for a rate variation application that will now go to the ratepayers of the shire for consideration.

The report identified implications for service levels and impact on residents. The need to upgrade the stormwater system in Narrandera was just one component of the challenges faced and one of many factors impacting on the long-term sustainability of the council.

Narrandera Shire residents are said to currently enjoy a standard of roads, recreation facilities and community infrastructure equal to any in the region. To continue to renew those assets at that level was entirely dependent upon an increase in rate income.

According to the report the community demands and expects more than just the basic traditional Council services.

Narrandera Shire Council General Manager George Cowan said the Council was committed to continuing the process of reducing operational costs and had developed an improvement plan identifying initiatives that it believes have been and will be instrumental in achieving savings and in improving productivity.

“Council has found savings to date of approximately $939K per year in financial benefits, plus an estimated $384K in additional efficiency and productivity savings,” he said.

Fifty-nine initiatives were implemented, including reduction in workers’ compensation claims, an optimisation of the loan cycle by taking loans at lower rates, installation of LED street lighting and the review of village and road system servicing.

Moving forward, a further 33 improvement initiatives have been identified for implementation in the coming years providing an expected annual net benefit of $388K.

Mr Cowan said Council had also absorbed some key service expenditure items such as the Emergency Service Levy subsidy reduction and additional operational costs of the Barellan Swimming Pool totalling $169,000. These improvements had been included in the updated LTFP (Long Term Financial Plan).

There are an additional six improvement opportunities identified that he said needed to be further assessed and costed before implementing and these not included in the updated LTFP.

Council identified additional costs that it must incur to ensure its ongoing organisational sustainability. Including include investing in an updated technology solution to address operational and cyber security issues and an adequate renumeration system to attract and retain staff across the whole organisation over the long term.

These additional costs average $1.04M per year, including a one-off cost of $780K for the IT solution, were included in the updated LTFP.

Further details on these improvement initiatives and organisational sustainability requirements can be found in the Council’s Productivity Improvement Plan Report (March 2023).

However he pointed out that while these changes would lead to an improvement in sustainability, alone they would not be sufficient for Council to become financially sustainable.

The NSW State government introduced rate capping over 40 years ago and, whilst the mechanism for setting the annual rate cap had varied over time, essentially the cap sets the maximum amount by which a council can increase its general rate revenue. Rate capping does not apply to other rates and charges such as water, sewerage and or waste.

Narrandera Council has increased the general rates by the maximum allowable on each occasion, although the impact on individual ratepayers varies based on fluctuations in relative land values.

IPART is the body that provides the government with a recommendation on the allowable increase, and it is currently reviewing the methodology employed in that process. For councils that wish to exceed the allowable limit, the legislation makes provision for a Special Variation whereby an application can be lodged and approved by IPART based on the circumstance of that council.

The application requires an assessment of the council’s financial position, a review of the relevant cost pressures, service levels, asset management, the community’s capacity to pay and the level of consultation undertaken.

Mr Cowan said there were two types of Special Variation (SV):

• A temporary SV for a fixed amount over a fixed period
• permanent SV for a fixed amount over a fixed period that remains in the rate base.

“When a temporary SV expires, rates return to the original level at the conclusion of the approval period. Temporary SV are usually approved to fund specific one-off projects like infrastructure renewal or reducing the infrastructure backlog.

“Narrandera Shire Council’s financial challenges are more general, and a temporary SV would not solve the problem,” Mr Cowan said.

“Permanent SVs can be for a single year or every year for an approved period. Council intends to make application for a permanent SV so must apply to IPART for approval to increase rates through an SV.

“With rate capping, almost all NSW councils will be faced with having to apply for a special rate variation at some point,” he said.

What SV is proposed for Narrandera Shire Council?

An SV is an essential element in the solution to the Council’s financial sustainability challenges, noting that, outside of the ASV in 2021-22 Narrandera Council has never previously applied for an SV.

To achieve financial sustainability and maintain fit for purpose infrastructure, Council requires a permanent cumulative rate increase of 41.5% from July 1 2024. This includes the expected rate peg increases by which Council would have otherwise increased rates.

Having considered several options, the preferred option for Narrandera is a one-year SV of 41.5% including rate peg.

The impact on an individual’s rates will be different depending on the unimproved land value of the property.

Narrandera Shire Council’s average residential rates will increase slightly higher than the group average; for business rates they remain well below the group average. The average farmland rate remains relative to other councils in terms of its ranking; however, the amount has increased well above the group average.

Under the one-year option, the increase in general rates for all 382 properties currently on the minimum rate will be $212. Almost all these properties are located in Grong Grong and/or Barellan.

Narrandera Shire Council’s average residential and business rates are currently clearly lower than most other councils; farmland rates are marginally above the average.

Council’s current base case is not financially sustainable as it involves significant General Fund deficits of an average of approximately $2.0M over the 10-year forecast. On its current path, Council would likely run out of unrestricted cash to fund its day-to-day operations in 2024-25.

If Council could not increase its rates revenue through an SV, it would need to cut its operating costs by around $2.0M pa and continue not to adequately fund its asset renewal.

Council would be faced with the decision to stop or significantly reduce discretionary services such as cultural or recreational services and facilities. Council’s infrastructure would also continue to deteriorate without sufficient funds to maintain them fit for purpose.

A Capacity to Pay report concludes that there is an uneven spread of relative advantage and disadvantage across the shire and the relative level of advantage is notably lower than both the regional and state averages.

The most disadvantaged in the community are those renting public housing and unlikely to be affected by the rate increase. Most residential properties in Grong Grong, Barellan and in fact Narrandera will have an increase of less than the average.

The consultation process will conclude with an outcomes report to the November Council meeting.

If the Council decided to not proceed with the application or to proceed to apply for a lessor amount of an increase either outcome would require significant change to Council operations in the long-term as available funds fail to meet the ongoing expenses of Council.

It would also mean, in all likelihood, that the stormwater project could not proceed, placing businesses, residences and Teloca House at risk of flooding in the future and other opportunities would be lost.

Secondly, if the application was unsuccessful that would also require significant change to Council operations in the long-term as available funds fail to meet the ongoing expenses of Council. It would also mean, in all likelihood, that the stormwater project could not proceed, placing businesses, residences and Teloca House at risk of flooding in the future and other opportunities would be lost.

Thirdly, there is a risk that the successful implementation of the increase will cause hardship amongst a small number of residents. That risk has been discussed in full in the Capacity to Pay Report and can be mitigated using the hardship policy. 

This article appeared in the Narrandera Argus, 28 September 2023.

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