FAQ

The Local Government Act 1999 requires Council to prepare a Long Term Financial Plan (LTFP) as part of its Strategic Management Plans. Council considers that its Long Term Financial Plan (LTFP) is a fundamental instrument of accountability and provides projections for Council’s planned activities over a ten year timeframe.

The LTFP provides Council with a decision making tool that ensures there is an understanding of the impact of decisions made today on future sustainability. This means ensuring the cost effective delivery of works and services, and the appropriate maintenance and renewal of our asset base in a financially sustainable manner.

The LTFP contains estimated financials over a ten year period and includes estimates of the key ratios which are operating surplus, net financial liabilities and asset renewal funding ratios. This projection of estimates creates a model that illustrates the expected long term financial performance of the Council, and hence whether financial sustainability is being achieved.

The model is a complex and fluid document, continually reviewed, modified and refined as new information is discovered. This is usually at each quarterly Budget Review and during the construction and adoption of Council’s Annual Budget.

The plan does not provide specific detail about individual works or services, as this level of detail is addressed in the Annual Business Plan and Budget.

How does Council prepare the plan?

The 10 year LTFP is prepared using a number of assumptions about projected rate income, projected fees, charges and grants and also includes assumptions about future operational and capital expenditure. As the plans are derived from an estimate of future performance, the actual results are likely to vary from the information contained in this LTFP.

Calculating a sustainable Long Term Financial Plan

The LTFP calculations are based on a complex model which is built on a very large range of variables applied to its performance in recent years. In order to use it to guide each year’s budget setting process, the key variables have been divided into two groups:

• Controllable variables – items that Council can control such as service levels, capital        expenditure, rate increases and wage increases
• Non-controllable variables – items outside Council’s control, such as interest rates, inflation and economic growth (eg. residential development, new businesses, etc).

For controllable variables, Council is able to change different variables up or down to see what effect they have on financial performance. The long term effects of each decision can then be assessed.

For non-controllable variables, the plan uses reasonable long term estimates which do not change (except to update them at the beginning of each budget cycle). In this way the impact of different choices about the controllable variables can be better assessed.

For example: Inflation which is measured by the Local Government Price Index (LGPI) for Councils has fluctuated substantially in recent years. Because inflation works differently on different elements of Council’s income and expense it can easily distort the LTFP, especially in later years. If the distortion negatively impacted the LTFP, Council could assess which controllable variables could be adjusted to keep the plan sustainable.

The LTFP demonstrates that the Council is financially sustainable over the 10 year term of the LTFP, whilst achieving the objectives outlined in the Strategic Plan. This includes:

• Implementation and funding of the appropriate level of maintenance and renewal of the portfolio of infrastructure assets
• Meeting the ongoing expectations of service delivery to our community
• Managing the impact of cost shifting from other levels of government
• Enabling the delivery of strategies identified within the Strategic Plan as well as other endorsed Functional Strategies
• The appropriate use of debt as a means of funding new capital expenditure
• Ensuring the financial sustainability of Council’s operations.

Financial sustainability has been demonstrated through adherence to the agreed target ranges in all of the following three key ratios:

1. Operating Surplus Ratio, target range 1% to 5%
2. Net Financial Liabilities Ratio, target range 25% to 75%
3. Asset Renewal Funding Ratio, target range 95% to 105%

In achieving these targets, which are explained in more detail within this document, there is a level of certainty provided that financial sustainability will be maintained.

Tree Management:

Trees are an important and valuable part of the Adelaide Hills landscape. They provide amenity, environmental benefits and play an important role in maintaining a ‘sense of place’ for Hills townships and countryside. The ongoing management of trees in the Adelaide Hills, particularly in the face of climate change; the increase in emergency events such as storms and bushfires; and growing community expectation, is a challenging and evolving task with financial implications. Current and future budgets do not currently include sufficient funds to address the appropriate management of the risks associated with trees.

As such, the draft 2021-22 LTFP proposes to increase the annual allocation of funding to tree management by approximately $210k as well as the purchase of additional equipment to support the management of more significant trees.

This change in service level for tree management is likely to have an impact on Council's rate increase in future years especially from 2023 - 24.

Further information is available in the Draft LTFP 2021 / 22 pp 4.

Local Government Price Index (LGPI) 

An increase in rate revenue through indexing rates relative to the LGPI as opposed to CPI from 2023-24 will help support increase requirements in tree management.

It is proposed to increase revenue through indexing rates relative to the Local Government Price Index (LGPI) as opposed to CPI (which is the index previously used) from 2023-24 and beyond.  In this draft 2021-22 LTFP, this is estimated to have an impact of increasing rates from 2023-24 by 0.4% per annum more than that envisaged in Council’s previous LTFP.

This index better reflects Council’s expenditure increases in the future which are based upon the Local Government Price Index (LGPI) which is a more accurate financial indicator of the escalation in the cost of goods purchased by Local Government entities. While the indicator of LGPI for future years is unavailable the historic variance of 0.4% has been added to the Forecast CPI for modelling purposes.

Further information is available in the Draft LTFP 2021 / 22 pp 5.

Increase Operating Surplus

Council has made changes to Council’s draft 2021-22 Long Term Financial Plan to ensure that Council’s financial sustainability is maintained in the medium to long term by improving Council’s Operating Surplus Ratio over the period of the LTFP to enable capacity to reduce debt whilst also funding a proportion of capital upgrade expenditure.

This is important due to the reduced surplus that would result in improved service and management in regard to trees.

Further information is available in the Draft LTFP 2021 / 22 pp 4.

Financial sustainability has been demonstrated through adherence to the agreed below target ranges in all of the following three key ratios:

1. Operating Surplus Ratio, target range 1% to 5%

2. Net Financial Liabilities Ratio, target range 25% to 75%

3. Asset Renewal Funding Ratio, target range 95% to 105%

The target ranges are narrower than in previous years and achieving these new targets will provide a level of certainty that financial sustainability will be maintained.

Further information is available in the Draft LTFP 2021 / 22 pp 6 - 9.

The LTFP is available for inspection from 3 March to 31 March 2021 at Council’s Libraries, Service Centres and Community hubs at Woodside, Gumeracha, Stirling and Norton Summit. It can also be downloaded from Council’s website https://engage.ahc.sa.gov.au

Interested persons are invited to make a written submission by no later than 4.00pm, Friday, 31 March 2021. Submissions may be made online at https://engage.ahc.sa.gov.au, via post to 'LTFP Engagement', Community Engagement Coordinator, PO Box 44, Woodside SA 5244 or mail@ahc.sa.gov.au.

The results of the feedback provided will be discussed with Council and incorporated into the Final Long Term Financial Plan prior to consideration of the 2021-22 Annual Business Plan and Budget.