Councils are only permitted to increase their rates by a limit that is determined by the Independent Pricing and Regulatory Tribunal (IPART). This is called rate pegging.

A Special Rate Variation (SRV) allows Council to increase its general income above the rate peg. An application must be submitted to IPART and include evidence of the requirement of an SRV as well as extensive community feedback. An SRV can help Council continue to provide uninterrupted services and maintain facilities, which it may otherwise be unable to fund.

Strathfield Council is not alone in seeking an SRV. Several Sydney metro councils have indicated their intention to submit applications including Woollahra Council, City of Canada Bay, and Hornsby Shire Council.

1. What challenges is Council currently facing?

Simply put, Council is struggling to meet the needs and demands of our community, whilst ensuring the sustainability and viability of operations. This is due to various factors (as outlined in further detail below). Without the SRV, Council would become inoperable, meaning Council will not be able to balance the needs of our community, our financial stability and effective governance.

Inoperable means Council would be at risk of no longer being a viable business and would result in Council having to cease the bulk of its operations and services beyond 2027. An inoperable Council potentially results in the Council being managed externally, and decisions being made independently of Council to restore sustainability. This would also likely result in an increase in rates and a cut to most services unless there is a safety reason to continue those services.

Council’s financial position is unsustainable at the current levels of expenditure and income due to a range of issues.

These include:

- the long-term impacts of rate capping with rates income capped whilst expenses (particularly those driven by economic conditions) remain uncapped. The current inflation rate in Australia is set at 7% and is expected to continue to climb.

- cost shifting from state government to local government, such as Internal Audit and Risk Committee obligations, the Emergency Service Levy, and recently grant-funded construction of new assets imposing additional operating costs on Council.

- Council’s previous decisions on assets, services, and rating options in the best interests of their communities, and legislative restrictions/changes, have gradually led to declining financial sustainability. This is a problem which Council must now address.

- Council’s consolidated operating results for 2019/20, 2020/21 and 2021/22 have been deficits of $1.3m, $5.5m and $5.9m respectively. For 2021/22 the General Fund estimated operating deficit was $6.286m. The draft budget for 2023/2024 will commence with a $6.1 million deficit (inclusive of the SRV). If we did not have the SRV, Council would commence the 2023/2024 financial year with an approximate $13.3 million deficit. If this were to occur, Council would have to consider drastic measures such as, reducing staff costs resulting in unemployment for many of our staff, closing / selling the library and other key Council assets, removal of events for the community, and potentially moving to online / limited services only. We wish to avoid making drastic changes as much as possible.

- Councils are required by law to ensure that they can service the community to remain financially sustainable. Without the SRV, Council will be deemed financially unsustainable beyond 2027.

2. What has Council done to reduce costs?

In the development of the SRV application, Council reviewed its current expenses and sought to reduce these as much as is feasible whilst still being able to provide both essential and valued community services. Several expenses have been removed (outlined in further detail below). These reductions, however, are nowhere near enough to address Council’s financial sustainability challenges.

Council has undertaken several savings initiatives over the past few years to assist with addressing financial sustainability issues. These savings have resulted in an amount of $2,052,000 in total. Examples include closure of the High Street library, reduction in staffing costs during weekends at the Strathfield Library, closure of the Hudson Park Golf Course, reduction of recruitment advertising costs and closure of the aged care program.

In addition to a review of past initiatives, we are considering the following:

- Review of community bus services, noting the weekend service will cease on 30 June 2023 (resulting in a saving of $300,000 per annum), a further review is underway.

- Reduce IT infrastructure hosting costs by rationalising resources and decommissioning unused and old systems.

- Review fleet (heavy and small) and plant hire charges.

- Cost savings associated with Ausgrid LED street light project (stage 2).

- Decrease amount spent on Christmas decorations.

- Reduce expenditure on conferences and seminars.

- Increase DA fees to cover costs.

3. What is Council doing to increase revenue (outside of rates)?

In the development of the SRV application, Council reviewed its current non-rates related revenue and considered where increases in revenue may be achieved. These additions alone, however, are not sufficient to address Council’s financial sustainability challenges.

Areas Council is considering increases in revenue:

- Improve revenue received from Council’s Driving Range business.

- Review level of rent received in commercial buildings.

- Review parking strategy for off-street parking and meter pricing and review residential parking permit fee.

- Planning proposal fees and charges review.

- Additional revenue from property leases and licenses.

- Review of Council’s Investment Strategy.

- Maximise utilisation of the Cloudmaster system.

- Food shop annual admin fee to all shops.

- Develop an Advertising Strategy for all Council areas.

4. What does the special rate variation mean?

5. How did Council Consult on the changes?

Council undertook a consultation process with the community during December 2022 through to 31 January 2023.

During this period, several pop-up consultations were held on weekends at various locations in the community. There were also several information sessions held at the Town Hall and online which provided intricate details and further opportunity for interested community members to ask questions.

Council wrote to all our residents and rate payers providing information regarding the changes and inviting feedback via post and on our website during the consultation period. This information is also still available on this website to date.

Following this consultation, the IPART also ran an independent consultation where rate payers were also invited to provide submissions regarding the proposal. This was held during April / May 2023.

The IPART has also stringently reviewed Council’s SRV application, part of which includes a thorough review of Council’s consultation process. The IPART provided approval for the SRV following their independent review.

Council currently uses a base rating system with an additional ad valorem charge. This means all ratepayers are charged the same base amount, plus an additional amount based on their ad valorem.

Ad valorem is a charge based on the value of unimproved land (a ratepayers land value alone without any improvements, no house, no fences, no landscaping).

A minimum rate system is based on land value. Anyone whose land value is under a certain dollar amount threshold, pays the minimum rate. If a ratepayer’s land value is over the threshold, they pay an amount based on the ad valorem.

This ensures that residents who live in units that have low land value, but use just as many Council services, are paying their fair share of rates.

Without an SRV application, Council is expected to run out of cash in 2027, due to continued operating deficits resulting in either a reduction in services and/or the deterioration of local infrastructure assets.

There will be limited funds to fix and repair roads, footpaths and public buildings will be affected. As well as the level of community services that will need to be reduced including street sweeping, cleansing of public areas, library and customer services.

Council will need to identify other forms of revenue such as increasing parking meters throughout the LGA and increasing the cost of our services and charges.

Council offers a $250 pensioner concession on rates if you hold a pensioner concession card and your property is your sole or principal residence. Council will also continue its Financial Hardship Policy, which sets out how we can assist ratepayers who are experiencing difficulty of paying rates on time. You can find the Policy on the website.

Assets are owned by Council and include roads, footpaths, stormwater drains, parks, playgrounds and community buildings.

Learn more about Council assets here.

Councils have an obligation to be financially sustainable under the Local Government Act, as well as practically and morally, to ensure residents receive the best possible services.

Securing long-term financial sustainability means Council:

• Has a fully funded operating position
• Maintains sufficient cash reserves
• Has responsible and sustainable infrastructure investment
• Replaces assets to keep them in a usable condition
• Has adequate resources to meet ongoing compliance obligations.

All councils face financial sustainability challenges on a cyclic basis. Cost increases have exceeded rate increases and typically lead to reduced spending on key services like asset maintenance and renewal. There are a number of contributors to this growing financial sustainability gap, some of which are outside of Council’s control and others which Council has some influence over.

Rate capping is a contributor. The Independent Pricing and Regulatory Tribunal (IPART) has set the rate peg for NSW councils by slowing the increase in the Local Government Cost Index (LGCI). There is a lag in this index of up to 2 years which doesn’t reflect the current or near future cost movements. This, over time, creates a shortfall in income with Councils generally responding by spending less on asset renewals.

Cost Shifting. Over the last decade, the NSW State Government, and to a lesser extent, the Australian Government have transferred costs to local government without sufficient recompense. Major types of cost shifting include the withdrawal of financial support once a program is established, the transfer of assets, the requirement to provide concessions and rebates, increased regulatory and compliance arrangements and failure to provide for indexation of fees and charges for services prescribed under state legislation or regulation. Key impacts on Strathfield Council have included, ARIC - internal audit program using external/internal resources; Emergency Service Levy increases; Cyber security/modernising systems/fraud prevention; and Crown Land, Plans of Management, Compliance reporting.

New assets are important for any community, especially when provided through Federal and State Government grant programs and developer contributions. However, these grants do not come with funding for the new costs associated with the operation, maintenance, renewal and depreciation of new assets. Over time these costs eat into Council’s sustainability as it funds more and more new asset costs from its existing budget.

Service level improvements or high service levels also contribute to the decline of financial sustainability. In the five years to 2020/21, the average operating performance ratio of NSW councils has steadily declined from 9.8% in 2016/17, to -1.5% in 2020/21. On top of this steady decline, the economic climate has changed post COVID-19, with the high level of inflation and cost of materials significantly impacting on service delivery to the community.

The cost to maintain community assets has dramatically risen, increasing Council’s infrastructure backlog (the value of renewal works that need to be undertaken to bring Council’s assets up to an acceptable standard). Council’s backlog has increased from $0.6m in 2019 to $16m in 2022 which is a backlog ratio of 4.2%, above the industry target of 2%. Assets will continue to deteriorate, and the backlog will increase further without additional funding.

Learn more about Council Assets here.

In NSW all councils are bound by rate pegging, which is the maximum annual increase set by IPART. This amount ranges from 1.5% to 3.7%. The only way that Council can increase this amount is to make an application to IPART and to clearly outline all of the reasons why Council is needing to increase rates.

After reviewing our current financial situation, Council has found that it has been producing operating deficits over the past few years and has a significant funding backlog for the renewal of infrastructure assets such as roads, footpaths and buildings. The backlog has increased from $1.2 million to a current backlog of around $16.5 million. Additionally, Council is facing an average annual operating deficit, over the next 10 years, of $12.4 million, in total that is a cash shortfall in excess of $120 million.

These funding gaps have developed over many years, with previous Councils not taking the required action earlier, when it would have prevented the current problem. This is the case for many local councils. Council last considered a SRV in 2014 but decided not to take action. Had action been taken the size of funding shortfall and asset backlog would be much smaller. The most recent SRV at Strathfield Council occurred in 1994.

Council is now in a difficult and confronting position, where a number of internal and external factors such as rate capping, high inflation, continued cost shifting from the State Government and many years of cost increases, exceed the increase in revenue. If no action is taken, Council will risk running out of money by 2027.

This requires urgent and immediate action to protect the future of Strathfield. We must ensure we are financially sustainable not only now, but long into the future so the current generation and future generations will be able to enjoy the Oasis in the West that is Strathfield Council.

Council currently has no loan programs and has a nil debt position. However, this is not a sustainable strategy. A properly managed loan program enables works to be done and ratepayers will contribute through repayment of loans over a longer term. It allows inter-generational funding and management of infrastructure instead of expecting the current community to pay entirely for new or renewal of infrastructure assets.

In the current proposal, Council intends to adopt a managed loan program to help fund asset renewals.

Council has reviewed the Domestic Waste Management (DWM) charges. In 2022-2023 they are currently $795 per household. The annual DWM charge is included with the annual rates bill.

Council intends to restructure the waste charge and transfer $4 million of the waste income into general revenue. This will not reduce waste services provided to the community.

To transfer these funds, Council will need to vary rates by 20.3%, however this will be offset for the majority of ratepayers by a reduction of $245 from the waste charge. The proposed waste charge for 2023-2024, if approved, will be $550.

Council applies for grants from the State Government and Federal Government to assist in defraying costs of building infrastructure and delivering programs. However, grants do not include the ongoing renewal, operation and maintenance costs that will need to be met by Council.

Council offers assistance to ratepayers who are experiencing genuine difficulties in paying their rates and charges under Council’s Hardship Policy. Any ratepayer who is experiencing hardship should in the first instance contact Council on 9748 9999 or email council@strathfield.nsw.gov.au to discuss the situation.

More information about Council’s hardship assistance can be found on Council’s website.

IPART is the Independent Pricing and Regulatory Tribunal. Their role is to help NSW residents get safe and reliable services at a fair price. Although it is a NSW government agency, it operates independently of the government as the independent pricing regulator for water, energy, public transport and local government.

For local government, IPART determines the annual rate peg, which is the maximum amount councils can increase their rates by each year, unless they submit a Special Rate Variation application. IPART also assesses and determines any Special Rate Variation and minimum rate increase applications from councils. IPART will also undertake ad hoc reviews on a variety of local government matters as requested by the Office of Local Government or other NSW government department.

For more information about visit the IPART website.