Posted 25/5/15  Updated  13/7/15

 

Full Budget file

 

Council's Lighter-Than-Air Response To MRRA's Submission On The 2015/16 Draft Budget - And MRRA's Response

(13/7/15 - C)  Mmmm.  Does it seem a tad yuddah-yuddah and lacking specifics to you?     MRSC response to MRRA    MRRA response to MRSC

Macedon Ranges Council has sent MRRA (and apparently all other submitters) a response to our submission on the 2015/16 draft budget.  In our submission we asked for some hefty information to be provided, including but not limited to:  

MRRA Says:

 

We received several pages of typing, but not the information we requested.   Where to now, we ask ourselves...

 

 

 

MRSC Budget 2015/2016

Please note that submissions are due before 11am on 29 May, not before noon as stated in MRRA's letter to the editor

 

Budget documents (Budget, Council Plan and Strategic Resource Plan) are on Council’s website http://www.mrsc.vic.gov.au/Council_the_Region/News_Media/Latest_News/Council_proposes_direction_and_budget_for_201516   

 

Make a submission before 11am on May 29 (mrsc@mrsc.vic.gov.au) , and send a copy to all Councillors, Mary-Anne Thomas, MLA for Macedon mary-anne.thomas@parliament.vic.gov.au , and Natalie Hutchins, Minister for Local Government  natalie.hutchins@parliament.vic.gov.au

 

 

 

MRRA sent a letter to local papers this week ("Council Budget: A Mountain of Debt"), raising issues with the Macedon Ranges Shire Council's 2015/16 Draft Budget.   Here we expand on those issues, and add some more, to help residents get an insight into the Budget and the Shire's financial position.

 

Over-arching issues with the 2015/16 Budget are that it lacks accountability and transparency, and isn't fair or responsible.  We say again, Council's budget processes and finances need thorough auditing.  Main concerns include:

 

Substantial debt

When this Council was elected in October 2012, the first Budget it produced showed the Shire's loan liability at 1 July 2013  was $3,931,819.  Council has steadily been borrowing money and this year proposes another $6,575,000 loan, taking loan debt to $14,035,000 (the highest in the Shire's history). 

 

Escalating debt servicing costs (interest and loan repayments)

Costs in 2015/16 are $823,862 ($480,562 interest).  The $343,300 Council is repaying off principal is low - about half the amount it repaid last year and about a third of the amount it repaid in 2013/14 on substantially less debt.  Council's Strategic Resource Plan 2015/16 shows similarly low repayments will be made over the next year or two, but after that debt repayment escalates to over $2.4 million (potentially, for more than one year).

 

Borrowing to repay debt?

Council has this year "borrowed some funds" from the newly constituted Local Government Funding Vehicle.  Information about how much has been borrowed, what it is being used for, and how these funds fit with other existing loans isn't provided.  These LGFV funds are interest-bearing.  Repayment of principal is deferred: half to be repaid within 5 years and the other half within 10 years.  This first year Council is putting aside $817,200 of the money it is borrowing to repay debt, and will put aside one-tenth of the borrowed amount for debt repayment each year. 

 

If $817,200 is one-tenth of the amount borrowed, is this an $8 million loan?   Are these new funds instead of or additional to existing debt ($7,803,000 at 1 July 2015) and new loans proposed in 2015/16 (+$6.6 million)?   Council must provide more information.

 

Capital Works Projects

Council has developed a poor practice of approving large capital works projects in one year, then rolling over the project, its costs, grants, loans and other funding to successive budgets as capital works "approved in prior years".  These previously approved projects, costs, grants, funding sources and staging can, without explanation, change as they are 'rolled over' to the next budget, to the point they appear to be different projects. 

This makes it very difficult to understand rolling and total costs, loans, funding sources, and where the project stands.  It also lacks accountability and transparency.  Council must explain inconsistencies with the scope, costs and funding for these projects.

 

Gisborne Office Extension - See the history of costs, funding and approvals (2013/14, 2014/15 and 2015/16 Budgets)

 

This project has been rolled over from the 2013/14 and 2014/15 Budgets to 2015/16. 

 

In 2013/14 Council approved a $700,000 loan (Stage 1), and in 2014/15 another $800,000 loan (Stage 2).  However the 2015/16 Budget (page 55) says Capital Works 'approved in prior years' for the Gisborne Office Extension were a $1.2 million project, funded by a $1 million loan and $200,000 from Reserves/Asset Sales, even though this is not what is shown in previous Budgets.

 

This year's Budget includes a $1.5 million loan for the "first stages" of this project (page 57), and another $800,000 in new Capital Works (i.e. $500,000 loan + $300,000 from rates) at page 52.  Total costs now appear to be at least $2.3 million, yet there has been no consultation and plans have not been made public.  

 

Council must provide a complete accounting of all aspects of this project, consult, and make plans public before taking out any loans for or spending on this project.

 

Hanging Rock Infrastructure Development Project - See the history of costs, funding and approvals  (2013/14, 2014/15 and 2015/16 Budgets)

 

The Hanging Rock Infrastructure Development project was first approved in 2013/14 and is rolled over through 2014/15 to 2015/16, with a $1 million loan being taken out in this year's Budget. 

 

Council's website says this is a $3 million project, with $2 million funding from Regional Development Australia, and a $2 million contribution from Council (includes $1,038,000 in kind contributions for land and project management).   This project was included in both the 2013/14 and 2014/15 Budgets as a $1.55 million and a $1,450 million project (correction) with a $1 million grant each year, and $550,000 and $450,000 loans from Council in respective years (i.e. total 2 year project cost of $3.0 million (correction), $2 million in grants, $1 million loan from Council).

 

Yet the 2015/16 Budget (page 55) says Capital Works 'approved in prior years' have a project cost of $2.7 million, funded by a $1,477,750 grant, a $1 million loan from Council, and $222,000 from rates, which sounds like a completely different project.  

 

At the same time, at 3.7 Indicators and Measures of financial performance (page 25), Council declares it has spent 100% of specific purpose grants received (ditto the 2014/15 Budget). 

 

Confused?  Ask Council for a comprehensive explanation.

 

Hanging Rock

In an ominous move, Council has changed the legal status of the Financial Reserve which holds funds earned by and spent on Hanging Rock from a Statutory Financial Reserve (required by law) to a Discretionary  Financial Reserve.  This move gives Council discretion over whether money is transferred to the Reserve, what the money is spent on, or if the Financial Reserve exists at all.  Unlike previous years where funds were regularly transferred to the Hanging Rock Statutory Financial Reserve (entry fees?), in 2015/16 no funds are transferred to the Hanging Rock Discretionary Reserve. 

Council must reverse this change.  Hanging Rock funds must be maintained in a Statutory Financial Reserve.

 

If you can work out where Council tucks away the money we receive for Hanging Rock concerts, or work out what is going on with income and expenditure of State government funding announced last year, you will be going better than everyone else. 

Where is the concert money, how much, and what is it being spent on?  Ditto the the $250,000 annual State government funding.

 

Spending Priorities

This year Council is spending $40,000 or $42,000 (two figures are included in the Budget) on renewing and maintaining street trees, which is a good move.  The Budget also says (page 22) Council "will carry out even more roadside slashing to improve community safety", and $30,000 is provided in New Initiatives for this.  Sounds good, until you look more closely.

Last year Council provided $36,000 for additional road-side slashing, plus another $30,000 to "increase property inspections to monitor fire hazards during summer".

This year Council is spending $55,000 on "Events and Festival Coordination" and another $30,000 on tourism signs for Malmsbury, Romsey and Macedon, but less on additional roadside slashing and nothing on additional monitoring of fire hazards. 

 

MRRA thinks there would be more benefit to ratepayers if the $85,000 assigned for tourism-related items is instead spent on things ratepayers truly need and care about.  We will be asking Council to:

reassign the $55,000 for Events and Festival Coordination to street tree renewal and maintenance (+$25,000) and additional roadside slashing (+30,000), and

reassign the $30,000 for tourism signs to again fund increased property inspections to monitor fire hazards during (what is predicted to be a hot) summer.

 

Rate Rises

Council’s ubiquitous “under 5%” rate rise (well above inflation), together with increases in charges, reaps an additional $2.6 million (or +6.5%) in Council’s total rates and charges income (if you are lucky enough to have a green waste collection service, you pay an extra 5.2% for this service this year). 

 

Customer (User) Fees

Rises in Customer Fees and Charges (Appendix C4) are usually bad news and don't rate much of a mention in Budget discussions.  This year most of everything the community pays for goes up.  Most of everything developers pay for doesn’t  - in fact the building fee for “multiple units” drops $1,000.  Reasonable?  Or not?

 

Here are some more issues that raise questions (or eyebrows) and need some clarification and explanation:

 

Deviations from Council's Long Term Financial Plan (Strategic Resource Plan)

In 2013/14, Council approved a 10 year Long Term Financial Plan, in its Strategic Resource Plan.  This long-term plan set out what Council would pay, charge and borrow over the 10 years, and included financial indicators for financial performance of the Plan.  It's where Council said borrowings would be capped at $14 million dollars.

 

Open the 2015/16 Strategic Resource Plan and the 10 year 2013/14 Plan has disappeared, and all you will find is a "Plan" with financial information for four years.  The first year (2015/16) replicates this year's Budget, and the following 3 years are reset accordingly.  The 2013/14 long-term projections for 2015/16 are nowhere in sight, nor are indicators measuring the financial performance of these changes. 

 

Reference back to the 2013/14 Plan suggests Council's 2015/16 total income (over $84 million) is around $15 million more than was projected for 2015/16, "Contributions - non monetary assets" around $10.2 million more, and spending on Capital Works around $12 million more.  Council is also paying a lot less off loans than it said it would in the 2013/14 Plan.

 

Doesn't really seem to be a Long Term Financial Plan at all, does there?  Want to know how Council is performing against its 2013/14 10 year Long Term Financial Plan?  Good luck with that.

 

Mystery Money: "Contributions - Non Monetary"    

Income from Contributions - Non-Monetary is said to be income mainly related to new roads contributed to Council by developers when new subdivisions are completed (page 32).  It has increased spectacularly from 3% of total income in 2013/14, to 13% in 2014/15, to 15% in 2015/16.  

 

The 2015/16 Budget includes $12,800,000 income from Non-Monetary Contributions, which is a 28% increase over 2014/15 ($9,996,000), and a more than 400% increase over Council's 2013/14 Long Term Financial Plan's projected income from this source in 2015/16, even though Council has reduced its annual growth target for increased rate revenue from new subdivisions and new constructions from 2% in 2013/14 to 1.8% in 2015/16, and new rate assessments increased 1.5% (General Rate) and 1.4% (Total) this year. 

 

Council should have no trouble robustly explaining and justifying this income source, which is apparently a value rather than hard cash.  Please provide details, for the years 2013/14 , 2014/15 and 2015/16, of new roads and new subdivisions (and any other income sources) that have been responsible for the "Contributions - Non Monetary" income included in these respective budgets.

 

Council Spending

Rises in rates and charges are a problem, but what Council spends our money on is a bigger one.  For example, how much did Council waste on the failed Hanging Rock over-development proposal and the failed the Early Years Hub at Daly Reserve, and where did the $35,000 Council contributed to the Equine (Everything) Feasibility Study come from?  We don't know.

 

Ratepayers also don't really know what Council's operating budget is spent on.  The 2015/16 Budget at page 29 shows income and expenses for each Council department (total: almost $67 million income, and almost $60 million expenses).  It also shows almost all of the remaining $7.1 million going to New Initiatives and and Capital Works (which are identified elsewhere in the Budget), with $193,000 left over.  It doesn't provide information about what each department's expenses are spent on.   

 

Council's explanation of its operating budget (Pages 31 & 32 - Operating Income) doesn't include an accounting category or explanation for cash received from Development Contributions.  Income from these are shown at Financial Reserves but discussion of them as income is missing. 

 

There isn't sufficient transparency or accountability about what Council spends money on or where the left-over $193,000 goes.  More detailed information is required.

 

Implementation of Policies and Strategies

At page 18 of the Budget  (Economic Development) there is a rousing proclamation that "we turn policy into action, for example, through implementation of the Economic Development Strategy, Agribusinesses Plan, Tourism Industry Strategic Plan and Equine Strategy."   What this makes you realise is that the same 'putting policy into action through implementation of adopted plans and strategies' isn't being said elsewhere.  That is, Council's actions aren't tied back to implementation of Plans and Strategies except for economic development. 

 

 For example, Council is constructing a new soccer pavilion at Dixon Field in Gisborne (page 16), but which adopted Plan or Strategy identified this as needing to be done, or a new Leisure Strategy (page 16), or landscape assessment of proposed residential and commercial developments (page 15)?   These actions are costed at $815,000, $60,000 ($30,000 savings) and $20,000 respectively in the Budget but there presently isn't an obvious link between these actions and costs, and adopted Plans and Strategies. 

 

Please identify all adopted Plans and Strategies the 2015/16 Budget's actions and spending are implementing.

 

Inconsistencies

At page 39 at 5.1.4, the Budget says a total of $6.6 million in loans are to be taken up in 2015/16 but page 40, at 6.1.3, says $6.1 million in loans will be taken up. 

 

Three different figures are provided for Borrowings for capital works approved in previous years and being carried forward into 2015/16:  $2.2 million (page 44,  Analysis of Budgeted Capital Works),  $2.0 million (page 55, Capital Works approved in prior years), and $2.5 million (page 57, Borrowings).  Despite the confusion, $2.5 million loan is being taken out in 2015/16 for 'carry over' capital works approved in prior years.

 

Kyneton Landfill Rehabilitation Project See the history of costs, funding and approvals (2014/15 and 2015/16 Budgets)

This year $490,000 is supposed to be transferred from Financial Reserves to pay for rehabilitation of the Kyneton Landfill.  While $382,450 is transferred from the Landfill Recovery Reserve, all of it is used to fund a recurrent (un-named) waste management program instead. 

 

What is the recurrent waste management program, why is it being funded from Reserves and not the Operating Budget, why is it being funded from the Landfill Recovery Financial Reserve instead of the Waste Management Financial Reserve, and - as it is not being funded from Reserves - where is the $490,000 for the Kyneton Landfill rehabilitation project coming from?

 

Financial Performance Indicators

Council is required to provide annual figures (calculated indicators - either ratios or percentages) that show how Council is performing financially.   Up until 2015/16, Council provided, at Borrowings, the Budget dollar amounts it used to calculate its Debt Commitment Ratio (interest and debt repayment as % of the rates and charges it received), and its Total Debt Ratio (debt as % of the rate base it supports).  Not this year.  

 

While the final Debt Commitment Ratio Council provides at page 24 can be confirmed from dollar amounts in the Budget, confirming Total Debt Ratio is complicated this year because Council has two debt figures (page 57):  total debt ($14,035,000), and net debt ($13,217,500 - i.e. the amount of debt left after $817,200 is deducted for debt repayment).  Neither of those figures produce the indicator Council shows (33.1%) at page 24, so it's not clear where that figure comes from, or where the $817,200 debt repayment is being counted: as debt repayment, or as a loan. 

 

Council must provide the dollar amounts it uses to calculate financial indicators, and clarify what dollar amounts its Total Debt Ratio is based on.

 

Council provides "Indicators and measures of financial performance" at page 24 of the Budget (dollar amounts used to calculate the results are not provided).  Last year, this section included the 2014/15 and the 2013/14 indicators, allowing a comparison to be made.  Not this year - only figures for 2015/16 are shown.  

 

A comparison can be made using indicators included in the 2014/15 adopted budget which, together with 2015/16 indicators, show the Shire has a deteriorating financial position:

Indebtedness (noncurrent liabilities / own source revenue) (lower is best):           

2013/14:     31%;      2014/15:   32.9%;     2015/16:    34.3%  

Liquidity (Working Capital - current assets / current liabilities) (higher is best):     

2013/14: 225.5%;     2014/15:  195.8%;    2015/16:  158.3%   

Interest bearing loans and borrowings / rate revenue (lower is best):                     

2013/14:   22.3%;     2014/15:    25.9%;    2015/16:    33.1%   

Interest and principal repayments / rate revenue (lower is best):                             

2013/14:     3.4%;     2014/15:      2.7%;    2015/16:      1.9%

The Debt Commitment Ratio (interest and principal repayments as % of rates revenue) improves to 1.9% because Council is repaying a much smaller amount of principal than in previous years.

 

The Victorian Auditor-General Office's [VAGO] audit of local government finances (2012/13 and 2013/14 Budget years) flagged problems ahead for Macedon Ranges, based on 2013/14 financials.  The audits show deterioration from 2012/13 to 2013/14, and trouble ahead in 2015, 2016 and 2017, even before last year's and this year's Budget are audited by VAGO.   See Summary of the 2012/13 and 2013/14 audits.  Go to the 2012/13 (page 92 - Large Shire Councils) and 2013/14 (page 86 - Large Shire Councils) VAGO audits.   Note:  An explanation of VAGO risk assessment criteria can be found at the beginning of Appendix E of the audits.

 

Council's financial performance is taking this Shire from low financial risk to medium and high risk, with deteriorating trends, as shown in the audits.  Council must revise its Budget to reduce borrowing and spending, especially with rates being capped next year.  What Council is proposing is not responsible or sustainable.

 

Financial Reserves

Most Financial Reserves (at page 62 of the Budget) don't have the same amount of money in them at 1 July 2015 as the previous year's Budget said they would have at 30 June 2015.  There are some significant differences (e.g. the Plant Replacement Reserve has around $600,000 less more (correction), the Public Open Space - South Reserve around $242,000 less, the Public Open Space - East around $122,000 more and the Footpaths Reserve around $94,000 more).  This points to funds that are not included in Budgets being moved into and out of the Reserves.  This year, the grand total amount in Reserves ($7,684,060) at 1 July 2015 is around $1.3 million more than last year's Budget said it would be at 30 June 2015. 

 

Not accountable or transparent at all.  Where does this extra money come from, and go to?  How much has been transferred, where did it come from and what was it spent on?

 

Some big changes are also made.  A new Statutory Financial Reserve is opened for Romsey Development Plan Contributions.  Additional to moving Hanging Rock from a Statutory to a Discretionary Financial Reserve, Council also moves the "Maintenance Seniors Accommodation" Financial Reserve from Statutory to Discretionary, making this Reserve as vulnerable as Hanging Rock's.  Two other new Discretionary Reserves are introduced:  "Asset Conversion" (opening balance $222,000) and "Debt Repayment" (opening balance $149,000).  

 

Where did that money ($371,000) come from?

 

 

Make a submission before 11am on May 29 (mrsc@mrsc.vic.gov.au) 

Send a copy to all Councillors,

Mary-Anne Thomas, MLA for Macedon mary-anne.thomas@parliament.vic.gov.au , and

Natalie Hutchins, Minister for Local Government  natalie.hutchins@parliament.vic.gov.au