Future directions in financial sustainability
An interview with Tim Butler, Director Corporate and Financial Services, Holroyd City Council, NSW
Tim Butler said issues currently affecting councils’ financial positions are the global financial crisis, rate pegging and effective financial planning.
He said councils have felt the impact of the global financial crisis in a number of areas.
“Interest on investments has reduced significantly over the last 18 months and some councils have incurred capital losses on their investment portfolios, for example through the collateralised debt obligation (CDO) issue,” Tim Butler said. “Many general revenues sources have either stagnated or reduced, mirroring the level of economic activity of our business and residential communities.
“In general, outstanding debts have increased, impacting on councils’ cash flows and debt writeoffs. The result of this is an inevitable negative impact on Local Government’s ability to provide works and services.”
For New South Wales councils, Tim Butler said rate pegging remains the singlemost key issue for financial sustainability.
“Examples of cost increases that exceed the rate pegging limit continue to accumulate,” he said. “At the same time, a council’s ability to find additional revenue sources to offset this position becomes ever increasingly difficult.
“But there is hope on the horizon.
“The imminent new Integrated Planning and Reporting (IPR) legislation appears to provide New South Wales councils with the opportunity to develop community strategic plans (CSP), four yearly delivery programs (DP) and annual operational plans (AOP).
“With the community’s consent, these can provide for an increase in funding beyond traditional rate pegging limits to meet the community’s needs.”
Tim Butler said the proposed IPR legislation is very much centred on providing mechanisms to facilitate sustainability, community driven long term planning, and transparency within the Local Government sector.
“The ability to raise sufficient revenue to fund your community’s needs (sustainability), with the community’s consent (community driven), is certainly in line with the objectives of the new IPR legislation,” he said. “We hope the New South Wales Government sees it the same way.”
Tim Butler said that planning to achieve any goal is vital.
“Money in many respects is the lifeblood of an organisation,” he said. “Without enough of it, you become very weak indeed, or to have it not getting to the right places at the right time can result in aspects of your operations falling over.
“Financial planning is no different. It requires input from your stakeholders. From the time you start to ask your community what their needs and wants are, you are commencing your financial planning.”
He said the key elements to developing an effective financial plan are:
- understanding the profile of your council
and community - understanding the current and future
economic environment - consulting your stakeholders
- ensuring that the financial plan addresses
council/community goals, meets strategic
objectives, facilitates financial
sustainability, and is supported by facts, not
fiction - developing mechanisms to review and
report against the financial plan - developing a financial plan that provides for ‘what if’ scenarios – for example, by
identifying levels of service and their
associated costs - ensuring that the financial plan can be used
as a decision making tool.
“The proposed new IPR legislation requires a minimum ten year long term financial plan,” Tim Butler said. “But in short, a council’s financial planning should be of sufficient length to facilitate adequate planning of the future needs of the community, and any obligations the Federal or State Government may place on council.
“If your community has identified needs and wants, and/or the Federal or State Government places obligations on council that extend beyond a ten year time horizon, then your financial planning needs to match this.”
He said that elected members play an integral dual role in financial planning.
“They are members of the local community, and as such will have needs and wants like any other community member,” Tim Butler said.
“Accordingly, they will provide input into the goals and objectives identified and costed in a council’s management plan.
“At the same time, as a Councillor, they have a twin civic role to both serve the needs of the council as a member of the governing body, and serve the needs of the community as an elected person.
“The civic role requires Councillors to set the strategic direction of council, which includes the adopting of corporate strategic plans and policies, many of which integrate with council’s key financial documents, including the management plan, budget, fees and charges.”
