When the City of Playford was formed in May 1997, it inherited an annual operating deficit (before capital revenue) of $10 million and a significant asset maintenance backlog. By 2005 this had been significantly improved to a net operating deficit (before capital revenue) of $3.19 million, despite significant increases in spending on developing and maintaining assets.
Figure one shows the progress to date towards sustainability. This outcome has been achieved by focusing on comprehensive long term strategic and financial planning. Long term planning enables clear definition of the roles to be played by both elected members and staff.
A new approach
The first step was to develop an understanding of Council’s financial position. The City of Playford looked beyond short term measures, such as the annual percentage increase in rate revenue, current debt levels and a balanced budget in cash terms. Instead, the City looked at what was required to deliver all existing services without significant rate increases. This included maintaining all existing assets and services.
The Playford Plan
This investigation led to the development of a strategic management plan called the Playford Plan and the ten year financial plan which was required to deliver the Playford Plan. The focus of the planning was to ensure all existing services were sustainable in the longer term.
The key long term financial measure was the ratio of operating surplus to revenue, with the target being 20 per cent by 2008. The 20 per cent target was identified as being necessary to maintain and replace existing assets. This key long term measure was the basis for all subsequent strategic discussions with elected members and staff.
The CEO meets with all staff on a monthly basis with financial reporting a standard agenda item. Playford has on sold the intellectual property contained in the ten year financial planning model to other Councils within South Australia.
Whole of Council understanding and response
Repetitive discussion of long term financial targets enabled a whole of Council understanding and response to the financial situation. Agreement was reached between elected members and staff that the financial situation would be addressed by adopting the following approach:
- existing service levels to be maintained (that is not increased)
- rates to rise by CPI plus one percent annually
- recurrent budgets (as distributed to work teams) to increase annually by CPI minus one per cent (that is a reduction in real terms).
Financial modelling and rating options
Comprehensive financial modelling indicated that this model would enable Playford to achieve the desired level of financial sustainability while maintaining existing services. Any additional services were to be funded by a rate increase (in excess of the agreed CPI plus one per cent) or by the reduction of an existing service.
Last financial year Playford provided the community with two rating options:
- a rates increase of CPI plus one per cent (as per the long term financial plan)
- a rates increase of CPI plus two per cent to fund an increase in service levels via the development of specifically nominated assets (including a regional swimming pool).
Involving all stakeholders
This consultation was part of a transparent approach to the relationship between the level of rates and the services to be provided. Internally, all teams were responsible for continuous improvement to meet the efficiency dividend of CPI minus one per cent. Crucial to achieving this was a communication plan to connect teams to the long term plans, both strategic and financial for the City.
During the period of financial turnaround the City of Playford has continued to maintain and develop a significant level of assets. This has been achieved by focusing on longer term financial targets.
Sharing the burden of debt across current and future users
City of Playford’s level of debt is significantly higher than other South Australian Councils. However, the debt is part of a long term financial approach. The City of Playford has taken the view that the cost of long lasting infrastructure should be shared over the life of the infrastructure rather than funded from current income (that is shared across current and future users of the asset rather than just current users). Importantly the long term financial plan indicates the debt can be adequately serviced.
The challenges ahead
The financial turnaround has been both successful and rapid, however there is still work to be done. Future challenges for the City of Playford are to focus on the backlog of asset maintenance, and improve community engagement and understanding of the long term sustainability of council services.
