Like all councils across Victoria, Wodonga Council is facing significant financial challenges due to rising cost pressures and the rate cap. These challenges are exacerbated by the unexpected storm and flooding events which have been experienced over the past 18 months.
For that reason, it’s important to manage expectations when it comes to community spending.
The council’s funds come from rates and charges, user fees and government grants. The budget then determines how this is spent on services like street cleaning, parks and gardens, events and community safety; maintaining our assets including roads, footpaths and buildings; and, building new facilities for our community like public toilets, playgrounds and community infrastructure.
The council used to have more money available to fund new projects. Unfortunately, with the difference between how much our income has grown and how much our costs have increased, it is becoming more challenging to keep delivering the services the community needs with the available funding.
The graph above shows the gap between our rate rises, the rate cap and the consumer price index (CPI). It shows an almost $17m total gap between income growth and rising costs across the current four-year period.
The compounding impact of the gap means that the gap between income and expenses never closes, so it continues to impact future years.
As one of the fastest-growing areas in the state, the council is facing the challenge of managing growth and creating more assets at a time when less funding is available and costs have increased.
The council undertook a Financial Sustainability Review, conducted by AEC, to provide an independent assessment of the financial sustainability of the council and to recommend strategies to council to improve our overall financial position.
Key findings from the review
- Prior to 2022-2023, the council has produced a net operating surplus, however, when capital items are removed, the ongoing operating result shows a deteriorating trend with the 2022-2023 result in deficit.
- While cash and financial assets have remained relatively stable during the historical review period, the reported unrestricted cash has been deteriorating. The adopted Financial Plan projects that the council’s available cash will deteriorate into a significant deficit position. There is insufficient cash being generated by the council to maintain sustainable levels of cash.
- The condition of council’s assets are generally in a good condition, with only 1.5 per cent of the council’s assets in a poor or worse condition. Analysis of the planned asset renewals indicates the council is likely to maintain the current assets in a sustainable condition, however, the Financial Plan does not generate sufficient cash to fund the planned capital works.
- The council has spent $127 million over the past six years on capital works. The capital expenditure on 2022-2023 ($38 million) was significantly above the average of $21 million.
- If rates increase by 2 per cent per year over the next 10 years, the council is forecast to deliver an aggregate operating deficit of about $78 million over the 10 years (excluding all capital), with individual annual results ranging from an $3.9 million operating deficit in 2024-2025 deteriorating to a $11.3 million operating in 2033-2034 and cash decreasing to negative $22 million by the end of 2033-2034.
- If rates increase in line with the rate cap of 2.75 per cent for the 2024-2025 financial year as advised by the Minister for Local Government over the next 10 years, the council is forecast to deliver an aggregate operating deficit of about $5 million over the decade (excluding all capital) and unrestricted cash deteriorating to a negative balance by 2029-2030.
- The council has a historical “structural deficit” (meaning recurrent expenses are more than the recurrent revenues) which needs to be corrected to address the operating deficit.
Key recommendations from the review
- Enhancing financial governance, prioritisation, and decision-making through initiatives such as adopting financial sustainability principles, regularly reviewing services, requiring a robust business case for significant capital investments and systematically modelling the likely financial impact of potential decisions.
- Improving the operating position of the council and the availability of cash through revenue and expenditure management measures such as increasing rates each year in line with the rate cap set by the Minister for Local Government and reducing annual operating expenditure by $2.8 million.
- Improving asset management by updating plans and systems to facilitate a considered and fully costed approach to lifecycle management with established criteria for maintenance, renewal and upgrades.
- Continuing to review developer contribution arrangements to ensure appropriate cost recovery and identify the amount and timing of required Council contributions.
- Reviewing and, where appropriate, divesting assets at a price that exceeds acquisition, holding, and development costs.
The report was received and noted at the January 29 meeting of the Finance and Budget Delegated Committee and the council is considering the findings and recommendations to determine their appropriateness, feasibility and potential actions and timeline to facilitate implementation.
With these financial challenges, we need to continue to have conversations with our community about:
- The services the council delivers;
- The facilities the council maintains; and,
- Whether an increase in rates may be necessary in future years to maintain our services.