Frequently Asked Questions - Special Rate Variation
Council has adopted sophisticated asset modelling and data sets which have reviewed and predicted the life cycle of our infrastructure so that a planned and active maintenance and renewal program can be developed. This is industry best practice. Road works priorities are now generated with far more science than has been the case previously. It is this tried and tested system of asset management that will be used to determine Council’s future works programs. By utilising these asset management principles to determine road works priorities, our community can have more faith in how and where our funds are spent and they can interrogate this information which is quite transparent.
Before Council makes a final determination regarding a Special Rate Variation application to the IPART in February 2017, we will develop a works program for 2017/18 and beyond that clearly identifies major road works, drainage and bridges programs across the whole shire and this will be available for public scrutiny. Obviously the size of that program will depend on Council’s preferred option as to the size of any rate increase. This information will inform the planned road works program.
The SRV is by no means a cynical exercise. We are absolutely committed to following through on the undertaking that Council gave the IPART and the government in our submitted Council Improvement Plan. Without a substantial rate rise Council will fall well short of at least five of the key performance benchmarks set by the government. That would see our infrastructure renewal backlog blow out and Council once more become susceptible to amalgamation.
As per the IPART requirement to consider a Special Rate Variation, Council needs to consult with ratepayers and outline the proposed increases and the outcomes that additional funds will generate.
The primary conversation focus for the Special Rate Variation centered on three rate rise scenarios of 7.5 per cent, 10 per cent and 12.5 per cent all inclusive of the nominal rate peg.
In order to ensure we reached as many residents and ratepayers as possible about the proposed rate rise, the communication mix offered multiple ways for people to supply their feedback. This included the quick Reply Paid feedback card, the more detailed online survey, submissions and or part of the random telephone survey.
The decision not to feature No Special Rate Variation as an ‘option’ reflects the commitment given to the IPART and the Minister by the Council in our Council Improvement Plan (CIP) that Council would submit a SRV to increase its rates yield.
It is understandable that many residents have indicated their preference for no rate rise – rate increases are never popular but in this case they are absolutely necessary if Council is to fix its crumbling road network and reduce its infrastructure back-log. The status quo is not an option for Council.
There are many reasons as to why Byron Shire Council has found itself in a position where it is having to contemplate increasing its rates significantly above the rate peg.
We acknowledge that these reasons are primarily, though not exclusively, due to impositions beyond the control of the Council e.g.:
- The loss of substantial revenue since 4 caravan parks at Brunswick Heads and Clarkes Beach were stripped from the Council by the Minister for Lands
- Millions of dollars in extra expenditure through cost shifting from the state government to local councils
- 30+ years of rate pegging where Council rates have been held at unrealistically low levels and well below annual increases in the cost of operations
- Council being disadvantaged by an out-dated and unresponsive distribution formula used for the allocation of annual block grants from the Federal Government (Financial Assistance Grants)
- The hand-over to Council of sections of the former Pacific Highway without adequate funding for on-going maintenance of this infrastructure
It is also true that over many years consecutive councils have fought hard to maintain our local amenity through strict planning controls that have governed building height and density and stifled development (and hence economic) opportunities. It is also fair to say that past councils have chronically underfunded our roads system and let Council’s financial position deteriorate to the point where the NSW Treasury Corporation, in 2013, depicted our financial position as “weak and deteriorating”.
While we acknowledge our own historic shortcomings, over the past 4 years the Council has set about a strong focus on sustainability with the implementation of consecutive multi-faceted financial sustainability plans and best practice asset management. As a consequence Council’s financial position has dramatically improved and we have begun to invest more strongly in infrastructure renewal. Consequently we were declared as being Fit for the Future and have avoided (for now) the spectre of amalgamation.
Regrettably we find that despite all of this hard work we still need to raise significant additional rate revenue in order to fund a reduction in the substantial infrastructure renewal back-log that we have inherited and meet the performance bench-marks that have been imposed upon us.
Below we have endeavoured to answer some of the questions that have arisen through our community engagement on the SRV proposal in the hope that this clarifies some of these issues for you.
A 'bed tax' or 'tourism tax' would provide much needed new revenue streams for Council that could be used to help fund upgraded facilities in Byron Bay that are degraded through the large number of visitors to the Shire, around 1.9M per year. However the NSW state government currently does not support either tax and there is no way it could be introduced without State Government legislation.
Council has been advocating for a bed tax for about a decade and will continue to do so. In respect of the number of tourists visiting Byron, there is a significant number of day trip tourists from South East Queensland (around 700,000 per year), from whom no bed tax would be collected, as they do not stay overnight. Council estimates a bed tax would generate no more then $200,000 per annum which whilst helpful, is not sufficient to address the current infrastructure issues confronting the Shire. Such taxes are also dependent on visitor numbers which cannot be guaranteed from year to year so it is not a dependable source of revenue.
We need to remember that Council’s infrastructure (roads) problems are shire wide and most of these roads service ratepayers, rather than visitors.
While Council favours holiday let establishments being charged higher rates, at this stage the Local Government Act does not allow councils to apply a different rate for holiday lets.
The Independent Pricing and Regulatory Tribunal (IPART) is currently undertaking a review of the rating categories and this might open up the ability for councils to have additional land rating categories, such as holiday letting, but this is not certain and the changes from the review won’t be in effect until at least the 2018/19 financial year at the earliest.
Also introducing new rating categories simply provides Council with greater scope to distribute the existing rate burden across different classes of property – it does not raise any additional rate revenue for the Council. It is therefore not a solution to the infrastructure funding problems facing the Council.
Should a Special Rate Variation application be successful, Council will review the apportionment of the rating burden between the current three property categories, Business, Residential and Farmland so as to make the rating system as fair and equitable as possible.
This is complex as it is extremely difficult to assess and to determine whether or in what proportion businesses might raise their revenue from tourists as opposed to sales to residents. The existing rating structure of Council employs a separate rating category under the Business Rate for the Byron Bay CBD. The ad valorem rate applied to the Business Rate for the Byron Bay CBD is currently twice or 200% of the ad valorem rate applied to Residential ratepayers.
Thus Byron Bay CBD businesses are already being charged rates at a level significantly higher than businesses operating in other townships around the Shire.
Again it should be stressed that by charging Byron Bay CBD businesses higher rates the total rates pool does not increase as this only affects the apportionment of the current rating pool. Byron CBD businesses pay more but this just means that other categories or ratepayer pay less.
A “Special Rate” as defined in the Local Government Act may be levied against certain classes of property or precincts within the Local Government Area as a means of funding particular works or services peculiar to that class of property or precinct, e.g. a new drainage scheme or town improvement works.
Levying a special rate is not a solution to Council’s funding problems because if we levy a special rate on some properties, other properties pay less and the overall rates funding pool (called the Notional Yield) remains the same. It is this overall rates funding pool that we need to increase through a SRV.
The charts below are two examples of how a ‘fictional’ Notional Yield could be split amongst the three rating categories of residential houses, farmland and businesses. You will note that it does not increase the size of the pie.
For the past four years Council has been working hard to identify operating efficiencies and has achieved significant savings by re-structuring its work force, making procurement savings, retiring debt, improving investment outcomes, rationalising under-performing assets and generating new recurrent revenue streams such as pay parking.
The results from the hard work can be seen in this year’s financial report where our independent auditors found we had achieved all of the state government required benchmarks. You can find a copy of Financial Report, here - the indicators can be found on page 51 and 52.
These results are assisted by the ongoing implementation of Council’s Financial Sustainability Plan. This plan since its inception has generated Council current and proposed future financial improvement of $4.366million up to 30 June 2016.
Council has tried to avoid the need for a special rate variation and looked first at how it operates to make savings and generate additional funds to invest in ageing infrastructure. Council has survived without increasing rates above the rate peg since 2008/09.
The possible need for a special rate variation was identified four years ago within our Delivery Program. It was also part of our Council Improvement Program when submitted mid-2015 to remain Fit for the Future.
Also as part of our Council Improvement Program (CIP), Council is committed to improving efficiencies and where possible channeling savings back into infrastructure. For example our CIP currently has targets to save about $300,000 per year in procurement savings – we are on track to achieve these savings.
Council will need to report on a yearly basis to the community as part of its Annual reporting requirements. Plus we will also provide updates to the Community on a quarterly basis. Should Council apply for and receive approval for the Special Rates Variation, the approval will contain specific conditions that Council must meet in regard to reporting.
Currently it is about $40 million.
With the introduction of pay parking in Byron Bay 12 months ago Council agreed that a significant proportion of the $2M per year raised would be spent in Byron Bay to upgrade infrastructure and facilities that are degraded by the high number of visitors to the town. Pay parking revenue will fund much needed improvements to the town such as those projects that have been agreed to through the Byron Bay Town Centre Master Plan. Thus while the additional revenue is welcomed it will not fund our decaying roads infrastructure throughout the rest of the Shire.
In the current 2016/2017 budget, paid parking revenue is currently funding the following projects either partially or in full. The amounts disclosed totalling $1,595,000 is the paid parking funding portion of the projects:
- Broken Head road works $600,000
- Byron St Byron Bay road works $645,000
- Byron Bay Civic Improvements $350,000
Council has agreed to install pay parking at Wategos and this will begin on 16 December 2016. This will raise an expected $300K per year.
Although Council could introduce pay parking to other townships the revenue raised is nowhere near enough to fund our poor roads system. As a guide – it costs around $750K per kilometre to re-construct a section of road. We presently have a road network of around 600 kilometres in length and 42% of the sealed road network is in need of re-construction. If you do the sums, you can get a sense of the enormity of the problem. Tinkering with pay parking revenue will only raise marginal additional revenue. Our very substantial infrastructure renewal needs can only be addressed by significant rate increases. While we understand that this will never be a popular proposal it is absolutely necessary.
For many years Council has argued that the state government Financial Assistance Grants are unfairly apportioned to the disadvantage of the Byron Shire.
Due to Byron Shire having high land values, we receive less state government funding support via the Financial Assistance Grant program than our neighbouring councils. In addition to the high impact from visitors, the need to supply additional maintenance and infrastructure is not recognised. This needs to change and Council will continue to lobby on this key issue.
The Independent Local Government Review Panel had flagged that the Financial Assistance Grants program needed to be reviewed but this is yet to be done.
Council also already actively pursues other grant funding and will continue to do so.
In 2016/17, Byron Shire Council will raise 26.7% of its total revenue from non-rate sources including grants and user charges. While securing grants is important and will continue, grant funds are often linked to new infrastructure and services ie not available to fix ageing infrastructure and over dependence on government funding programs is not considered reliable or sustainable.
Over the past four years we have collected on average $2.37 million from developer contributions (section 94 funds) and spent $2.2 million. Expenditure peaked in 2015/16 at about $3.36 million and will be eclipsed by a predicted $10.7 million in 2016/17.
Releasing these reserve funds helped part fund projects such as the Shara Boulevard Sport Fields, Suffolk Park Community Hall upgrade, Ewingsdale Rd/Sunrise Boulevard Roundabout, Lawson/Massinger Street in Byron Bay and the recent purchase of community land in Suffolk Park.
While we are actively spending the developer contribution reserves on the priority works program, these funds can only be spent on new or expanded infrastructure and by law Council is not allowed to use these funds for maintenance works as per the Section 94 Developer Contribution Plan .
Council has been using internal reserve funds to inject additional capital funding through reallocation from their intended purpose which Council can do. Unfortunately these reserve funds can only be spent once in most instances so this course of action is not sustainable.
Council’s Long Term Financial Plan is projecting an increase in General Fund reserves over the next ten years. This result though is due to reserves set aside for purposes that do not enable Council to utilise for the purposes the proposed Special Rate Variation will fund. Reserves such as for waste operations or developer contributions can only be spent for those purposes.
Council is already carrying substantial debt because of money borrowed by former councils at interest rates of up to 8% p.a. In discussions with the IPART Council has agreed to raise $6M in new borrowings to fund a bridge repairs/replacement program that will see 5 hinterland bridges replaced over the next few years including James, O’Meara’s, and Scarrelbelottis. These borrowings are needed in addition to the funds to be raised through a Special Rate Variation.
An "investment arm" of council would add another layer of recurrent cost that we cannot support, given our modest property portfolio. At this point in time, it cannot be justified. In terms of financial investments of funds held by Council, Council proactively manages investments to obtain as much financial return as possible. Unfortunately 75% of the funds held by Council, e.g. developer levies, are restricted (by regulation) for specific purposes and any interest earned on those funds has to be reallocated back to those purposes. Council cannot use this revenue to fund works the proposed SRV options are to fund.
Council’s General Fund which is used to fund such things as roads, drains, stormwater, footpaths, buildings and open spaces had a 2016/2017 Budge t of $88,553,100 and is made up as follows:
- Operating expenditure (excluding depreciation) $41,945,600
- Depreciation expense $8,293,600
- Capital works $35,318,700
- Debt repayment (loan principal) $995,2000
The following graphs DO NOT include water, waste and sewer revenue and expenditure.
As an overall summary (including the water, waste and sewer funds) Council’s Total 2016/2017 Budge t is $127,496,700 and is made up as follows:
- Operating expenditure (excluding depreciation) $60,157,700
- Depreciation expense $12,515,100
- Capital works $52,159,600
- Debt repayment (loan principal) $2,664,300
Council’s rate income is not determined by CPI. The Independent Pricing and Regulatory Tribunal (IPART) determine the rate peg each year based on the Local Government Cost Index. The Local Government Cost Index works somewhat like a CPI but when calculated is then reduced by an efficiency dividend. For Council, costs are increasing greater then the CPI such as construction materials, insurances, emergency services levies and pay award increases as examples. For example, In 2017/18 council’s costs will increase by around 5% while the approved rate peg for 2017/18 is 1.5%. After 30+ years of rate pegging and a continuing costs/revenue differential of this magnitude it is easy to see why councils such as Byron are struggling to fund infrastructure.
The $1,139 is the average residential rate payable in Byron Shire Council for the 2016/2017 financial year. This is the amount of the ordinary general land rate that appears on the rate notice which is subject to any proposed Special Rate Variation. If ratepayers are looking at their rate notice which has amounts greater then the $1,139 for the ordinary rate, this means their ordinary rate is higher then the average suggesting a higher then average land value. Land values are determined independently by the NSW Valuer General. Additionally the rate notice contains other charges that are not ordinary rates (if provided to a property) being for waste collection, waste operations, stormwater drainage, water access charge and sewer access charge. When these charges are added to the ordinary rate, this will result in a rate notice total greater then $1,139.
If a property is not categorised for rating as residential but is categorised as business or farmland, the ordinary rate will not, on average, be $1,139.
For rating purposes, Council’s must use land values determined by the NSW Valuer General. Generally Councils receive new land valuations for rating purposes every three years. Byron Shire Council received land valuations with a base date of 1 July 2015 to apply from 1 July 2016 (2016/2017 financial year) which were implemented.
The Valuer General on 2 December 2016 has advised that all Councils in NSW will be moving to a single common base date of 1 July 2016 for land valuations. This is due to the implementation of an Emergency Services Property Levy (ESPL) which Councils will be collecting on behalf of the NSW State Government (a requirement imposed on Councils by law) from 1 July 2017 via a new charge listed on the rate notice. The land values used to calculate the ESPL will also be used for the calculation of ordinary rates. In respect of the Emergency Services Property Levy (ESPL), this charge is imposed by the NSW State Government not Council even though it will appear on rate notices. Council will be undertaking the levy and collection task but will not be keeping any of the revenue raised as this will be transferred to the NSW Government.
The revaluation of properties (by the NSW Valuer General) that created new land values for 2016/2017 for rating purposes has no bearing on the projected rate income of Council. All that land values does is provides a mechanism to calculate what each individual property pays through application of an ad valorem rate to that land value. Council is only allowed to increase its rate income each year by the rate peg unless it has a Special Rate Variation approved by the IPART.
The methodology is that Council works out its total rate income within the confines of rate pegging. It then determines the yield that each rating category will contribute. It then divides that yield by the land value to then determine the ad valorem rate to apply. Therefore if land values increase, this then has the impact of reducing the ad valorem rate.
There is a perception that increasing land values increases Council’s yield from rates but this is simply not true. Individually ratepayers may see an increase in their rates due to a land revaluation process but that impact is a result of how their land value has changed relative to others in the same rating category. The value of some properties goes up while others may go down. The total rate yield stays the same overall.
Council simply does not have the revenue base to redress the infrastructure backlog without an SRV coupled with other initiatives outlined in the Council Improvement Plan and the Financial Sustainability Plan. For 2016/2017, Council has a record capital works program in terms of works but it cannot maintain this level of funding as it has applied funding from internal reserves that can only be applied on a once only basis. It is not a recurrent revenue source so is not sustainable.
Council understands that pensioners and other disadvantaged will be impacted and for this reason we have prepared a hardship policy which contemplates rate relief for those people. It is anticipated that increases in General Rates will in part be offset by reductions in Water/Sewer charges to the tune of $100 per year for the average ratepayer.
Council does not distinguish specifically its expenditure by location as it provides services to all areas of the Council. Furthermore it does not currently report rate revenue by locality, however more revenue is raised from Byron Bay than Ocean Shores. In Byron Shire, all ratepayers within the rating categories of Residential, Farmland or Business irrespective of their location pay the same ad valorem rate or minimum rate except for the Business Rate in the Byron Bay CBD. The only variable that distinguishes a different rate amount payable is land value.
Amalgamation would have far reaching consequences for the Byron Shire. Amalgamation partners are likely to be the adjoining Tweed Shire Council and/or Ballina Shire Council and both have quite different values and land use planning parameters than Byron Shire. Building heights, development intensity, multi-level residential apartments and tourist accommodation would all be on the agenda and the capacity of Byron Shire residents to influence such decisions would be minimised through fewer elected representatives (and minority voting numbers). High environmental and coastal protection standards enshrined within Byron’s planning instruments and our strategic policies would be at risk and funds raised in Byron would be spread across the domain of our amalgamation partners. Byron’s high visitor numbers would be used opportunistically as a milch cow to generate many new property development options with little regard for our community. By having our own Council the Byron Shire community have total say over who represents them and therefore what environmental and planning standards apply and how their financial contributions (rates) are expended. Like us or not Byron Council is preferable to the amalgamation alternative.
Make no mistake, major political parties of both persuasions have supported council amalgamations in NSW and in other States. Protestations to the contrary should be treated cynically. The threat of amalgamation now and in the future is very real. The best that we can do to maximise the likelihood of being left alone is to meet the performance benchmarks established by the IPART and the state government. This means significantly growing our rate base and investing much more into infrastructure renewal.