What is a Special Rate Variation?
A Special Rate Variation allows Councils to increase rates above the rate peg increase, which is determined each year by the Independent Pricing and Regulatory Tribunal (IPART) under delegation from the NSW Minister for Local Government. Councils can apply for two types of Special Rate Variation:
- An increase in general income in a single year (i.e. a 'one-off' variation)
- An increase in general income in more than one year (i.e. between 2 and 7 years)
Applications for Special Rate Variations must be submitted to the Independent Pricing and Regulatory Tribunal (IPART) for assessment.
Options 2 and 3 of the rating options being considered by Mosman Council are both proposals for single year Special Rate Variations.
Who is IPART?
IPART is the Independent Pricing and Regulatory Tribunal, the State's main independent regulator. IPART sets prices and/or licenses certain water, electricity, gas and transport businesses and also has a role in setting local Council rates. IPART is also an economic and policy think tank for the NSW Government, similar to the Productivity Commission at the Commonwealth level.
Under delegation from the NSW Minister for Local Government, IPART's functions include determining the annual rate peg (the maximum allowable increase in Local Government general income for most Councils) and reviewing and determining applications from Councils for Special Rate Variations.
What is the State Government rate peg?
Since 1977 Council rate revenue and certain other Council revenues have been regulated in NSW under an arrangement known as 'rate pegging'.
Rate pegging limits Councils from increasing their total rate revenue beyond the annual change in the rate peg. Since 2011-12 the rate peg has been set by the Independent Pricing and Regulatory Tribunal (IPART).
Why does Mosman Council need to apply for a Special Rate Variation?
There are two primary reasons for Council considering a Special Rate Variation now. They include:
1. The impending expiry of the 5% Community Environmental Contract levy and its impact on Council's longer term financial sustainability
The Community Environmental Contract levy is an existing, fixed-term levy of 5% that will expire at the conclusion of 2016-17. Over the life of this levy Council has been able to deliver a significant program of environmental infrastructure works including installation of stormwater improvement devices, creek reconstructions, seawall improvements, restoration of riparian habitats and conservation of heritage items. This levy has, as a revenue stream, also benefited Council's annual operating result. The loss of this revenue stream will adversely impact Council's operating result and longer term financial sustainability and, as a consequence, will likely necessitate a reduction in service levels over time.
2. Improving Infrastructure Performance
Additional funding through a Special Rate Variation will enable Council to progressively address its current infrastructure backlog. Option 2 will go some way towards reducing the current backlog, while Option 3 will remove the backlog altogether over a 10 year period.
Will Mosman be the only Council asking for a Special Rate Variation?
It is expected that, should Mosman Council decide to ask for a Special Rate Variation, it will be one of several metropolitan and regional Councils applying for a Special Rate Variation to commence in the 2015-16 financial year.
During the last round of applications (for the 2014-15 financial year) submissions were made to IPART by 32 NSW Councils - 20 from regional and 12 from metropolitan Councils. Of these applications, 28 were approved in full, three were approved in part and one was declined.
What infrastructure does Council have responsibility for?
Council is currently responsible for managing over $400 million worth of public assets including roads, parks and open space, buildings, stormwater drainage and marine structures. More detail is provided in the Infrastructure Fact Sheet, although some examples of the nature and scale of assets include:
90 km or 1,486,179 sqm of road pavement
14 at-grade and 2 multi-storey car parks
1,133 retaining structures
32 parks and reserves covering 172,383 sqm
22 bushland areas covering 313,917sqm
62 km of stormwater drainage pipes
38 stormwater quality improvement devices
1 indoor swim centre, 2 harbour baths, 3 jetties and 1 natural 'pool'
What has Council been doing to improve its financial position and reduce the burden on ratepayers?
For many years Mosman Council has prided itself on innovation and efficiency, with operating costs being kept under strict control. Council has also actively sought additional revenue opportunities through, for instance, the Local Government Infrastructure Renewal Scheme( LIRS), major State and Federal Grants Schemes, loan borrowings, pricing policy reviews, and advertising revenues. Other revenue streams in recent years, such as paid parking in foreshore areas have also contributed to Council's financial sustainability, as have efficiency measures including service contracting, joint procurement contracts, partnership programs with other Councils and internal service reviews. Council has also comprehensively reviewed its approach to asset management - including a revision of depreciation rates to provide a clear and rigorous assessment of future infrastructure needs and costs.
Where does Council get its income from?
Council receives income from numerous sources. In 2014-15 its primary income categories, together with the projected revenue for each, are :
- Rates and Annual Charges - $23,650,825
- User Fees and Charges - $9,699,240
- Interest and Investment Revenue - $426,000
- Grants and Contributions for Operating Purposes - $2,431,090
- Grants and Contributions for Capital Purposes - $1,737,800
- Other Revenues - $3,874,810
Council's current Delivery Program and Operational Plan provide further detail in relation to these income sources.
Why do we have an infrastructure backlog?
What are the proposed options?
There are three proposed options:
Maintain rates in accordance with annual rate peg (estimated at 3% per year), and cessation of the temporary Community Environmental Contract levy (i.e. 5%)
Continue to levy rates in accordance with the annual rate peg (estimated at 3% per year) plus a one-off rate increase in 2015-16 that remains permanently in the rate base for infrastructure works, equivalent to the value of the expiring Community Environmental Contract Levy (i.e.5%)
Continue to levy rates in accordance with the annual rate peg (estimated at 3% per year) plus a one-off rate increase of 10% in 2015-16 that remains permanently in the rate base to fund additional infrastructure works (8.5%) and allow for a financial sustainability component of 1.5%
See the Impact on Rates and Infrastructure Fact Sheets for more detail on how each option impacts rates payable by residential and business ratepayers, and the level of infrastructure works possible.
How were these options determined?
These options were determined by Council following detailed review and discussion of Council's projected long term financial position, and the service levels expected by residents and ratepayers. The opportunity to partially or fully address Mosman's infrastructure backlog was a key consideration, as was Council's objective of achieving a positive operating result in the short, medium and longer term.
What improvements to infrastructure and services will be seen?
The Infrastructure Fact Sheet on this website demonstrates the additional infrastructure spend that's possible under each of the proposed options. It also provides further detail on the type and value of works that that can be expected under each option.
Option 3 will enable Council to make a further investment in asset maintenance, as well as pursue other limited service improvements in accordance with community expectations. Customer service and communication have already been identified for further improvement.
How do I know that any extra rates I pay will be used for this purpose?
Where a Special Rate Variation is approved by IPART, the Council is issued with an Instrument of Approval, including minimum reporting requirements. Council is required to comply with these requirements, which may include projects or activities funded from the variation, outcomes achieved through the projects or activities and details of any changes to projects and activities compared to the Council's initial proposal. Council reports through both an Annual Report and an End of Term Report, the latter being due prior to the next local government elections in September 2016.
What is the difference between infrastructure renewal and maintenance?
Maintenance refers to work required to retain an asset as near as practical to its original condition, excluding rehabilitation or renewal. Maintenance does not increase the service potential of the asset or keep it in its original condition; it slows down deterioration and delays when rehabilitation or replacement is necessary.
Renewal refers to works to replace an existing asset or facilities with assets or facilities of equivalent capacity or performance capability.
What will be the impact on my rates?
The impact on average residential and business rates under each of the proposed options, as well as a detailed overview of impacts based on the rateable value of properties is provided in the Impact on Rates Fact Sheet on this website.
Will Council's fees and charges increase also?
Council generally determines fees and charges annually when it adopts its Operational Plan and Budget for the coming financial year. The Pricing Policy which guides the determination of fees and charges is not affected by an application for a Special Rate Variation.
How will pensioners be affected?
Pensioners will continue to receive the statutory pensioner rebates from Council and the State Government.
When will community consultation take place?
The period for community consultation on the three rating options will commence on Monday 13 October, 2014 and submissions will be received until Sunday 16 November 2014. There will be opportunities for the community to comment in person at Mosman Markets on Saturday 1 November and at a public meeting being held in the Council Chambers on Monday 27 October. Written submissions can be made through Council's website as well as through regular post. Feedback postcards are being delivered to all residents and ratepayers and there is an online survey available on this website.
Consultation materials ,as well as the full Community Engagement Strategy can be found on this website, as well as at Mosman Civic Centre and Mosman Library during regular opening hours.
Following community consultation Council will consider whether to proceed with a Special Rate Variation application at its meeting on 2 December 2014.
Has Mosman Council applied for Special Rate Variations in the past?
Mosman Council has successfully applied for Special Rate Variations in the past. An Infrastructure Levy representing a 5.99% increase in general revenue was introduced in 2008 and has been built into Council's rate base since then.
The (time-limited) Community Environmental Contract levy of 5% was originally introduced in 2000 and, following extension of the original approval period, is due to expire at the end of 2016-17. In order to meet the requirements of the Office of Local Government (OLG) and the Independent Pricing and Regulatory Tribunal (IPART), it will be necessary to end this levy early (i.e. in 2015-16) if a new application for a Special Rate Variation (i.e. under either Option 2 or Option 3) is approved.
What is the application process for a Special Rate Variation?
Applications for Special Rate Variations must follow a two-stage process.
Firstly, Council's proposing to make application must formally advise the Independent Pricing and Regulatory Tribunal (IPART) of their Intention to Lodge an Application for a Special Rate Variation by Friday 12 December 2014.
Secondly, Special Rate Variation applications must be formally lodged with IPART by Monday 16 February 2015.
All applications must comply with Guidelines published by the NSW Office of Local Government (OLG). Guidelines for Special Variations for 2015-16 were published on 7 October 2014 and can be accessed on the OLG website at www.olg.nsw.gov.au
Who makes the decision about whether a Special Rate Variation is approved?
The Independent Pricing and Regulatory Tribunal (IPART) makes the final decision on whether a proposed Special Rate Variation is approved, partially approved or rejected. This decision is final and IPART will not reassess an application after it has made its decision.
When would the Special Rate Variation become effective?
A Special Rate Variation would become effective from 1 July 2015.
Does a Special Rate Variation affect Council amalgamations?
A Special Rate Variation, or a decision to apply for a Special Rate Variation, is not directly linked to structural reform in local government. Mosman Council, however, will be better placed to meet the State Government's 'Fit for the Future' sustainability, effectiveness and efficiency criteria if a Special Rate Variation under either Option 2 or Option 3 is approved.
What will happen when the current period of community consultation is over?
At the conclusion of the current period of community consultation Council will consider whether to proceed with an application for a Special Rate Variation and whether to amend its Long Term Financial Plan and Delivery Program to reflect its decision. This will take place at the Council meeting scheduled for 2 December 2014. Council will then have until Friday 12 December to notify IPART of its intent to lodge a Special Rate Variation application.
If Council resolves to proceed with an application for a Special Rate Variation it will also need to exhibit a revised Long Term Financial Plan and Delivery Program which reflects this decision. These documents will need to be exhibited for at least 28 days.
Depending on the results of this public exhibition Council will again consider the matter at its meeting in February 2015, after which it may again determine to proceed with an application to IPART for a Special Rate Variation. Applications close on 16 February 2015 and IPART will announce its decisions on applications on 19 May 2015.