At Kempsey Shire Council, we lead and work with our community to build an inspired, connected Macleay Valley, by fostering sustainable growth, enhancing community services, and maintaining the high quality of life our residents cherish.
To achieve these goals, we rely on various funding mechanisms including rates.
Since 1977 Council rate revenue and certain other Council revenues have been regulated in NSW under an arrangement known as 'rate pegging'.
Each year the NSW Government, through its rate-pegging policy, determines the percentage figure by which councils can increase their general rate income.
If councils want to apply for a larger increase they need to make a Special Rate Variation application.
Did Council request a Special Rate Variation?
Yes. Council carried out a lengthy investigating into whether to apply for a Special Rate Variation.
At the April 2023 ordinary meeting, Councillors voted to:
- Conduct a detailed investigation into options for achieving financial sustainability. This will include a review of asset management plans, proposed capital programs, possible service level reductions, assessing capacity to pay and conducting community engagement; and
- Receive a report in November 2023 recommending whether a Special Rate Variation application should be submitted with the intention of implementing a rate increase from the 2024-25 financial year. This will include consideration of the viability of service reductions.
At the November Ordinary Meeting of Council, Councillors resolved to proceed with a Special Rate Variation application to address financial sustainability and a forecast $79 million deficit over the next 10 years largely due to the cost of maintaining essential community infrastructure.
Council submitted an application to IPART on Monday 5 February seeking approval for a cumulative increase of 42.7%, including the rate peg, over three years commencing July 2024. This will consist of 7.9% in year one and 15% in years two and three which compounds to 42.7% over three years.
Council faces significant financial challenges to meet community expectations over the next 10 years with current estimates forecasting a deficit totalling $79 million. This is despite a five year financial sustainability program focused on efficiencies and reduced costs.
Many factors have contributed to making Council’s financial position unsustainable, including rising costs and interest rates, NSW Government rate pegging failing to keep up with inflation and community expectation that assets like roads, bridges and community facilities should be maintained and improved on current levels.
What was the result of the application?
Following lengthy community engagement, the Independent Pricing and Regulatory Tribunal (IPART) gave Council a partial approval of our application, enabling Council to increase rates by 7.9% in 2024-25 and 15% in 2025-26.
This year Councillors have voted to increase property rates by 7.9%, with waste, water and sewer rates going up by an average of 3.8%.
Avoiding major loss
Every year Council produces a document called the Long Term Financial Plan which forecasts the organisation’s position in 10 years time.
For more than 5 years, Council has forecast a big shortfall over the next ten years and has tried through various financial sustainability initiatives to bring the budget back to surplus.
12 months ago, those forecasts changed for the worse. The recent high inflationary cost increases meant the 10-year predicted loss has become too big to be tackled through cost cutting alone for a number of reasons:
- The rising cost of materials, labour and contractors.
- The government’s ‘rate peg’ has not kept up with inflation.
- The overall poor condition of many Council assets - such as roads, buildings and pools – presents high costs for replacement and maintenance.
- An increasing community expectation around the quality of these assets.
- Limited alternative revenue opportunities
- The Federal Government slashing the distribution of tax income to local government
- The State Government shifting costs onto local government
That last point is worth repeating. In 2021-2022 alone the cost to NSW Councils of cost-shifting was $1.36 billion, which is $460.67 per ratepayer. This is the amount that councils must divert from the services and infrastructure we provide to the community in order to fund the unrecoverable cost services, programs and functions that are imposed from the State or Federal governments.
To put this another way, over the last five years, the cost of materials, wages, and maintaining or replacing Council’s $1.5 billion in assets has increased far more than the income Council can generate. At the same time the state government is making Council pay for more things while the Federal government cuts the amount of your tax income that Council receives.
You can view Council's submissions to the State Government(PDF, 249KB) and Federal Government(PDF, 273KB) inquiries into local government finances on this subject.
Why didn’t Council just cut costs?
We have and we will cut more, but it just isn’t possible to address the challenge in this way alone. Over the last four-years Council has implemented a financial sustainability strategy that ranged from increasing commercial income to lowering costs. The result is a saving of $7 million a year to date. An example is the Sale Yards which now generate income after previously costing Council money.
It’s easy to say that Council should focus on ‘roads, rates and rubbish,’ that we should stop applying for grants, to blame the cinema and the Slim Dusty Centre, or to say we should cut community grants and make sports clubs pay for sports fields. The details matter though. For example Council has no ongoing costs around Kempsey Cinema. All grant applications involve a detailed financial and business case review, and our community grants offer empower volunteers to do work we would otherwise have to pay for.
When the rate rise process began in July 2023 we were on track for a $103 million deficit in 10 years’ time. By the end of last year we’d found more savings to mean that projected deficit had been reduced to $79 million. Unfortunately that was still far too high and as such Council has made the rate rise.
What was the alternative to a rate rise?
Borrowing. Without a rate rise, Council faced borrowing a large amount in the coming years to fund the backlog of asset maintenance. Those loans would in turn mean the budget was in the red indefinitely.
We already have to borrow to help spread the cost of major infrastructure projects like the new landfill cell at the Waste Management Centre, and that costs significantly more following the rises in interest rates and construction costs.
More borrowing to cover maintenance costs raised a concern about ‘intergenerational equity’ which is a fancy way of saying it would mean the next generation would be paying for the benefits of Council services enjoyed by this generation. This rate rise is not about new activities. It is about being able to keep doing what we do to the same level.
Is Council $100 million in debt?
No. Council has around $50 million in loans which are used to spread costs as described above. But without raising rates now, as well as the cost-saving actions in our Financial Sustainability Program, we were going to be in a lot of debt in ten years’ time.
This isn’t a household budget. Good financial management of your Council requires loans for the right purposes, cost-cutting wherever possible and finding income sources to make up the difference.
We received permission from IPART for a 7.9% increase in 2024-25 and a 15% increase in 2025-26. As part of their decision IPART said they “consider the impact of our decision on ratepayers is reasonable. With the approved Special Variation, the council’s average residential rates will be in line with the average for neighbouring councils.”
In a year’s time Councillors will consider that second rate rise. In the meantime staff will work hard to try and find a way to avoid it. We’ll be looking to the community for input as well.