Like many other organisations, Willoughby City Council has recently been impacted by a range of financial issues, including COVID-19 revenue losses, inflation and high building material and equipment costs.
The good news is that, with prudent management, the Council is weathering these financial storms and will be moving into 2022/23 in a healthy budget position.
Below is a summary explaining how the Council is achieving this.
COVID-19
Willoughby City Council has not been immune to the financial disruption caused by COVID-19.
Through publicly available quarterly budget reviews, Council has been reporting that – across the financial years 2019/20, 2020/21 and 2021/22 – it was expecting to see a $21m decline in revenue due to COVID-19 (including the 2021/22 forecast decline of $5m).
Unfortunately, misinformation has been circulating in the community that this $21m figure represents a budget deficit. This is not the case.
In fact, as a result of prudent budget management, the Council recorded operating surpluses for the 2019/20 and 2020/21 financial years and is forecasting to record relatively small operating deficits in 2021/22 and 2022/23.
The Council will continue to work on strategies to reduce or remove these forecast deficits.
The Council is then forecasting to return to a surplus position in 2023/24.
Working capital
All councils are required to maintain adequate levels of unrestricted working capital (effectively easily accessible cash) to ensure they can pay ongoing expenses and be able to withstand unexpected shocks or stresses.
The Council is on-track to finishing 2021/22 with a $14.8m unrestricted working capital position, which is well in exceedance of NSW Office of Local Government benchmarks.
This outcome demonstrates an extremely strong capacity to fund our obligations.
Separately, the Council is holding some $161.5m in cash reserves which have been – either voluntarily by the Council or by contract or law – set aside to pay for specific projects.
Major works
Despite the challenging financial conditions, the Council is continuing to invest in significant new capital works, and asset renewal and upgrades.
Our Long-Term Financial Plan published in early May states the Council will spend $291m on infrastructure assets over the next ten years, including $116m on new works and $175m on renewals and upgrades.
Major identified projects include the new , , some $11m in public domain streetscape renewals and the .
Debt
The Council has a strong balance sheet with $1.95 billion of total assets and $1.87 billion in net assets (that is assets less liabilities).
Our borrowing levels are conservative and relate solely to The Concourse facility.
This means that the percentage of Council revenue needed to pay for debt is well below the NSW Government benchmarks.
Revenue and savings measures
As mentioned above, the Council is taking prudent financial measures to manage its budget as it heads into 2022/23.
For instance, the Council is seeking a 1.3% additional special rate revenue variation, on top of the wholly inadequate 0.8% revenue increase permitted by the NSW Government.
This increase will allow the Council to maintain its unrestricted working capital in 2022/23, and then increase it in subsequent years.
It will also mean the Council will avoid having to consider using other internal reserves, which have been set aside for specific purposes, for working capital.
The NSW Government announced the additional special rate variation process in March 2022, after acknowledging in a circular that the government’s proposed revenue increase was “at a far lower rate than councils had forecast” and therefore would cause councils financial distress.
Importantly, even if the Council is successful with its additional special variation, overall rate revenue will fall by 5.2% (a total of $1.9 million) due to the cessation of the Infrastructure Levy.
This will result in average residential rates per property decreasing by $38 in 2022/23.
Separately, the Council is continuing to examine responsible savings measures.
