Docstoc

Forward Estimates

Document Sample
Forward Estimates Powered By Docstoc
					Forward Estimates




        19
Budget 2009/10




Introduction

The strategic fundamentals described in this document provide the basis for the
forward estimates and Council’s long term financial plan. They are prepared
pursuant to the requirements of the Local Government Act 1999 and the Local
Government (Financial Management) Regulations 1999.

Key assumptions made in compiling these forward estimates and Council’s long term
financial plan are discussed in this section, along with summary projections and key
financial indicators.

Detailed information is provided from page 159 including long term financial
statements.


Forward Capital Expenditure Estimates

Key assumptions made in relation to capital budget estimates include the following:

     •   $22.5 million (in present value terms) is committed to Brown Hill / Keswick
         Creek drainage works over a 10 year period from the 2009/10 financial year,
         to be funded from the loan program.

     •   Council commits to rate funded capital works totalling $70.6 million over a
         10 year period commencing in 2009/10, to fund road and footpath works
         identified in the infrastructure and asset management plans of the Council.

     •   Council commits to rate funded capital works for road construction and other
         capital works, totalling $1.36 million in the 2010/11 budget, and that this
         level of funding be continued on an indexed basis into the future.

     •   Council has rate funded local drainage commitments of $500,000 from the
         2010/11 financial year, with indexed increases annually therafter.

     •   Loan funded capital drainage works of $3.24 million in the 2009/10 budget,
         and $1.92 million indexed annually thereafter.

     •   Roads to recovery funding, currently $385,905 per annum, will be continued
         for the next 10 years.

     •   Rate funded capital expenditure on Council owned buildings will be $1.235
         million in the 2009/10 budget, and $1.59 million indexed per annum
         thereafter.

     •   Asset sales of $350,000, $1.26 million and $8.0 million will occur in the
         2009/10, 2010/11 and 2014/15 financial years respectively, and these
         proceeds, along with past sales, will be used to fund fully community hub
         developments that are planned.

     •   Rate funded capital budget for the replacement of plant, furniture and
         equipment will be $1.186 million in 2009/10, and will be increased to match
         estimated depreciation levels into the future.




                                          20
Budget 2009/10




Expenditure projections for 2009/10 and each of the next three years based on these
assumptions are as follows:

                                   2009/10       2010/11      2011/12      2012/13

    Rate Funded Infrastructure    6,469,256     6,280,091    7,098,670    7,948,602
    Rate Funded Local
                                   200,000       500,000      627,000      759,715
    Drainage
    Loan - Local Drainage         3,240,000     1,920,000    1,987,200    2,056,752

    Loan - Brownhill / Keswick           0      2,300,000    2,587,500    2,678,063

    Grants - R2R and ULRG          885,905       916,912      935,024      953,771

    Hub Developments              4,000,000     3,000,000           0            0

    Building Other                1,235,000     1,588,725    1,644,330    1,701,882
    Plant, Furniture &
                                  1,185,800     1,227,303    1,270,259    1,314,718
    Equipment
    Library Capital                307,988       318,768      329,924      341,472

    Total                        17,523,949    18,051,798   16,479,908   17,754,973



Forward Revenue Estimates

Forward revenue estimates have been extrapolated from an assessment of what has
occurred since 1998/99, and what is expected to arise into the future. Key
assumptions include:

     •   Council is prepared to increase rate revenue by 4.5 per cent plus 1.4 per
         cent growth in 2009/10, 4.9 per cent plus 1.0 per cent growth in 2010/11,
         and 5.6 per cent plus 1.4 per cent growth annually thereafter.

     •   Rate equivalent payments by Adelaide Airport Limited will increase by 4.5
         per cent plus 3.0 per cent growth in 2009/10, 4.9 per cent plus 3.0 per cent
         in 2010/11, and 5.6 per cent plus 3.0 per cent growth annually thereafter.

     •   Statutory charges, which include parking, animal management and
         Development Act income, will increase by 5.9 per cent each year.

     •   User charges, which include resident charges at St Martins, property related
         income and transfer station royalties, will increase by 3.75 per cent each
         year.

     •   Grant income will increase by 3.5 per cent, after adjusting for roads to
         recovery movements. It is assumed that roads to recovery funding by the
         commonwealth government will be continued for the next 10 years.

     •   Other income, including reimbursements and investment income, will
         increase by 3.2 per cent each year from 2011/12.

Forward revenue estimates are as follows:




                                          21
Budget 2009/10




                                 2009/10           2010/11          2011/12          2012/13

   Rates                      32,920,000      34,878,411          37,347,244      39,990,832

   Rate Equivalents            2,780,000          3,003,707        3,267,072       3,553,528

   Statutory Charges           1,639,500          1,736,758        1,839,812       1,949,008

   User Charges                2,975,952          3,087,428        3,203,244       3,323,580

   Grant & Subsidies           7,128,321          7,377,812        7,622,056       7,874,849

   Other Income                1,187,892           877,113          905,517          934,869

   Total                      48,631,665      50,961,228          54,184,945      57,626,666



Forward Operational Expenditure Estimates
Operational expenditure increases have been extrapolated from an assessment of
what has occurred since 1998/99, and what is expected to arise into the future. Key
assumptions include:

     •     Employee cost increases of 6.2 per cent each year, which includes an
           allowance for new staff to deliver on projected (and increased) capital and
           maintenance works programs.

     •     Contract and material expenditure increases of 4.4 per cent each year in
           support of Council’s maintenance works program, including building and
           infrastructure maintenance.

     •     Depreciation expense increases of 5.8 to 7.0 per cent, after allowing for new
           assets, and other expenses by 4.8 per cent each year. This includes an
           allowance for an increase in waste to landfill charges.

     •     Finance charges largely involve interest repayments on loans taken, and
           are estimated on the basis of loans projected to be taken using a borrowing
           rates ranging between 4.25 and 6.25 per cent.

Forward operational expenditure estimates are as follows:

                               2009/10       2010/11           2011/12         2012/13

     Employee Costs         20,624,861     21,898,303     23,251,161      24,688,428
     Contractual
                             5,554,100      5,793,025         6,042,345    6,302,518
     Services
     Materials                 861,500       904,575           949,804         997,294

     Finance Charges         1,212,414      1,095,439         1,010,686    1,098,706

     Depreciation            7,640,059      8,086,911         8,631,907    9,209,352

     Other Expenses          9,080,277      9,508,817         9,964,989   10,444,624

     Total                  44,973,211     47,287,070     49,850,892      52,740,921




                                             22
Budget 2009/10




Forward Loan Estimates

A loan program of $44.43 million is projected in future dollar terms over the next 10
years, as follows:

                  Local Drainage                                          $23.15 m
                  Brown Hill Keswick Creek                                 25.72
                  Works Overhead                                            (4.44)
                                                                         ------------
                  Total                                                   $44.43m
                                                                         ------------

This comprises the following:

                                 Brownhill
      Financial      Local        Keswick       Community       Works             Total
        Year        Drainage     Drainage           Hubs       Overhead           Loans
      2009/10       3,240,000             0              0      -294,545         2,945,455

      2010/11       1,920,000     2,300,000              0      -383,636         3,836,364

      2011/12       1,987,200     2,587,500              0      -415,882         4,158,818

      2012/13       2,056,752     2,678,063              0      -430,438         4,304,377

      2013/14       2,128,738     2,771,795              0      -445,503         4,455,030

      2014/15       2,203,244     2,868,808              0      -461,096         4,610,956

      2015/16       2,280,358     2,969,216              0      -477,234         4,772,340

      2016/17       2,360,170     3,073,138              0      -493,937         4,939,371

      2017/18       2,442,776     3,180,698              0      -511,225         5,112,249

      2018/19       2,528,273     3,292,023              0      -529,118         5,291,178

        Total      23,147,512    25,721,240              0     -4,442,614       44,426,138


It is anticipated that cash reserves of the Council will be used in lieu of loans being
taken in the 2009/10 and 2010/11 financial years. The indebtedness trend of the
Council is projected on the basis of this information as follows:


         $m
          50


           40


           30


           20


           10


            0
            87


                     91


                            95


                                    99


                                           03


                                                   07


                                                          11


                                                                  15


                                                                           19


                                                                                    23
          19


                   19


                          19


                                  19


                                         20


                                                 20


                                                        20


                                                                20


                                                                         20


                                                                                  20




                                                                       Year Ended 30 June


                                                 23
Budget 2009/10




Council’s indebtedness is projected to peak at $32.16 million under this scenario,
then decline thereafter. This scenario will obviously change if loans taken from
2009/10 are other than those projected.


Loan Repayments
Loan repayments to service projected loans, based on borrowing rates of 4.25 per
cent until 2012/13, 5.25 per cent thereafter until 2015/16, and 6.25 per cent
thereafter, will be as follows:

                                Projected                Increase/
                      Year     Repayments               (Decrease)


                     2008/09          2,658,375           (347,523)
                     2009/10          2,485,903           (172,473)
                     2010/11          2,280,705           (205,198)
                     2011/12          2,219,674            (61,031)
                     2012/13          2,597,469             377,795
                     2013/14          2,988,487             391,018
                     2014/15          3,393,191             404,704
                     2015/16          3,841,168             447,977
                     2016/17          4,197,576             356,407
                     2017/18          4,195,023              (2,553)
                     2018/19          3,969,347           (225,676)


Council’s current and projected loan program will impact loan repayments most in
the 2012/13 to 2015/16 financial years, but at 0.9 per cent of rates this is more than
manageable within the framework of the 10 year financial plan.

Loan repayments as a percentage of rates is the benchmark that is best used to
assess a Council’s relative indebtedness. The projected percentages for West
Torrens based on the projected loan program are as follows:


                                         Loans %
                               Year      of Rates


                             2007/08             10.3
                             2008/09              8.6
                             2009/10              7.6
                             2010/11              6.5
                             2011/12              5.9
                             2012/13              6.5
                             2013/14              7.0
                             2014/15              7.4
                             2015/16              7.8
                             2016/17              8.0
                             2017/18              7.5
                             2018/19              6.6


                                            24
Budget 2009/10




This can be compared with percentages across metropolitan Councils in the 2008/09
financial year, as follows:

                    Council                       %       Ratio
                    Playford                     24.1      2.8
                    Gawler                       21.3      2.5
                    Holdfast Bay                 12.6      1.5
                    Norwood, Payneham            11.3      1.3
                    Onkaparinga                  10.1      1.2
                    Salisbury                    9.9       1.2
                    West Torrens                  8.6      1.0
                    Tea Tree Gully                8.2      1.0
                    Unley                         8.1      1.0
                    Charles Sturt                 8.1      1.0
                    Pt Adelaide Enfield           6.1      0.7
                    Mitcham                       5.9      0.7
                    Walkerville                  4.9       0.6
                    Adelaide Hills                2.4      0.3
                    Marion                        2.4      0.3
                    Prospect                      2.3      0.3
                    Campbelltown                  1.2      0.1
                    Burnside                      0.0      0.0
                    Average                      8.2       1.0
                    Source: Survey - City of Salisbury


Key Financial Indicators

The forward financial estimates of the Council have provided the basis of key
financial indicator projections in relation to Council’s:

   •   Operating result;
   •   Sustainability;
   •   Loan servicing capacity;
   •   Liquidity.


(a) Operating Result
    An operating surplus represents the extent to which operating income exceeds
    operating expenditure, including depreciation, and is projected each year, as
    follows:

                                             Operating
             Financial        Operating       Surplus
               Year            Surplus         Ratio
                 2008/09        4,167,958         13.4%
                 2009/10        3,658,454         11.1%




                                            25
Budget 2009/10




                 2010/11       3,674,158         10.5%
                 2011/12       4,334,053         11.6%
                 2012/13       4,885,746         12.2%
                 2013/14       5,516,716         12.9%
                 2014/15       6,248,361         13.6%
                 2015/16       6,934,987         14.1%
                 2016/17       7,722,078         14.7%
                 2017/18       8,601,254         15.3%
                 2018/19       9,514,972         15.8%



    A strong ongoing operating result is a positive indicator of financial viability for
    the City of West Torrens. LGA Information Paper 12 Targets for Local
    Government Financial Indicators (March 2007) suggests an operating break
    even position, or better, over any five year period and an operating surplus ratio
    of between zero and 15 per cent over any five year period.


(b) Sustainability

    The asset sustainability ratio shows the extent to which capital expenditure on
    the renewal and replacement of assets matches the rate at which these assets
    are used or consumed, with the amount spent divided by the total depreciation
    expense. Achieving a break even result of 100 per cent or better demonstrates
    that the cost of consumption of assets in any one year is being met by current
    rates and current ratepayers.
                                                               Asset
                 Financial     Capital     Depreciation     Sustainability
                   Year      Expenditure    Expense            Ratio

                 2005/06      8,457,000         8,279,000      102.0%
                 2006/07      7,804,000         7,419,000      105.0%
                 2007/08      8,027,172         7,509,582      107.0%
                 2008/09      8,332,570         7,686,873      108.4%
                 2009/10      8,777,249         7,640,059      114.9%
                 2010/11      9,206,578         8,086,911      113.8%
                 2011/12      9,968,795         8,631,907      115.5%
                 2012/13     10,759,076         9,209,352      116.8%
                 2013/14     11,578,467         9,821,313      117.9%
                 2014/15     12,442,030     10,469,997         118.8%
                 2015/16     13,322,932     11,237,755         118.6%
                 2016/17     14,236,319     12,049,894         118.1%
                 2017/18     15,183,404     12,909,189         117.6%
                 2018/19     16,165,443     13,818,594         117.0%




                                           26
Budget 2009/10




    LGA Information Paper 12 suggests an asset sustainability ratio greater than 90
    per cent but less than 110 per cent over a rolling 3 year period. This was
    achieved in 2005/06 to 2007/08 period, and is projected to be exceeded albeit
    by a small margin after the 2008/09 financial year.

    The LGA paper also suggests a similar ratio range as being reasonable if
    measured against capital expenditure outlays in Infrastructure and Asset
    Management Plans (IAMP’s), rather then depreciation. Forward capital
    estimates are matched over the 10 year forecast period to the IAMP’s recently
    adopted by Council, as shown in the table that follows. The amounts in the table
    are not indexed.

                                            IAMP       10 Year
           Program                        Amount        Plan       % Met
                                          ($'000's)   ($'000's)
           Roads Program

                 Reseal / Maintenance      26.482      26.482       100
                 Reconstruction Renewal    10.228      10.228       100
                 Kerb & Gutter             16.474      16.474       100

           Footpath Program

                 Reconstruction Renewal     3.772       3.772       100
                 Construction               3.739       3.739       100

           Building Program
                                          12.169 to                 90 to
                 Renewal Expenditure                   15.759
                                           17.551                   100

    Additional amounts are included in the 10 year financial plan to cover drainage
    and other infrastructure renewal works, along with new capital works. There is
    little need for renewal expenditure on stormwater assets over the next 10 years,
    although there is a requirement for capital expenditure to build new and upgrade
    existing stormwater infrastructure. More detailed information on this expenditure
    will be compiled after the completion of the Urban Water Catchment
    Management Plan, anticipated in early 2010/11. More detailed work is also
    planned for other Council assets, including those covered by the recreation and
    culture program.


(c) Loan Servicing Capacity

    To meet a structured long term asset renewal and replacement program,
    Council will need to commit to a loan program that will result in loan liabilities
    increasing from $15.72 million to $32.16 million - a significant but manageable
    increase as demonstrated below. Borrowing interest rates ranging from 4.25 to
    6.25 per cent have been used, along with a 15 year borrowing term.

    Loan repayments as a percentage of rates is the benchmark that is best used to
    assess a Council’s relative indebtedness. The projected percentages for West
    Torrens based on the projected loan program are as follows:



                                          27
Budget 2009/10




                                      Projected
                       Financial        Loan       Loan % of
                         Year        Repayments      Rates
                           2007/08    3,005,899      10.3
                           2008/09    2,658,375       8.6
                           2009/10    2,485,903       7.6
                           2010/11    2,280,705       6.5
                           2011/12    2,219,674       5.9
                           2012/13    2,597,469       6.5
                           2013/14    2,988,487       7.0
                           2014/15    3,393,191       7.4
                           2015/16    3,841,168       7.8
                           2016/17    4,197,576       8.0
                           2017/18    4,195,023       7.5
                           2018/19    3,969,347       6.6

    A percentage between zero and 25 per cent would normally be considered as
    being reasonable. Metropolitan Councils in South Australia ranged from 1.5 per
    cent to 25.2 per cent in 2007/08.


(d) Liquidity

    Based on the assumptions used, a relatively balanced budget is achieved in
    each year for the next 10 years in terms of the projected cash flow of the
    Council, net of cash reserves, as follows:

                                                               Surplus/
             Financial          EOY Cash           Net
                                                               (Deficit)
               Year              Estimate    Reserves
              2009/10            8,235,919   8,223,990           11,929
                 2010/11         3,574,647   3,561,806           12,840
                 2011/12         3,603,107   3,399,344         203,763
                 2012/13         4,053,009   3,848,275         204,733
                 2013/14         4,377,279   4,309,295           67,984
                 2014/15         4,604,221   4,783,137      (178,916)
                 2015/16         4,835,872   5,270,582      (434,710)
                 2016/17         5,220,981   5,772,457      (551,476)
                 2017/18         6,217,692   6,289,642         (71,951)
                 2018/19         8,161,112   6,823,067      1,338,045




                                              28

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:58
posted:4/22/2010
language:English
pages:10
Description: Forward Estimates