RRC audit 'is positive'
THE recent results of the credit review undertaken by the Queensland Treasury Corporation (QTC) of the financial management of the Rockhampton Regional Council has provided invaluable information to assist the council maintain its responsible approach to good financial management.
An earlier assessment by the Department of Local Government and Planning of the council's financial management in June last year stated that it is in a strong financial position. The more recent and extremely rigorous assessment by QTC provided a rating of moderate with a neutral outlook.
QTC has determined that the council has an adequate capacity to meets it financial commitment in the short to medium term, and an acceptable capacity in the long-term. The neutral outlook - two year horizon - indicates that there are no foreseeable events that would have a direct impact on the council's capacity to meet its financial commitments.
The review highlights strengths and while I am the first to admit we haven't always got everything right and that we aren't perfect, this report also identifies our weaknesses.
One of the greatest impacts to the organisation's financial position, which was beyond our control, was the January 2011 floods where we provided an extra month to pay rates and provided a range of free services to clean up and dump flood damaged material. At that time, the total impact on the budget was estimated at $3 million. In addition the decision to bring in a low rate increase in 2011/12 in an effort to keep rates manageable and affordable for ratepayers has also had a slightly negative impact on the rating.
The council was not able to secure additional financial assistance from the Queensland Government when all councils were asked to make submissions for their costs associated with amalgamation. According to the Queensland Government we were too strong financially to receive assistance while a neighbouring council received a $4 million package.
The most significant factors contributing positively to the QTC rating are:
Consistent investment in the council's asset base - infrastructure has been generally financed in an appropriate and prudent manner ensuring the cost is borne by both users and ratepayers throughout the life of the assets.
The council is forecasting a return to surplus in 2015. A return to surplus would have occurred earlier if it did not have the impact of the flood and make the decision to keep rate rises low in the 2011/12 current budget.
The council has a high proportion of its own source revenue - The majority of revenue is from sources it can directly control and it has a low reliance on external funding sources, such as grants and subsidies.
Unlike the state and commonwealth governments, Rockhampton Regional Council's revenues are not volatile and are not as highly correlated to economic conditions.
A factor which had a slightly negative impact on the QTC rating was the uncertainty surrounding the impact of the carbon tax and unclear advice from the Federal Government. The council operates landfills and a major water and waste water business which are likely to attract significant extra costs from the tax. This tax can only be passed on to ratepayers possibly as a $60 levy per rates notice as the council is not able to absorb this significant cost.
The council has adopted a responsible model that assumes a general rate increase of 1% above indexation and growth. It must be remembered that this is a projection and the final rate increases are made as a part of the annual budget.
The council has had to manage its capital program without the State Government subsidies (40% for water and sewerage) hence a reliance on debt. This debt is managed over the life of the forecast.
Another slightly negative factor on the QTC rating resulted from employee expenses increasing over the historical period, due mainly to a wage equalisation process and the current EBA agreement. The annual increase in wages and salaries has been 4.4 % per annum even though the increase in staff numbers remains static.
A matter of concern reported by the QTC included competing localised priorities leading to conflict with elected representatives as well as the former mayor of Livingstone Shire as a current elected representative of the council pursuing the issue of de-amalgamation.
These matters reduce public confidence and unfortunately have been a key issue raised by Queensland Treasury Corporation in their review.
It should be remembered that this council has taken the four former councils, two rated moderate, one rated weak and the other very weak into one "moderate" rated organisation. In this context the review needs to be considered as a positive result and a good independent health check for our long-term financial plan.