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Response to PSC Proposal to Delegate

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Response to PSC Proposal to Delegate Introduction: Dungog Shire Councils first preference is to stand alone. Council has previously been part of merger proposals with Gloucester and Maitland Councils. The Minister for Local Government upon receipt of reports from the Delegate and Boundaries Commission in relation to the Dungog – Gloucester accepted the recommendations that this proposal not proceed. In relation to the Dungog – Maitland merger the Minister for Local Government is in receipt of the Delegates report and the Boundaries Commission report which endorsed the merger of Dungog and Maitland Councils, however the Minister has deferred a decision in relation to this matter to enable the Port Stephens Council merger proposal to merge with Dungog Shire Council to be considered. In response to the merger proposal document as submitted by Port Stephens Council and the hearings conducted by yourself as part of the merger inquiry process Dungog Shire Council will respond to the heads of consideration and also to some of the comments that are within the merger proposal document or made by members of the public at the hearings. Heads of Consideration Sec 263(3)(a) Financial advantages or disadvantages Background Comments: The total estimated output of the Dungog Shires economy is estimated at $563Mil., from a local economy perspective the latest figures (2015) identify that the gross revenue that is generated by businesses and organisations in Dungog Shire is agriculture accounting for 16.6% or $93.266Mil1. The next industry sector is rental, hiring & real estate services at $78.6Mil or 14%. What the statistics don’t tell us is the one resource that is exported daily from the Shire and that is the value of water. With 1618km2 of the Shire within a drinking water catchment, the drinking water catchment limitations impede economic development across a number of spheres for example agriculture as many intensification activities are problematic from a developer perspective. The Dungog LGA which was involved in the now defunct Tillegra Dam saga for years, is witnessing a very slow recovery as some 6,000Ha was effectively sterilised through numerous property acquisitions by Hunter Water. There has been no major agricultural activity or investment occurring on much of the land since November 2006 and in some circumstances much earlier. Hunter Water in late 2015 sold their land holdings to six buyers, there is hope that investment in the lands moving forward will benefit the local economy into the future. 1 REMPLAN Economic Profile Dungog Shire. www.economicprofile.com.au/Dungog (output Dungog) 1 | Page Business case comments: The business case analysis as undertaken by MorrisonLow on behalf of Port Stephens Council still shows that this merger will come at a cost to the communities of both LGA’s despite government financial support. The analysis identifies that the Net Present Value using a discount rate of 9.5% results in a negative NPV of $2.4Mil over 9 years and extrapolated out to 20 years the figure is $12.2Mil, which Port Stephens emphasises is less than both of the other two merger proposals of Dungog/Maitland, Port Stephens/Newcastle. Irrespective of the financial modelling utilised it is only as good as the foundation stones upon which it is developed, whilst the utilisation of Councils annual financial reports and 10 year financial plans provide the basis upon which to build the model. The reality is that within the local government industry various elements can influence future financial modelling. In the cases utilised Dungog Shire Council has now a series of changes that need to be made to our forward financial projections particularly in relation to our financial position as it is continuing to evolve in light of “un-funded natural disaster renewal and recovery arrangements” with no decisions in relation to several elements of the Councils claim for which monies have been expended. Secondly the recent financial grants $10Mil committed to the Dungog LGA for the regional road network, which in both instances are not included in the financial modelling of this Council’s operations. The business modelling as provided by the NSW Government on 21 June 2016 that has been undertaken by KPMG highlights a net financial saving of $17Mil over 20 years. The projected service savings are predominantly related to staff reductions $4.1Mil, and redeployment of staff into other service functions $12.8Mil. However as stated previously without the right foundations upon which to base the model, the Council has not formed a view as to the accuracy or reliability of the business modelling undertaken by KPMG. The MorrisonLow model like the KPMG model has not been through a rigorous review by Council officers, we provided input into the Dungog/Maitland merger but have not undertaken any desktop assessment this time around with MorrisonLow. The assumptions are based upon their work and the body of evidence in respect of merger costs with input from Port Stephens Council only. A ratepayer perspective: The Port Stephens Council merger proposal for the majority of Dungog Shire Council ratepayers is the most affordable outcome if you are comparing Dungog to Maitland & Port Stephens Council. However within either comparison it is evident that the business rating category in Dungog Shire is structured well below that of our neighbouring Councils and the most significant financial impact would be within the business community of Dungog Shire. A copy of the comparisons between Dungog/Port Stephens & Maitland Councils 2015/2016 rating structures outlines the impact based upon relevant land value ranges of the various rating categories and sub-categories of the Dungog LGA. This was included in the presentation handed to you on 8th June 2016 and is detailed below: 2 | Page Rating Comparative Dungog/Port Stephens/Maitland $1,758.78 Business Dungog LV $90,000 $2,189.67 $798.58 $2,715.65 Farmland LV $500,000 $2,040.50 $1,728.65 $2,086.95 Maitland Rural Res LV $325,000 $1,448.48 Port Stephens $1,149.90 Dungog $657.86 Village Res $619.64 LV $80,000 $454.55 $829.88 Residential Dungog LV $90,000 $653.47 $603.53 $0.00 $500.00 $1,000.00 $1,500.00 $2,000.00 $2,500.00 $3,000.00 As mentioned at the hearing in Dungog depending upon what rating category and the land value of the property the impact will differ, however if the new entity could equalise the rating structures by applying the current Port Stephens rate structure to the land values of Dungog Shire Council this results in an increase of 28.95% to the total yield of Dungog Shire Council. This would yield an additional $1.5Mil however it is not sufficient to fund the required asset renewals and address the infrastructure backlog of Dungog Shire Council with an additional $3.4Mil still required annually to address the asset renewals. Obviously the NSW Government is looking to assess the future financial impact of mergers upon communities which is the basis behind the four year rate-peg moratorium. However, the future impact within the Dungog LGA in relation to the residential categories needs to be carefully assessed. The Office of Local Government Comparative performance indicators 2013/14 reveal that the average residential rate in Dungog Shire is $745.00 whereas Port Stephens is $908.56 and Maitlands’ $980.39. However there is a need to analyse more closely the residential rating composition for Dungog Shire amongst the various residential sub-categories. Council has previously argued with the OLG as regards this misinformation, the largest residential assessment pool for Dungog Shire Council is the rural residential/lifestyle blocks the following chart reflects the growth in rates assessments. 3 | Page Residential Rates Assessment No's Sub Categories 2,000 1,800 1,600 1,400 1,200 Numbers Rural Residential 1,000 Dungog Res 800 600 C/Town Res Assessment 400 Village Res 200 ‐ 2001/02 2002/03 2005/06 2009/10 2012/13 2014/15 2015/16 Financial Years The following graph represents the Councils position in terms of land values across the residential rating category. Land Values Residential Category $600,000,000 $500,000,000 Rural Residential $400,000,000 Dungog $300,000,000 Clarence Town $200,000,000 Village $100,000,000 $0 As a consequence of this enormous gap between rural residential and the other 3 residential sub-categories the overall residential rates yield is significant as regards the level of distortion. With the urban areas rates ranging between $108 to $200 below the reported average, whereas the average rural residential rate is $264 above the average residential rate reported for Dungog Shire Council. No. Calculated Rate Rate Sub category Land Value Range Average LV Assessments on average LV Residential Village $31,900 to $489,000 348 $117,920 $549.54 Residential Clarence Town $34,300 to $284,000 334 $111,069 $632.77 Residential Dungog $20,075 to $625,000 941 $97,515 $642.47 Residential (Rural) $4,850 to $1,335,000 1,863 $271,500 $1,014.22 4 | Page As previously mentioned in the event of a merger there will need to be a serious review of the service levels that the new entity would be proposing and an appropriate revenue strategy developed in relation to such which would include a dialogue with the community. The service levels will take time to resolve as will the engagement with the community on service level expectations and their willingness to pay for higher service levels than previously afforded. With the rural economy playing such a major role within the Dungog LGA decisions will also have to take into consideration the impacts rate increases will have on rural communities.
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