This page contains reports that are relevant to the City and reports from industry and other areas to stimulate thinking about the future of the City.

Shoalhaven and NSW reports

  • AEC report on the financial situation of the City

    A summary of the reports is:-

  • Shoalhaven City Council is facing significant financial challenges, including historical deficits and growing debt, which stem from a combination of operational, strategic, and external factors. These issues have impacted the Council's ability to maintain financial and infrastructure capital over the long term.

    Here are the top 10 reasons the Shoalhaven City Council is in debt and what caused these issues, based on the provided sources:

    1. Structural Operating Deficit in the General Fund:

      • The General Fund, which covers most Council services not funded by water or sewerage revenue, has consistently produced a net operating deficit for the past eight years.

      • This indicates a structural deficit where recurrent revenue is unable to fund recurrent expenditure, estimated to be between $25 million and $35 million annually. Forecasts indicate this deficit will continue to deteriorate.

    2. Growing Gap Between Operating Revenue and Expenditure:

      • The growth in the cost base of current services has outpaced the growth in revenue.

      • This gap is caused by increasing service demand, higher levels of service provision, new and upgraded assets adding to operational costs and depreciation, inadequate historical rate pegs (e.g., 0.7% rate peg vs. 5.2% CPI in 2022/23), increased regulatory responsibilities, and cost-shifting from other levels of government.

    3. Lower Rating Revenue Compared to Neighbouring Councils:

      • Shoalhaven City Council has a lower average rate for residential and business categories compared to neighbouring councils, despite offering a comparable lifestyle and services.

      • This lower rate base places additional financial pressure on the Council, especially given its extensive road network and coastline to maintain.

    4. Increased Reliance on Borrowings (Debt):

      • The Council has increased its use of borrowings in recent financial years, which has led to higher interest expenses and increased repayment requirements.

      • While some borrowings were intentionally taken at low interest rates for capital works, a substantial portion has been used for new or upgraded assets that have not generated sufficient offsetting income, thus deteriorating the Council's operating position, particularly in the General Fund. Total borrowings reached $198.3 million by June 2023.

    5. Insufficient Cash Generation and Deterioration of Unrestricted Cash:

      • The Council is not generating sufficient cash from its operations.

      • This has led to a significant deterioration of the unrestricted cash balance, which was only $2.6 million at the end of 2021/22, deemed insufficient for unplanned events.

      • Cash management has required delaying approved capital works projects to fund carry-forward projects, indicating an unsustainable practice. Under the Base Case scenario, unrestricted cash is forecast to be negative, which is not permissible.

    6. Underinvestment in Asset Renewals and Growing Backlog:

      • The Council has not invested sufficiently in asset renewals to meet the Office of Local Government's 100% target for the building and infrastructure renewals ratio. The actual average renewal ratio is 50% in the Base Case scenario.

      • This underinvestment has resulted in a deteriorating infrastructure backlog ratio, which was 4.2% in 2021/22, well above the 2.0% benchmark. This deferral of renewals leads to assets deteriorating past optimal repair periods, requiring significantly greater and more costly investment in the future.

    7. Immature Asset Management Practices:

      • There is low confidence in reported asset backlogs, condition, and maintenance targets due to the low maturity of asset management across the Council.

      • Condition assessments are often qualitative opinions rather than quantitative data, and required maintenance is based on historical expenditure, not actual needs.

      • Maintenance is heavily reactive rather than planned, which is significantly more expensive (up to 3 to 5 times the cost of planned maintenance).

    8. Lack of Integrated Planning and Ineffective Budgeting Processes:

      • There is a lack of integration in the development of the Delivery Program, Operational Plan, Annual Budget, and Long Term Financial Plan.

      • This leads to significant variances against the budget and insufficient expenditure budgets. The absence of a prioritized and funded long-term capital works program was a major constraint in the review.

      • The budget development process is largely historical rather than activity-based, hindering effective financial control.

    9. Increased Operating Costs from New and Upgraded Assets:

      • While the Council has invested $821.5 million in capital expenditure over eight years, including significant investment in new and upgraded assets (like $43.1 million in parks and recreation areas over five years), this has increased the annual cost of ownership (operating costs, interest, maintenance, and depreciation).

      • These new assets often do not generate sufficient additional revenue to offset their increased operational and depreciation costs, contributing to the underlying operating deficit.

    10. Impact of Consecutive Disasters and External Shocks:

      • Over the past five years, the Council has faced consecutive disasters, including the COVID-19 pandemic, bushfires, and floodings.

      • These events significantly impacted normal business operations, including asset maintenance and renewal programs, and affected the availability of cash. The provision of subsidies and waivers and restricted operations during COVID-19 particularly impacted the revenue base and unrestricted cash position by approximately $14.6 million.Stimulating reading on what could be