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Building better revenue strategy


Shared knowledge from merged council experiences

August 2019

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All councils can benefit from the work that merged councils have been doing so that the annual revenue policy is presented to councillors with well-supported analysis and alignment that supports Council’s objectives.

 

A comprehensively developed and well-presented revenue strategy can help all stakeholders - councillors, staff, ratepayers and community - better understand the issues involved and the impact of various trade-off decisions that have to be made. A well-considered process that supports fulsome consideration and transparent decision-making will also demonstrate Council’s compliance with government and community expectations for fair process and good governance.

In order to set a new rating structure, councils need to formulate a view on the major revenue and rating principles and set their revenue strategy objectives. Key considerations will include:

  • Council’s position on key rating principles including equity, efficiency, transparency and simplicity, consistency and intergenerational equity
  • long term revenue requirements to meet financial sustainability criteria
  • service pricing planning that aligns the Council’s pricing policy with the cost of services, and which sets targets for direct cost recovery through fees and charges
  • analysis of the relative benefits for each ratepayer category (business, residential, farmland and mining)
  • social and economic analysis of the local government area to understand the issues affecting affordability, and identifying financially vulnerable regions
  • annual rates modelling processes of preferred rate structure options.

One of the key components that can be used by councils is the annual review of service pricing – making clear decisions about how the cost of service provision is distributed through general funds or direct service charging. Private services that benefit specific users are often better funded by user fees and charges and run as commercial operations, however many council services have a mix of public and private characteristics, and Council should determine the appropriate mix of funding.

 

Councils can model the full cost of each service and the level of direct user charges vs general rates, comparing the actual level of cost recovery against the Council’s preferred pricing strategy. As an annual review process, this exercise can be used to ensure that councillors and management have a shared understanding of the Pricing Policy, enabling managers to identify services that require adjustments and rebalance revenue streams. As a management exercise it sets an expectation that service managers develop a commercial mindset, creating a level of consistency and accountability in the determining actions to improve service cost recovery.

 

Morrison Low has developed a structured approach and methodology to assist all councils in the setting of revenue strategy, which can be integrated with our long term financial strategy and planning tools.

 

For more information please contact Kate Monaghan or Greg Smith on 02 9211 2991 or visit our website. www.morrisonlow.com