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July 2022

What to expect in the SRV process

The IPART determination process for special rate variations (SRV) has been in place in New South Wales for just over ten years. Over that time, the assessment criteria have been refined and the process clarified. 70% of NSW councils have gone through the process at least once, but it is still not a day-to-day activity for a local council.

So here are some things to consider when making an application:

• Have your ducks in a row – the SRV should already be a part of your delivery program and long-term financial plan, and you should be able to demonstrate a history of business improvement and productivity gains (see our previous articles for more on these assessment criteria, such as Integrated Planning and Reporting documentation and productivity).
• Plan it out – develop a plan for your application process, think strategically about making this strategic decision. Include time for sufficient engagement within council and the community, which needs to include presenting options and analysis of their impacts.
• Engage early – community engagement on a tax increase is daunting, the best examples of engagement are ones that are done in multiple phases over time.
• Spend time and analysis on the no SRV scenario – it can be just as important to model and articulate what would happen to the council’s financial sustainability and service levels if the requested SRV is refused.
• Consider external help – it is not your business as usual, but it is others’ bread and butter. Getting experienced external support to help you through the process and draft the submission can pay dividends in efficiency and successful applications.

Of the five criteria IPART considers for SRV applications, three are key to SRV application process:

• financial need
• reasonable impact on ratepayers
• community engagement and awareness.

Demonstrating the financial need

If you can’t demonstrate the financial need, you don’t have a case for an SRV. Since 2017, only five of the 38 applying councils have not been able to adequately demonstrate the financial need, and four of these had their applications refused. The fifth, who partly demonstrated the financial need, received just over half of what it asked for.

IPART has tended to look at council’s operating performance ratio, net cash position, infrastructure backlog and infrastructure renewal ratio to understand the financial need for the SRV. It considers what gap the SRV is to address, is it to improve declining assets or to maintain services? Is a permanent increase warranted or will a temporary SRV suffice? This depends on the financial needs being addressed.

Here is where spending the effort and time analysing the financial impacts of not obtaining approval for the SRV is important. IPART wants to know whether the council can be sustainable and maintain assets without the SRV when considering this criterion.

Determining reasonable impact on ratepayers

Reasonable impact is not the same as adverse impact. A tax increase will have an adverse impact on ratepayers, but assessing whether it is reasonable considers:

• the ratepayers’ ability to pay
• the ratepayers’ willingness to pay when considering the financial need being addressed.

This criterion has generally been met by councils, only two of the 47 applications made since 2017 have partly demonstrated this criterion and none have not met it at all. However, in 2019, Dungog Shire Council received only a part of its requested SRV, due uncertainty of longer-term forecasts in the context of the substantial impact on ratepayers. This was deemed sufficient to reduce the council’s SRV to 76% over five years from the requested 97.8% over seven years.

IPART will generally consider the council’s current rates per rating category in relation to other councils within their Office of Local Government grouping. If an SRV is aimed at specific ratings categories, IPART will look at whether this is reasonable in terms of both capacity to pay and equity considerations.

IPART also consider the socio-economic indicators for the council area, as well as the financial hardship policy that council has in place.

Community engagement and awareness

While the IPART process is open for public submission and consultation, it is imperative that councils undertake and report on their own engagement before submitting their SRV application. Since 2017, three applications didn’t meet this criterion and all three were refused. One partly demonstrated adequate awareness and received only a part approval.

Being clear on the detail with the community is critical. In 2019, Lithgow City Council applied for a cumulative permanent increase in rates of 11.7%. However, in their community engagement they articulated a 9% nominal increase as the SRV application. As a result, in an application that adequately demonstrated all the other criteria, IPART approved a permanent SRV at a cumulative rate of 9%.

In any SRV application, a council has to demonstrate that it has consulted with its community on the proposed increase. This includes:

• How has council engaged with the community? Did they have and execute a clear plan?
• Has it been clear with the community on the need for the SRV?
• Is the amount of the SRV clearly articulated?
• Has it engaged specifically with groups that may be more impacted by the SRV? That is, if the SRV is focused on business rates, have businesses been adequately engaged in the process?
• Has feedback been received and integrated into the engagement process and the application?

For further information and/or a confidential chat about your SRV application needs, please contact Greg Smith (0407 294 765) or Janine McKenzie (0415 444 225).