Proposed Special Rate Variation FAQs

IPART is NSW’s independent pricing regulator for water, public transport, local government, electricity and gas industries, as well as the licence administrator of water, electricity and gas, and the scheme administrator and regulator for the Energy Savings Scheme.

IPART also undertakes reviews and investigations into a wide range of economic and policy issues and performs a number of other roles at the NSW Government’s request.

IPART’s functions include setting the annual rate peg, and assessing and determining SRV applications.

On an annual basis IPART reviews council costs and sets a maximum percentage increase councils can apply to their general rates income. This is called the rate peg.

The rate peg is mainly based on the Local Government Cost Index (LGCI) and may include a reduction for productivity gains. The LGCI measures price changes over the previous year for the goods and labour an average council will use. The rate peg applies to existing works and services, and not to new infrastructure and/or additional service needs.

For 2021/22 IPART has set the rate peg at 2.0%.

The rate peg limits the amount councils can increase their rate revenue by from one year to the next. For example, if the rate peg is 2.5% councils can only increase their overall rate revenue by 2.5%. This does not apply to annual charges.

If a councils rate revenue is not enough to maintain service levels, it can apply to IPART to increase overall rate revenue by more than the rate peg. This is known as a Special Rate Variation (SRV).

In order to apply for an SRV councils must demonstrate to the community and IPART that they need the money and have implemented improvements to be more efficient and productive.

SRVs have been used widely in local government over the years because of costs increasing above inflation and new costs emerging.

In the 2014/15 Financial Year, the former Armidale Dumaresq and Guyra Shire Councils were successful in applying for SRVs. Guyra Shire Council implemented a permanent 5.7% increase, while Armidale Dumaresq Council introduced a temporary seven year SRV of 10% plus the rate peg. The temporary SRV will expire in 2021 and would reduce Council’s overall rates income by $1.5 million annually. To maintain current levels of service, Council must apply to have the temporary SRV made permanent and it has also proposed an option of a higher SRV amount to improve services.

Both Guyra and Armidale Councils previously applied for an SRV to fund maintenance and renewal of assets. Armidale Dumaresq’s temporary seven year SRV of 10% plus the rate peg was sought to fund renewal of the following assets:

While Council understands this has been a difficult year for many people within the community, the SRV must be proposed before the current temporary SRV is removed in 2021. If the SRV was removed, Council would lose a significant stream of income and this would severely impact on the number of services and projects it could deliver. To maintain and grow our region, an SRV is needed.
 Council does not take the decision lightly, and must weigh up the current needs of our region against the needs of the next generation. It is important that we do not place a burden on future generations.

The proposal to make the temporary SRV permanent will not generate any more revenue than Council currently receives through rates. This would simply continue to provide the same level of funding that Council has available to it today.

The proposal for a higher SRV amount would raise additional rate revenue and this would be used to improve services, particularly in areas such as the maintenance and renewal of community buildings and facilities, roads, footpaths and stormwater drainage.

If the SRV is extended, permanently implemented or increased, the revenue generated would be used in ways that would benefit all ratepayers. If the current temporary SRV is removed, residents can expect a decrease in projects completed and services offered.

Like many Councils across the State Armidale Regional Council is struggling to continue to provide the broad range of services without increased revenue. At present Council’s revenue is regulated by IPART. IPART sets a rate peg that limits the amount Councils can increase their total rate collection by each year. Unfortunately the rate peg has not kept pace with the increasing cost of maintaining our assets and providing services to the community.

It has been a difficult few years for the Armidale region and like many rural areas, Council revenue has been heavily impacted by drought and now Covid-19.

Our priority now is to get back to basics in delivering important essential services to ratepayers and the community. Ensuring that we have enough revenue to continue to deliver services to the community is essential in this rebuilding phase.

The proposal to make the temporary SRV permanent will not affect the amount of rates paid as this revenue is already incorporated into the existing rates that are paid.

Depending on the option that is recommended by Council and after feedback from the community is considered there may be a change to your rates in the 2020/21 Financial Year. This will depend on what option is presented to IPART. Rates harmonisation will also have an impact.

You can find full details about how this will affect rates in our SRV Fact Sheet available on yoursay.armidale.nsw.gov.au. This covers average residential, farmland and business rates under each of the proposed SRV options, as well as a detailed overview of impacts based on the rateable value of properties.

The land valuations used to calculate the SRV’s impact on rates in the fact sheet is current as the NSW Valuer General issued new valuations earlier this year.

Pensioners will continue to receive the statutory pensioner rebates from Council and the state government.

While you may not use some large Council facilities and assets, rates are used to maintain and build essential infrastructure such as roads and footpaths. Without an SRV, these services that are used by the majority of people every day will fall into disrepair.

Council rates are levied on property owners. However, higher rates form part of costs which non-ratepayers may bear, including tenants currently paying rent in the Armidale Regional LGA, and the cost of goods and services. Infrastructure, facilities and services are provided by Council for all residents of, and visitors to, the Armidale LGA. Building better infrastructure, facilities and improving services benefits everyone.

Improved infrastructure, facilities and services benefit tenants and non-residents as well as those living in Armidale region. All ratepayers of the Armidale region will receive information in the mail about the process and the opportunities to find out more and provide feedback on this proposed SRV and rates harmonisation.

If the Improved Services SRV scenario was applied for and was successful, the associated rate increase would apply to all ratepayers, including residents and non-residents.

Applications for a SRV are assessed by IPART against criteria set by the NSW Office of Local Government.

These criteria state that Council must:

• Clearly articulate and identify in the council’s strategic documents the need for, and purpose of, the SRV.
• Ensure community awareness of the need and extent of the proposed increase in rates.
• Show that the impact on affected ratepayers is reasonable.
• Ensure that Council’s strategic documents are exhibited and adopted by Council.
• Council must explain the productivity improvements and cost containment strategies that have been realised and are planned to be realised.

The Council will decide in January 2021 if it will make a SRV application. If an application is to be lodged, it must be submitted to IPART by February 8 2021. IPART will determine the applications in May 2021.

The Armidale region includes the city of Armidale, the town of Guyra and numerous satellite villages covering 8,630 square kms. The total population of 30,779 is the second largest population in the region after the Tamworth region. The population density of the Armidale Regional Council area is only 3.6 persons per square km. In the ‘Regional Town/City’ category that Council is in under the Office of Local Government’s classification this places Council in the bottom 3 councils for population density. Council’s relatively low population density means that it has a lower rate base than city-based regions from which to raise revenues to maintain infrastructure and provide services.

Comparing rates with other councils does not always provide a relevant comparison, as the rate revenue required to provide services depends on what services the council is providing. Differences such as whether the council owns an airport, how many customer service centres are operated, how many duplicated facilities may need to be provided (such as pools and libraries) all make a big difference to the cost of service provision and the rate revenue required.

The comparisons between Armidale Regional Council and relevant council groups are shown below.

Option 1              Improve Services

Continuation of the temporary SRV plus an additional SRV increase

Council will apply for a Special Rate Variation (SRV) of 18.5% plus the 2.0% rate peg (total of 20.5%). This will replace the funding currently provided by the temporary SRV and increase total rate revenue by $1.8 million per annum.

This option will result in our current level of assets and services maintained and Council will also be able to fund additional asset renewals and reduce our medium to long term financial risk. Roads, bridges, buildings and community facilities maintenance and renewal will be the focus of additional funds raised.

Option 2              Maintain Services

Continuation of the temporary SRV - does not address future growth

Council will apply for a Special Rate Variation of 8.5% plus the 2.0% rate peg (total of 10.5%). This will replace the loss of the current SRV which is due to stop in 2021.

This option will result in current levels of service maintained in the short term; however our asset renewal backlog will increase. This will increase costs in the medium to long term placing a financial burden on future generations. Council will have limited options to fund new assets as the region grows.

Option 3              Decrease Services

Discontinuation of the temporary SRV - financially unsustainable
 Council will not apply for a Special Rate Variation and revenue from ordinary rates will drop by $1.5 million per annum.

This option will see a significant reduction in the services provided by Council and our asset renewal backlog will increase. Roads, buildings and public spaces would deteriorate placing a significant financial burden on future generations and threaten Council’s medium and long term financial sustainability. Even though there would be a reduction in individual rates assessments, harmonisation may result in an increase in some rates.

All three of these options would also be accompanied by a rates harmonisation, which Council is moving towards implementing by July 1 2021.