3000 kb - Mid Western Regional Council - NSW Government

Assumptions and Limitations
The projections of the financial plans are based on past financial performance. Allowance
is made for new initiatives, future rate forecasts, and maintenance of sustainable levels of
service as identified in the strategic planning process.
The depreciation is shown in the operating statement but this is not a cash item. The
financial planning model manages the cash flow but keeps a running tally of cumulative
depreciation so that Council can appreciate the potential future liability for maintaining the
value in the system and levels of service. By planning ahead and making optimum use of
existing assets, a more cost-effective and efficient service should result.
Average annual residential charge is used as the performance measure representing
overall revenue requirements from residential customers. This should not be confused
with pricing. Pricing, i.e. distribution of the charges according to consumption or special
customer groups, is the subject of a separate revenue planning exercise.
The financial model is not a substitute for normal budgeting (that is, short-term financial
planning). The model assumes that all expenses and income occur at the beginning of the
year and is therefore not appropriate to track cash flow throughout the year. It is
important, however, that the budgeting process is carried out within the framework of the
long-term financial plan.
The Capital Works Plan provides a guide for estimation of long-term operation and
maintenance costs. It is accepted that the level of confidence in these projections reduces
with time but it is important to identify as many future commitments and liabilities as
possible.
The Modelling Process
Phase 1 – Initial runs
The objective of Phase 1 development is
to present a first cut model of options for
future service provision. Comparison of
outcomes enables Council to make
decisions as to the preferred model and
the most beneficial and practical funding
solution for the proposed asset
management programs.
Funding
In considering funding for future options
there are three basic options:
• Fund all capital works from
revenues.
• Borrow to fund all capital
works.
• Fund capital works from a
mix of borrowing and
revenue
Most councils would prefer to avoid
borrowing to fund their capital works
programs if possible. This strategy
obviously avoids incurring interest
Base Case
Scenario
Assumptions
Strategy
Affordability
Phase2 BRIEF
Phase1 REVIEW
Review base data:
Interest Rates
Developer Charges
etc
Funding options
Debt ratio
Cash liquidity
etc.
Delay capital works
Delete projects
Use structured
loans
Page 82 Part C - Detailed Information Mid-Western Regional Council
Strategic Business Plan for Sewerage