Integrated Planning
and Reporting
Long Term Financial Plan Guidelines
September 2016
The Department of Local Government and Communities acknowledges and thanks the local
governments that attended the consultation workshops in March 2016. The comments provided in
the workshops were invaluable in revising the Integrated Reporting Framework and Guidelines,
Advisory Standard, Asset Management Guidelines and Long Term Financial Plan Guidelines.
The Department also wishes to thank those who reviewed various draft revised documents and
provided feedback. The final documents were significantly improved as a result.
Finally, the Department thanks Localise for designing and facilitating the workshops, and
preparing the draft and final revised suite of documents.
Contents
1. Introduction .......................................................................................................... 1
The Integrated Planning and Reporting Framework ............................................... 1
2. Purpose of Guidelines ......................................................................................... 3
3. Forecasting Issues ............................................................................................... 4
4. Financial Risk Assessments in the Long Term Financial Plan ........................ 5
5. Starting the Process: Assumptions Underpinning the Long Term Financial
Plan ............................................................................................................................ 6
A demographic analysis of the local government area ........................................... 7
Economic growth and development of the local government area.......................... 7
National and State economic factors ...................................................................... 8
Service delivery and service levels ......................................................................... 8
Major planned expenditure and capital works ......................................................... 8
Financial strategies ................................................................................................. 8
Workforce Planning ................................................................................................ 9
6. Revenue Projections ............................................................................................ 9
Rates and service charges ..................................................................................... 9
User charges and fees .......................................................................................... 10
Grants ................................................................................................................... 10
Contributions and donations ................................................................................. 11
Interest revenue .................................................................................................... 11
Net gain on disposal of assets .............................................................................. 11
Other revenue ....................................................................................................... 11
Extraordinary revenue .......................................................................................... 12
7. Expenditure Projections .................................................................................... 12
Workforce costs .................................................................................................... 12
Materials and contracts ......................................................................................... 12
Utilities .................................................................................................................. 12
Depreciation.......................................................................................................... 12
Interest expense ................................................................................................... 13
Insurance .............................................................................................................. 13
Net loss from disposal of assets ........................................................................... 13
Other expenditure ................................................................................................. 13
Extraordinary expenditure ..................................................................................... 14
8. Asset Management ............................................................................................. 14
9. Workforce Planning ........................................................................................... 15
10. Performance Measures .................................................................................... 17
11. Scenario Modelling and Sensitivity Analysis................................................. 19
12. Format of Long Term Financial Plan .............................................................. 20
Model format of Long Term Financial Plan ........................................................... 20
13. Review ............................................................................................................... 22
14. Glossary of Terms ............................................................................................ 22
15. References ........................................................................................................ 25
16. Contacts ............................................................................................................ 25
Long Term Financial Plan Guidelines - Page 1
1. Introduction
The Integrated Planning and Reporting Framework
Integrated Planning and Reporting (IPR) is a framework for local governments to:
Articulate the community’s vision, outcomes and priorities
Allocate resources to achieve the vision, striking a considered balance
between aspirations and affordability
Monitor and report progress
IPR consists of the following “suite” of plans (see figure 1 below):
A Strategic Community Plan that clearly shows the community vision,
strategic direction, long and medium term priorities and resourcing
implications with a horizon of 10+ years
A Corporate Business Plan which contains a four-year delivery program,
aligned to the Strategic Community Plan, and accompanied by four-year
financial projections
Informing Strategies, consisting of the core Informing Strategies (Long Term
Financial Plan, Asset Management Plan and Workforce Plan) and any other
issue or area specific council plans (e.g. Disability Access and Inclusion Plan)
that inform the Strategic Community Plan and Corporate Business Plan. The
core Informing Strategies play a vital role in prioritisation and integration.
The Long Term Financial Plan is a 10-year rolling plan that informs the Corporate
Business Plan in the activation of Strategic Community Plan priorities. The Long
Term Financial Plan includes robust forecast budgets for four years accompanying
the Corporate Business Plan. From these planning processes, annual budgets that
are aligned with strategic objectives can be developed.
The Long Term Financial Plan is therefore a key element of the Integrated Planning
and Reporting Framework that enables local governments to set priorities, based on
their resourcing capabilities, for the delivery of short, medium and long term
community priorities. It is also an indicator of a local government’s long term
financial sustainability and allows early identification of financial issues and their
longer term impacts. The Long Term Financial Plan highlights linkages between
specific plans and strategies and enhances the transparency and accountability of
the council to the community.
Long Term Financial Plan Guidelines - Page 2
Figure 1: Integrated Planning and Reporting Cycle
The Department of Local Government and Communities publishes a suite of other
documents to assist local governments and communities to develop competence in
IPR. Other information and resources will be added as they are developed:
Integrated Planning and Reporting Framework and Guidelines
Integrated Planning and Reporting Advisory Standard
Asset Management Framework and Guidelines
Workforce Planning Toolkit
Model Long Term Financial Planning
Abridged Model Long Term Financial Planning
Long Term Financial Planning Tools
Community Development: A Guide for Local Government Elected Members
Working Effectively with Local Governments: A Guide for Community Sector
Organisations
The Advisory Standard published by the Department of Local Government and
Communities refers to Achieving, Intermediate and Advanced Standards of IPR
performance. In the lead up to July 2013 when the IPR regulatory requirements
came into effect, and since, local governments have been steadily working towards
achieving the regulatory requirements and improving practice. Local Governments
should set achievement targets based on an appropriate pathway of continuous
improvement for their organisation.
Long Term Financial Plan Guidelines - Page 3
2. Purpose of Guidelines
The Long Term Financial Plan Guidelines outline a suggested methodology for local
governments to develop a Long Term Financial Plan to inform the Corporate
Business Plan and Annual Budget.
The Long Term Financial Plan should be a high-level document that can be easily
understood. The Long Term Financial Plan is often presented in two parts – a
narrative section followed by tables of financial projections covering the ten years of
the plan. The projections will be backed up by supporting documentation such as
detailed spreadsheets, schedules and working papers. The Long Term Financial
Plan should contain enough information to be useful and needs to be sufficiently
detailed to enable the calculation of statutory financial ratios.
Alternatives to the methodology and format suggested in these Guidelines can be
used. As a minimum the Long Term Financial Plan should incorporate10-year
financial forecasts including:
Forecast income and expenditure statement
Statement of cash flows
Rate setting statement
Statement of financial position
Equity statement
Loan Statement
Cash Reserves
These statements must be supported by:
Details of assumptions on which the plan has been developed
Projected income and expenditure
Methods of measuring performance - Key Performance Indicators (KPIs)
Scenario modelling and sensitivity analysis
Major capital works schedules
Financial risk assessments
To retain alignment with the Corporate Business Plan, the Long Term Financial Plan
needs to be a rolling and iterative document that is reviewed annually, and provides
robust financial projections for the current and following three years.
Long Term Financial Plan Guidelines - Page 4
A Model Long Term Financial Plan is available from the Integrated Planning and
Reporting pages of the Department of Local Government and Communities’ website:
https://www.dlgc.wa.gov.au/Publications/Pages/IPR-Model-Long-Term-Financial-
Planning.aspx
Other resources are available to assist local governments in long term financial
planning. It is recommended that practitioners obtain a copy of Practice Note 6
“Long Term Financial Planning”, a joint publication of the Institute of Public Works
Engineering Australasia (IPWEA) and the Australian Centre of Excellence for Local
Government (ACELG). This publication examines some of the issues in long term
financial planning in greater depth. It is available for hardcopy purchase or free
download from: http://www.ipwea.org/pn6
Some key points to note from Practice Note 6 include:
Local governments are typically asset rich and income poor
Local government assets are typically long lived and therefore demand long
term financial planning to deal with maintenance and eventual replacement
Local governments must become expert at financial and asset management
planning in order to remain financially viable
Long term financial planning is critical when managing a large stock of long
lived assets that generate service to the community
The Long Term Financial Plan must be underpinned by a financial strategy – it
must be taking the local government towards a goal.
3. Forecasting Issues
The Long Term Financial Plan is by its nature a forecasting document. Financial
forecasting aims to quantify the future impacts of current decisions and identify the
available options to close the gap between revenues and expenditure. It informs
decision making and priority setting and assists the local government to manage
community growth or contraction. It also assists management of cash flows and
funding requirements, community assets and risk.
To be useful, forecasting should use the most current information available.
Forecasting processes should be accurate, reliable and easily understood, and the
results regularly reviewed and updated. There should be particular attention to the
level of accuracy of the four years that accompany the Corporate Business Plan.
Years (5-10) will have a higher reliance on assumptions.
Long Term Financial Plan Guidelines - Page 5
Critical considerations in forecasting include:
The purpose of the forecast
The level of accuracy required
Who to involve in data gathering and preparing forecasts
The frequency of reviews to ensure currency of information
The internal systems required to bring processes together
Across-organisation reporting
Identification of data sources and indices
Inclusion of “whole-of-life” costing for major projects
A comprehensive Asset Management Plan
A comprehensive Workforce Plan showing workforce requirements and costs
The ability to interpret historical data and forecast financial ratios
4. Financial Risk Assessments in the Long Term
Financial Plan
Long term financial planning in a dynamic environment has to accommodate some
level of uncertainty. The ability to accurately forecast over a long period is likely to
be hampered by uncertainties such as the availability of grant funding; fluctuating
interest rates; economic trends; and demographic and political change.
At the project level, key risks usually occur around:
Approvals – where a future project may require environmental or planning
approvals
Land acquisition and construction costs – which can be subject to variability in
line with market forces
Funding – where a future project is dependent on uncertain grant funding
The timescale of a Long Term Financial Plan makes it impractical to attempt to
identify and manage all risks for all projects included in the plan. As the Long Term
Financial Plan is both rolling and iterative, the level of uncertainty reduces as the
timeframe shortens. Annual reviews lead to adjustments in the Long Term Financial
Plan as uncertainties start to firm up.
Long Term Financial Plan Guidelines - Page 6
The Long Term Financial Plan should include some commentary on where the most
significant financial risks are situated and how the local government is monitoring or
treating the risk. Some of the significant risks may be highlighted through scenario
modelling and sensitivity analysis. See how the hypothetical Town of Eagle Bay
dealt with the risk assessment requirements of the Long Term Financial Plan, on
page 17 of the Model Long Term Financial Plan, available here:
https://www.dlgc.wa.gov.au/Publications/Pages/IPR-Model-Long-Term-Financial-
Planning.aspx
5. Starting the Process: Assumptions
Underpinning the Long Term Financial Plan
In building the Long Term Financial Plan, it may be useful to refer to the Model Long
Term Financial Plan published in the Integrated Planning and Reporting pages of the
Department of Local Government and Communities’ website:
https://www.dlgc.wa.gov.au/Publications/Pages/IPR-Model-Long-Term-Financial-
Planning.aspx
Determine whether the Long Term Financial Plan will be developed based on a
detailed Chart of Accounts, or on an activity or program level. The choice should
allow modelling to test the local government’s ability to deliver community services
and assets under various scenarios.
Show in an initial model the local government’s position over the next 10 years without
any changes to current policy. Further models should explore alternative community
priority scenarios, so that the local government can determine and demonstrate if, and
how, those various community priority scenarios could be resourced. A number of
assumptions will need to be made and these will form a foundation for the
development of the plan.
Determine any changes in the internal and external environments which may impact
on the operations of a local government. A local government may be able to control
or influence most of the internal impacts, but has little influence over external factors.
Identify internal factors with the potential to influence the long term financial situation
including community expectations, financial capacity, service delivery areas and
levels, infrastructure needs, asset quality, workforce requirements and the local
government’s capabilities and resources.
Identify external factors with the potential to influence the long term financial situation
including changes in population and demographics such as age dispersion, income
Long Term Financial Plan Guidelines - Page 7
and unemployment levels, diversity of the local economy, economic growth,
legislative requirements and government policy.
Develop assumptions relating to internal and external influences and document and
explain these in the Plan.
Although a number of examples are detailed below, it is better for a local government
to thoroughly understand the key assumptions used in developing its Long Term
Financial Plan and to change these over time, than to expend resources and effort
analysing a range of variables for which accurate current information may not be
available. Assumptions could be based on the following factors.
A demographic analysis of the local government area
Examine past demographic trends and anticipate future changes that will impact the
Long Term Financial Plan. This may involve:
Examination of population data over the past 10 years, identifying any
demographic trends and reasons for these, and projecting likely trends over
the next 10 years or more
Determining the impact of an ageing population on future service needs
Identifying demographic changes occurring in neighbouring local governments
that could impact on the district
Economic growth and development of the local government
area
Identify economic growth and development issues that could impact in the future.
This may involve:
Analysis of economic growth over the past 10 years, identifying any trends
and reasons for these and projecting likely trends over the next 10 years
Analysis of any local government plans that will affect future economic growth
Analysis of the impacts of population and demographic changes on economic
growth
Identifying new industrial or business subdivisions or developments that will
affect economic growth.
Long Term Financial Plan Guidelines - Page 8
National and State economic factors
Identify national and state factors that will have impacts. Analysis could include:
Future inflation forecasts (Australian Bureau of Statistics or Treasury
forecasts)
Interest rate movements – over the past 10 years and forecasts for the next
10 years (Western Australian Treasury Corporation forecasts)
Any known state or federal government policies that will impact in future.
Service delivery and service levels
These are critical to any financial forecasts. They link the community needs to its
willingness to pay for the services to meet those needs. Increased service levels are
likely to involve increased costs. Considerations could include:
Will the existing services and level of service delivery be maintained?
Does the Strategic Community Plan or Asset Management Plan indicate a
change in service levels?
What is included in the Strategic Community Plan that may impact service
delivery?
Will new services be implemented (for example, services to seniors for an
ageing population)?
What is included in existing local government plans that could influence service
levels (for example: Recreation Plan, Active Ageing Plan and the like)?
Major planned expenditure and capital works
Major expenditures and capital works in the Strategic Community Plan and Asset
Management Plan should be included in the assumptions detailed in the Long Term
Financial Plan. For example - a Council may be planning to replace a library building
in 5 years’ time. In this case, assumptions regarding the financial outlays for the new
land and buildings including fit out, as well as any inflows of capital from the disposal
of the old asset, will need to be brought into the Long Term Financial Plan.
Financial strategies
A local government’s financial strategy will underpin the Long Term Financial Plan.
Valid financial strategies could include:
Long Term Financial Plan Guidelines - Page 9
Continuous improvement in the financial position of the local government
The achievement or maintenance of operating surpluses each year
The maintenance of a fair and equitable rating structure
Maintaining or improving service level standards
Reliance on debt to fund capital works
Maintenance of cash reserves for future commitments
Increasing reserves for asset maintenance and renewal
Achieving a specified proportion of cost recovery for services
Inter-generational equity
Revenue and expenditure forecasts can be developed based on the chosen strategy.
Workforce Planning
As an informing strategy within the Integrated Planning and Reporting Framework,
workforce planning has vital linkages to long term financial planning. Both current
and future workforce requirements will be identified by a local government in its
workforce planning process, with requirements and costs carried across from the
Workforce Plan to the Long Term Financial Plan. Associated asset management
requirements will also be included.
6. Revenue Projections
The principal sources of revenue for local governments are: rates; service charges;
user charges and fees; grants; contributions and donations; interest on investments;
net gains on the disposal of assets; and ‘other revenue’. To forecast future revenues
in the Long Term Financial Plan, each of these sources needs to be assessed in
light of the relevant assumptions and the Strategic Community Plan.
Rates and service charges
Matters to consider could include:
The impact of the local government’s rating policy
Is the basis of rates suitable (UV / GRV)?
Are there inequities to be addressed that will impact revenue levels (for example,
significant non-rural activities on rural land that should be rated on GRV)?
Long Term Financial Plan Guidelines - Page 10
Are there new or planned subdivisions or developments that will impact on
rate growth?
What annual increases should be applied?
Are there specific works, services or facilities to be provided for which special
area rates are likely to be introduced?
Will economic factors impact on rate collections (and hence cash flows) – for
example: industry downturns?
Should statutory service charges be introduced or reviewed?
Is the local government’s rate coverage ratio sufficient?
The Long Term Financial Plan should include details of how rates and service
charges have been calculated over the period and detail the assumptions applied.
User charges and fees
Matters to consider could include:
To what extent are user charges and fees based on user-pays and full cost
recovery?
Are new services proposed for which new fees can be introduced?
Are there existing services for which fees should be introduced?
Do existing fees need to be reviewed?
Do existing fees cover costs?
Grants
Matters to consider could include:
Are special grants programs likely to continue in the future (for example
Roads to Recovery)?
Are there capital or operating grants available for new services or planned
infrastructure?
What is the long term estimate for Financial Assistance Grants and untied
road grants? What is the likely impact if these are planned to reduce?
If existing grants are withdrawn, how would this impact the local government’s
service delivery?
Can the local government meet matching criteria that apply to particular grants?
Long Term Financial Plan Guidelines - Page 11
Contributions and donations
Matters to consider could include:
Are contributions and donations likely to increase or decrease?
Are there opportunities to introduce new developer contributions?
Interest revenue
Matters to consider could include:
How will the local government’s investment policy affect likely income from
investments?
Are there likely to be cash flow issues that will positively or negatively impact
on investment revenue (for example, an increase in outstanding rates debtors,
or a reduction in available cash reserves)?
What are forecast future interest rates?
Net gain on disposal of assets
The local government’s Asset Management Plans should detail assets it plans to sell.
Based on past experience of similar disposals, the gains could be estimated.
Other revenue
Matters to consider could include:
What other revenue sources exist?
Does the local government have the capacity to undertake private works to
increase revenue?
Can the local government provide services to neighbouring local governments?
Does the local government have underutilised assets (buildings) that can be
leased commercially?
Are there surplus road making materials that could be sold?
Long Term Financial Plan Guidelines - Page 12
Extraordinary revenue
Consider if there are any one-off extraordinary revenue events that might occur
during the life of the Long Term Financial Plan; for example, asset sales or special
grants.
7. Expenditure Projections
The local government will need to consider its regular and ongoing expenditure
commitments arising from existing services and operations. Asset Management
Plans, the Workforce Plan, loan repayments on existing borrowings (and proposed
new borrowings) and existing contractual commitments are useful sources of
information. New capital projects and additional services included in the Strategic
Community Plan will also need to be costed.
Workforce costs
Matters to consider are outlined in Section 9 - Workforce Planning.
Materials and contracts
Matters to consider could include:
New or proposed changes in service delivery.
Changes in the cost of materials and contract rates.
Utilities
Matters to consider could include:
New or proposed buildings, parks, street lighting and the like.
Impacts of proposed energy and water efficiency programs.
Depreciation
Depreciation costs should be sourced from the local government’s Asset
Management Plans. Note that depreciation expense could increase considerably
after asset revaluation events.
Long Term Financial Plan Guidelines - Page 13
Interest expense
Matters to consider could include:
The local government’s debt policy.
The local government’s debt ratio and debt service ratios – compared to
benchmarks.
Loan repayments on existing borrowings (and proposed new borrowings).
Proposed draw-down dates.
Loan terms.
Forecast future interest rates (WA Treasury Corp).
Insurance
Matters to consider could include:
Values of new insurable assets to be developed.
Revaluations of insurable assets.
Past claims experience that may affect future premiums.
Any new insurances planned.
Net loss from disposal of assets
The local government’s Asset Management Plans should detail assets that are
planned to be sold. Based on past experience, an estimate of losses on similar
assets disposed could be determined.
Other expenditure
Matters to consider could include:
Statutory fees including Emergency Services Levies.
Membership fees or levies.
Bad debts.
Donations and subsidies to community groups.
Long Term Financial Plan Guidelines - Page 14
Extraordinary expenditure
Consider if there are any one-off extraordinary expenditure events that might occur
during the life of the Long Term Financial Plan; for example, emergency flood repairs
to roads and bridges. Consider whether the expenditure will occur over a number of
financial years or a single financial year.
8. Asset Management
The Long Term Financial Plan should be developed in tandem with the Asset
Management Plans. The financial strategies in the former should be reflected in the
latter. The Long Term Financial Plan will be informed by material in the Asset
Management Plan. Where data from the Asset Management Plan is brought across to
the Long Term Financial Plan, the Long Term Financial Plan should include the relevant
assumptions and indications of funding sources. If information on funding sources is not
included, this information should be agreed between asset managers and finance
managers and reflected in both the Long Term Financial Plan and the Asset
Management Plan.
Asset management issues will need to be considered in both the Long Term
Financial Plan and the Asset Management Plan, but treated differently in each plan.
The Asset Management Guidelines and other explanatory material can be
downloaded from the Integrated Planning and Reporting pages of the Department of
Local Government and Communities’ website at this link:
https://www.dlgc.wa.gov.au/Publications/Pages/IPR-Asset-Management-
Framework.aspx
Practitioners should consult the Rate Setting, Asset Management and Financial
Sustainability guide downloadable from the following link:
https://www.dlgc.wa.gov.au/Publications/Pages/IPR-RateSetting-AssetManagement-
FinancialSustainability.aspx
Asset Management Plans should contain a complete record of a local government’s
infrastructure and other fixed assets and include “whole-of-life” costings that
incorporate operating, scheduled maintenance and depreciation costs, renewal costs,
replacement costs on asset retirement and costs involved in expanding the asset
base. It is important to keep the Long Term Financial Plan updated using this
information.
Asset Management Plans provide information on cost/value, depreciation, residual
value and useful life that is used in the accounting process for financial reporting.
Long Term Financial Plan Guidelines - Page 15
They also have an essential role in providing information for accurate and effective
long term financial planning.
For a local government to be financially sustainable, it needs to be able to maintain the
condition of its infrastructure and non-current assets at chosen levels in order to
deliver services to the community over the longer term. The consumption of assets
should not exceed asset renewal or replacement based on Fair Value. Investment in
new assets when existing assets are not being maintained adequately should be
avoided.
The Long Term Financial Plan is a critical instrument in weighing up the costs and
benefits of different options for ensuring both financial sustainability and responsible
asset stewardship. If assets are being efficiently managed, it may be that trade-offs
need to be made between service levels and rates increases. If this is the case, the
community engagement process should be designed to enable the community to
give meaningful input on the options.
9. Workforce Planning
Workforce planning is a continuous process of shaping the workforce to ensure that
it is capable of delivering the organisation’s objectives now and in the future. It is
therefore a strategic process with a focus on longer term workforce requirements of
a local government, taking into account Strategic Community Plan priorities.
Workforce planning links with all other elements of the Integrated Planning and
Reporting Framework, including long term financial planning and asset management
planning. Current and future workforce costs, including associated asset
requirements and costs, need to be incorporated into the Long Term Financial Plan.
A cost modelling process could include the following:
Determine the financial impact of proposed workforce strategies to address
workforce / skills gaps
Ensure that all employment related costs are identified
Assess the work force plan with historical financial data to determine
variables of workforce costs now and into the future
Test scenarios in the long term financial plan to determine affordability and
sustainability
Include such things as the cost of recruitment vs upskilling or outsourcing in
scenarios
Work closely with managers across the organisation and the finance team.
Long Term Financial Plan Guidelines - Page 16
Workforce planning and arrangements may have implications for a local
government’s assets and asset management. These may include requirements or
changes in regard to housing, equipment, vehicles, office location, office space and
fit-out, IT (hard and soft) and plant and tools. Changes in the use of certain assets
may be considered.
Employee-related areas with financial implications may include the following:
Workforce size and location, job characteristics and individual characteristics
Employment arrangements, including enterprise bargaining agreements,
workers’ compensation and superannuation
Government policy and legislative requirements
Recruitment, retention and retrenchment
Training and development.
Associated costs, including wider asset management considerations such as asset
condition, depreciation and maintenance, need to be identified and included in the
Long Term Financial Plan. The Workforce Plan requirements and costs should also
be included in the Asset Management Plan and Corporate Business Plan.
It should be recognised that there can be financial linkages from “informing plans”
that impact on the Workforce Plan, which in turn is reflected in the Long Term
Financial Plan. Informing Plans could include:
Equal Employment Opportunities Plan
Disability Access and Inclusion Plan (Outcome 7)
Reconciliation Action Plan
Information and Communications Technology Plan
Service specific plans
Others
For example, there may be commitments in the Disability Access and Inclusion Plan
that relate to the workforce. These are part of workforce solutions, so such
commitments and associated costs should also be reflected in the Workforce Plan.
Similarly, expenditure on computers and software may be linked to employee head
count in the Information and Communications Technology Plan, so the link needs to
be acknowledged in the Workforce Plan.
Further assistance is available by downloading the Workforce Planning Toolkit from
the Integrated Planning and Reporting pages of the Department of Local
Government and Communities’ website:
https://www.dlgc.wa.gov.au/Publications/Pages/IPR-Workforce-Planning-Toolkit.aspx
Long Term Financial Plan Guidelines - Page 17
10. Performance Measures
Local governments should develop key performance indicators (KPIs) to measure
performance against the Long Term Financial Plan and Annual Budget and to
assess their long term financial sustainability.
KPIs included in the Long Term Financial Plan provide performance measures
against which a local government can report its progress to the community.
A number of statutory KPIs focusing on financial and asset management performance
will be regulated. Other financial sustainability measures can also be developed by
individual local governments, however, these need to be simple, measurable and
understandable.
The Department of Local Government and Communities and Western Australian
Treasury Corporation have partnered to release long term financial planning tools for
local governments. The tools include the Financial Health Indicator calculator, which
enables a local government to project changes to its financial position over the
course of the long term financial plan. Local governments can use this to calculate
projections of their financial health using the Financial Health Indicator methodology.
If any KPIs are impacted by the particular circumstances of the local government, or
abnormal events, supporting commentary should be included in the Long Term
Financial Plan.
Practitioners can consult Local Government Operational Guideline Number 18 - June
2013 “Financial Ratios” for further guidance in this area, downloadable from here:
https://www.dlgc.wa.gov.au/Publications/Pages/LG-Operational-Guidelines-18.aspx
Table 1 outlines the statutory KPIs local governments are required to report on.
Long Term Financial Plan Guidelines - Page 18
Table 1: Statutory KPIs required to be reported by local governments
Ratio What It Measures Achieving
Standard
1. Operating Surplus
Ratio
An indicator of the extent to
which revenue raised not only
covers operational expenses, but
also provides for capital funding.
Ratio is between
0% and 15%.
2. Current Ratio A measure of a local government’s
liquidity and its ability to meet its
short term financial obligations
from unrestricted current assets.
Ratio is equal to an
expression of 1:1 or
greater (e.g. 100%
or 1.0).
3. Debt Service
Cover Ratio
An indicator of a local
government’s ability to generate
sufficient cash to cover its debt
payments.
Ratio is greater
than or equal to 2.
4. Own Source
Revenue
Coverage Ratio
An indicator of a local government’s
ability to cover its costs through
its own revenue efforts.
Ratio is between
40% and 90% (or
0.4 and 0.9).
5. Asset
Consumption
Ratio
This ratio highlights the aged
condition of a local government’s
physical assets.
Ratio data can be
identified and ratio
is 50% or greater.
6. Asset
Sustainability
Ratio
An indicator of the extent to
which assets managed by a local
government are being renewed
or replaced as they reach the
end of their useful lives.
Ratio data can be
calculated and
ratio is 90%.
7. Asset Renewal
Funding Ratio
Indicates whether the local
government has the financial
capacity to fund asset renewal at
existing revenue and service
levels.
Ratio data can be
identified and the
ratio is between
75% and 95%.
Long Term Financial Plan Guidelines - Page 19
11. Scenario Modelling and Sensitivity Analysis
The Long Term Financial Plan can be used as a proving ground and stress test for
financial strategies that may ultimately be used by the local government.
Scenario modelling will determine the level of flexibility in the Long Term Financial
Plan to inform the local government of the best strategy to meet community
expectations should variations occur in a range of factors or assumptions.
Modelling should be undertaken on the basis of optimistic, conservative and
worst-case scenarios to understand the impacts of variation.
This modelling could, for example, focus on population growth, where different
models can be compared for rapid, moderate, or minimal growth scenarios.
Sensitivity analysis can be used to test the financial impacts of variations in the
factors or assumptions underlying the plan.
Analysing the sensitivity of the Long Term Financial Plan to variations in
assumptions such as Consumer Price Index estimates, employee cost increments,
interest rates, annual rate increases, recurrent grants, and others, will identify the
assumptions that have the greatest impact when varied.
This will assist a local government to ensure that the assumptions on which its Long
Term Financial Plan is based are reasonable.
For an understanding of how to use the Long Term Financial Plan for scenario
modelling and sensitivity analysis, see how it is handled in the hypothetical Town of
Eagle Bay on page 11 of the Model Long Term Financial Plan, available here:
https://www.dlgc.wa.gov.au/Publications/Pages/IPR-Model-Long-Term-Financial-
Planning.aspx
Long Term Financial Plan Guidelines - Page 20
12. Format of Long Term Financial Plan
The following is a model format for a Long Term Financial Plan. The format is not
mandatory. As a minimum, the Long Term Financial Plan should include 10-year financial
forecasts consisting of:
Forecast income statement
Statement of cash flows
Rate setting statement
Statement of financial position
Equity statement.
These statements must be supported by:
Details of assumptions on which the plan has been developed
Projected income and expenditure
Methods of measuring performance - Key Performance Indicators (KPIs)
Sensitivity analysis and financial modelling scenarios
Major capital works schedules
Risk assessments of the impact of uncertainty on the Long Term Financial
Plan, especially out-years
Cash reserves and borrowings.
The Long Term Financial Plan should be updated annually and form the basis for the
preparation of the following year’s Annual Budget.
Model format of Long Term Financial Plan
1. Introduction
Key points of the plan
Where it fits into IPR
2. Context
A brief recap of the local government area, its size and location within the State,
demographics, industries (consistent with community and economic profile in the
Strategic Community Plan)
Local government assets and services
3. Strategic Alignment
Long Term Financial Plan Guidelines - Page 21
Significant points of linkage to the Strategic Community Plan, Corporate Business
Plan, Asset Management Plans, Workforce Plan and other informing strategies, and
Annual Budget (eg any change of focus on specific services reflected in the LTFP)
4. Assumptions
Assumptions underpinning the plan including financial policies and strategies
5. Financial Commentary
Comment on the asset and financial ratios over the life of the Plan
Summarise the financial strategies for rating structure, fees and charges, alternative revenue
sources, pursuit of grants, reserves, debt funding, asset disposal, investment policy
Comment on each of the financial statements
Comment on the supporting schedules including operating revenue, operating
expenditure and capital works schedules
6. Risk Management
7. Scenario Modelling and Sensitivity Analysis
8. Financial statements (forecasts)
Forecast income statement
Statement of cash flows
Rate setting statement
Statement of financial position
Equity statement
9. Supporting schedules
Schedule of new / capital works proposed
Schedule of assumptions underpinning financial forecasts
Schedule of income / expenditure estimates and assumptions used (e.g. CPI %)
Schedule of borrowings and payments
Schedule of reserve movements and balances
Schedule of asset and financial ratios and any other key performance indicators (KPIs)
Schedules and comments on scenario modelling and sensitivity analysis
An example Long Term Financial Plan is available on the Integrated Planning and
Reporting pages of the Department of Local Government and Communities’ website:
https://www.dlgc.wa.gov.au/Publications/Pages/IPR-Model-Long-Term-Financial-
Planning.aspx
Long Term Financial Plan Guidelines - Page 22
13. Review
To retain alignment with the Corporate Business Plan, the Long Term Financial Plan
needs to be a rolling and iterative document that is subject to annual review. More
substantial reviews occur in conjunction with the two-yearly Strategic Reviews,
alternating between the Minor Strategic Review and the Major Strategic Review.
14. Glossary of Terms
Terms that have been assigned a specific meaning within these Guidelines are
defined below. These definitions aim to best describe an Integrated Planning and
Reporting component or process in terms of its purpose, without restricting or
mandating terminology.
Table 2: Glossary of Terms
Term Definition
Annual Budget A statutory requirement outlining the financial
estimates for that year’s delivery of the Corporate
Business Plan.
Asset Management
Plan
A “whole of life” plan for the appropriate acquisition,
maintenance, renewal, replacement and disposal of
assets that balances aspirations with affordability.
Corporate Business
Plan
Four-year delivery program, aligned to the Strategic
Community Plan, and accompanied by four-year
financial projections.
Equity statement Equity is the net worth of a local government
measured as the difference between the total assets
and total liabilities as reported in the statement of
financial position. The equity statement details
equity by its various classes (retained surpluses,
cash-backed reserves and revaluation reserves) and
reconciles the opening and closing balances of each
class of the local government’s equity over the
reporting period. It also provides a summary of
changes in composition of the local government’s
equity and the causes of those changes.
Long Term Financial Plan Guidelines - Page 23
Term Definition
Financial capital
Refers to the funding capacity of the local
government as disclosed in the statement of financial
position. This is usually the net difference between
current assets and current liabilities.
Forecast income
statement
A statement that includes revenue and expenditure
projections over the 10-year life of the plan.
Infrastructure
Infrastructure assets are physical assets intended to
serve the community over a long time frame and
maintained indefinitely by the continuing replacement
and refurbishment of its components so that service
level standards are met. This includes the major
asset classes such as roads, drains, bridges,
footpaths, sewerage assets and public buildings.
Inter-generational
equity
Achieving a fair and ethical balance of costs and
benefits between present and future generations. In
the local government context this refers to the
expenditure on long-lived assets and infrastructure
and the revenue strategies required to pay for them.
Integrated Planning
and Reporting
Integrated Planning and Reporting (IPR) is a process
designed to:
Articulate the community’s vision, outcomes and
priorities
Allocate resources to achieve the vision, striking
a considered balance between aspirations and
affordability
Monitor and report progress
Rate setting statement
A statement that details budgeted expenditure and
revenue and shows how much rate revenue is
required to cover the budget deficit. It can be in a
format that includes rates as an income type based
on assumptions used in developing the Long Term
Financial Plan to show the extent to which planned
services and assets can be funded.
Scenario modelling
Preparation of forecasts or estimates in the Long
Term Financial Plan on optimistic, conservative and
Long Term Financial Plan Guidelines - Page 24
Term Definition
worst-case scenarios to understand the impact of
variations in factors or assumptions.
Sensitivity analysis
Determines those factors or assumptions that if
varied have greater impacts on the Long Term
Financial Plan.
Statement of cash
flows
A statement that shows how changes in a local
government’s expenses and income affect cash and
cash equivalents; and breaks the analysis down to
operating, investing and financing activities.
Statement of financial
position
A statement that reports the value of a local
government’s current and non-current assets, current
and non-current liabilities and equity as at a
particular date, usually the end of a financial
reporting period.
Strategic Community
Plan
The Strategic Community Plan is the Council’s
principal 10-year strategy and planning document. It
is the guiding document for the remainder of the IPR
suite. Community engagement to determine their
vision and priorities is central to the Plan.
Workforce Planning
A continuous process (not a one-off activity) of shaping
the workforce to ensure that it is capable of delivering
organisational objectives now and in the future.
Long Term Financial Plan Guidelines - Page 25
15. References
These Guidelines have been informed by and produced with reference to the following:
IPWEA Practice Note 6 Long Term Financial Planning, 2012
NSW Department of Premier and Cabinet, Division of Local Government:
Integrated Planning and Reporting Long Term Financial Plan, December 2010
QLD Department of Infrastructure and Planning: Financial management
(sustainability) guideline 2009
QLD Department of Infrastructure and Planning: A guide to asset accounting
in Local Governments, 2010
WA Department of Local Government: Integrated Planning and Reporting
Framework and Guidelines, 2016
Workforce Planning: The Essentials. A toolkit for Western Australian local
governments.
16. Contacts
For more information, please contact:
Department of Local Government and Communities
Gordon Stephenson House, 140 William Street, Perth WA 6000
GPO Box R1250, Perth WA 6844
Telephone: (08) 6551 8700 Fax: (08) 6552 1555
Freecall: 1800 620 511 (Country only)
Email: info@dlgc.wa.gov.au Website: www.dlgc.wa.gov.au
Translating and Interpreting Service (TIS) – Tel: 13 14 50
