2026/27 FINANCIAL POLICIES · Attachment 1 - Financial Sustainability Policy

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Attachment 1 – Financial Sustainability Policy

 A Financial Sustainability (Sustainability) Guideline has also been developed by the state
 government, with this document requiring Council to calculate and publish relevant measures of
 financial sustainability which show whether Council is achieving its financial sustainability objectives
 over the short and medium term.

 The key measurement criteria for whether Council is achieving its financial sustainability objectives
 are the nine financial sustainability ratios required to be published under section 169 of the Local
 Government Regulation 2012 (the Regulation), namely the:
 1.    Council controlled revenue ratio*
 2.    Population growth ratio*
 3.    Operating surplus ratio
 4.    Operating cash ratio
 5.    Unrestricted cash expense cover ratio
 6.    Asset sustainability ratio
 7.    Asset consumption ratio
 8.    Asset renewal funding ratio*
 9.    Leverage ratio.
 *These ratios are for contextual purposes only meaning there is no set target for these measures, nor will they be subject to audit. They are
 included only to provide further information about Council’s financial capacity and asset management.


 Council’s current and expected financial sustainability performance will be measured and reported
 against the benchmarks set by the state government in its Financial Sustainability (Sustainability)
 Guideline, as well as by ongoing periodic sustainability assessments undertaken by the Queensland
 Treasury Corporation (QTC).

 COUNCIL POLICY

 Operating Performance

 Council will ensure that it maintains an operating surplus each year over the life of the ten (10) year
 financial plan. An operating surplus is achieved when operating revenues are greater than operating
 expenses (including depreciation and interest on debt).

 The operating surplus ratio is a key measure of financial sustainability required under legislation.
 It calculates the operating surplus (or deficit) as a percentage of operating revenue. An operating
 surplus ratio above 0% indicates that Council is managing its finances within its existing funding
 envelope and generating surplus funds for capital funding or other purposes. The target band for
 Council is greater than 0% measured as a single year result and a five-year average result.

 The operating cash ratio measures Council’s ability to cover its core operational expenses and to
 generate a cash surplus (excluding depreciation, amortisation and finance costs). A positive cash
 ratio indicates that Council is generating surplus cash from its operations and has the ability to self-
 fund its capital expenditure requirements. The target set by the state government for this ratio is also
 greater than 0% measured as a single year result and a five-year average result.

 Council will target to achieve an operating surplus commensurate with mitigating known risks with
 respect to appropriately funding future trunk infrastructure and capital expenditure requirements,
 whilst also ensuring that the operating surplus ratio and operating cash ratios are contained within
 the required benchmarks.




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Attachment 1 – Financial Sustainability Policy

 Liquidity Management

 The unrestricted cash expense cover ratio is a key indicator utilised to measure Council liquidity
 (i.e. current financial health) and to assess ongoing financial sustainability risk. This ratio calculates
 how long Council can continue paying its day-to-day expenses from cash at bank without needing
 additional cash flow injections. Council will target achieving a minimum unrestricted cash expense
 cover of three months operating expenditure throughout and in any given financial year.

 Expenditure Management

 Council will ensure that expenditure on goods and services to meet established service levels will
 be undertaken efficiently and effectively. This will be achieved via the development of the annual
 operating expenditure budget from a zero base, ensuring staff compliance with Council’s policies
 and procedures as well as partnering with key stakeholders such as Local Buy to ensure efficient
 cost procurement options are implemented.

 Expenditure management outcomes will be measured by how Council performs annually against its
 operating and capital expenditure budget allocations.

 Physical and Natural Asset Management

 Council will ensure that it maintains its physical and natural assets on an ongoing basis at defined
 levels to ensure that services are able to be provided effectively to the community.

 The asset sustainability, asset consumption and asset renewal ratios are the three (3) key
 measures of financial sustainability relating to the management of Council’s assets required under
 legislation.

 The asset sustainability ratio is calculated by measuring the expenditure on the renewal and
 rehabilitation of Council’s existing infrastructure assets against the annual depreciation charge
 relating to infrastructure assets. It is a measure of whether Council is reinvesting appropriately in
 existing infrastructure assets as they reach the end of their useful lives.

 Council will target over the life of the ten (10) year financial plan to achieve a minimum asset
 sustainability ratio of 80% measured as a single year result and as a five-year average result
 (excluding plant, fleet and office equipment renewals) consistent with the benchmark unless
 condition based renewal forecasts demonstrate a percentage lower than 80% in any given year.

 The asset consumption ratio measures the extent to which Council’s infrastructure assets have
 been consumed compared to the cost of building a new asset with the same benefit to the
 community. It is calculated by measuring the written down replacement cost of infrastructure assets
 compared to the current replacement cost of those assets. A target of greater than 60% measured
 a single year result and a five-year average result has been set to ensure that Council’s infrastructure
 assets are being consumed in line with their estimated useful lives.

 The asset renewal funding ratio measures the ability of Council to fund its projected infrastructure
 asset replacement in the future. It is calculated by measuring planned capital expenditure on
 infrastructure assets as a percentage of required capital expenditure on infrastructure asset as
 outlined in Council’s asset management plans and forecasts. The ratio should be as close to 100%
 as possible as this indicates that Council is appropriately funding and delivering the entirety of its
 required capital program as set out in its asset management plans.

 Investment in natural assets will be prioritised according to biodiversity value and ecosystem service
 benefits realised for the community.




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Attachment 1 – Financial Sustainability Policy

 Established management plans for Council’s asset and infrastructure classes will incorporate annual
 maintenance financial estimates as well as ten (10) year renewal / replacement forecasts developed
 from regular asset condition assessments. Asset management plan financial forecasts will be
 incorporated into Council’s ten (10) year financial plan and annual budget to ensure financial
 sustainability implications are appropriately considered.

 Annual depreciation forecasts will be developed on an asset-by-asset basis utilising methodology
 endorsed by the Queensland Audit Office, with assets regularly revalued in accordance with
 legislative requirements.


 The QTC project decision framework will be utilised for business case analysis for all new and
 replacement capital projects in accordance with policy. The outcomes from the analysis will be used
 to inform Council of whole of life costing implications associated with each project.

 Debt Management

 New debt will only be incurred as part of Council’s strategic approach to:
 •    Liquidity management that considers surplus cash holdings
 •    Intergenerational equity requirements.

 The leverage ratio is a measure of financial sustainability required under legislation, which indicates
 Council’s ability to repay its existing debt. It is calculated as the book value of debt as a percentage
 of Council’s operating result (excluding depreciation, amortisation and finance costs). The target
 leverage ratio set by the state government is 0 – 3 times measured as a single-year result and five-
 year average result.

 Council will adopt a conservative approach to new debt to ensure that the leverage ratio is within the
 target band over the life of the ten (10) year financial plan. New debt that may be required to assist
 with the funding of trunk infrastructure to cater for population growth will be considered on a case-
 by-case basis.

 Full Cost Pricing

 Council will ensure that competitive neutrality and full cost pricing outcomes required under
 legislation with respect to its business activities are complied with on an annual basis.

 Commercial Opportunities

 Commercial opportunities will only be considered if they provide value for money to the community
 and have a positive net impact on overall general rate funding requirements of Council.

 The QTC project decision framework will be utilised for business case analysis for all new identified
 commercial opportunities. The outcomes from the analysis will be used to inform Council of whole
 of life costing implications associated with each commercial proposal.

 Climate Change

 Council recognises that mitigation measures to address climate change may have financial
 sustainability implications. Ongoing infrastructure and operating funding will be considered as part
 of long-term planning and addressed via inclusion in the 10-year financial plan and discussed
 annually through the budget process (where identified).

 Council will also ensure that operational and strategic decisions made today with associated climate
 change implications will give adequate consideration to minimising the exposure of future Councils
 to potential financial risk.

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Attachment 1 – Financial Sustainability Policy

 ROLES AND RESPONSIBILITIES

 Councillors
 Councillors will consider and adopt the Policy.

 Chief Executive Officer (CEO) and Executive Team
 The CEO and Executive Team will endorse for Council adoption and provide leadership and
 commitment in complying with the Policy and relevant legislation and documents.

 Financial Services
 Financial Services will monitor adherence to this Policy in the preparation of annual budgets and
 financial performance reports.

 Council Officers
 All Council staff are bound by the principles outlined in this policy in the effective administration and
 stewardship of Council funds.

 RELEVANT LEGISLATION AND POLICIES

 Local Government Act 2009
 Local Government Regulation 2012
 Statutory Bodies Financial Arrangements Regulation 2007
 Noosa Council Debt Policy
 Noosa Council Investment Policy
 Noosa Council Management of Restricted Cash Policy
 Noosa Council Non-Current Asset Policy
 Noosa Council Revenue Policy
 Noosa Council Asset Management Policy
 Noosa Council Enterprise Risk and Opportunity Management Policy

 HUMAN RIGHTS COMPATIBILITY STATEMENT

 In developing this policy, the subject matter has been considered in accordance with the requirements
 of the Queensland Human Rights Act 2019. It is considered that the subject matter does not conflict
 with any human rights and supports a human rights approach to decision making by Council.

 This policy should be read in conjunction with the Human Rights Act 2019 (QLD) and Council’s
 Human Rights Policy.




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Attachment 1 – Financial Sustainability Policy

 Version control:
    Version         Reason/ Trigger      Change (Y/N)   Endorsed/ Reviewed by   Date

    1.0             Create new                          Council                 07/05/2015

    2.0             Review               Y              Council                 30/06/2021

    3.0             Review               N              Council                 28/6/2022

    4.0             Review               Y              Council                 30/06/2023

    5.0             Review               Y              Council                 28/06/2024

    6.0             Review               Y              Council                 30/06/2025

    7.0             Review               N              Council                 23/06/2026




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