Financial sustainability in local government is the ability of councils to generate, manage and maintain sufficient resources to meet their current and future financial obligations, and fund levels of service and infrastructure as agreed with their communities.

The Local Government Act 1993 (LG Act) sets out principles for local government for carrying out their functions in a financially sound manner, including that council spending should be responsible and sustainable. Local governments vary significantly in population, area, assets and operations, with annual revenue ranging from $15.3 million to $909.7 million in the 2024–25 Financial Year.

The LG Act establishes strategic planning requirements, known as Integrated Planning and Reporting (IP&R), for councils to bring plans for the future together under one framework. Further mandatory requirements are set out in the Integrated Planning and Reporting Guidelines for Local Government in NSW (IP&R Guidelines), published by the Office of Local Government (OLG). IP&R is intended to provide a way for elected representatives to have meaningful conversations with the community about priorities and to ensure that resources can be allocated in a way that allows these priorities to be delivered.

The Long-Term Financial Plan (LTFP) is a crucial part of the IP&R framework. The LTFP captures the financial implications of the Community Strategic Plan, asset management planning and Workforce Management Strategy. It is intended to be fully integrated with other key elements of the IP&R framework, ensuring that identified costs are reflected over a 10-year period. This includes integrating with the 4-year Delivery Program to provide a link between the LTFP and the annual Operational Plan and budget.

This audit assessed whether Port Stephens Council and Armidale Regional Council are effectively developing and monitoring their LTFPs to ensure that their strategic goals can be achieved sustainably. In making this assessment the audit examined whether each Council:

• has effectively developed and integrated its LTFP
• effectively monitors and reviews its LTFP.

Port Stephens Council

Port Stephens Council has effectively developed its Long-Term Financial Plan. The Council included all of the essential elements of the Integrated Planning and Reporting Guidelines in its 2025–35 LTFP, except scenario modelling which it has now included in the draft 2026–36 LTFP. As required by the Integrated Planning and Reporting framework, the LTFP is informed by appropriate data and modelling, and is integrated with most of the Council’s other strategies and plans.

Port Stephens Council regularly monitors and reports on performance against the LTFP to the executive team and the elected council. The Council measures performance using the OLG performance indicators and benchmarks.

Armidale Regional Council

Armidale Regional Council has not effectively developed its Long-Term Financial Plan. While the Council’s 2025–35 LTFP includes the essential elements of the Integrated Planning and Reporting Guidelines, the analysis in the plan lacks detail and there are deficiencies in the asset data used to inform the LTFP. Further, Armidale Regional Council did not update its LTFP as part of developing the 2024–25 Operational Plan as required by the Integrated Planning and Reporting Guidelines.

The LTFP is not integrated with Armidale Regional Council’s other strategies and plans. The Council is not proactively monitoring its financial risks and integrating them into the LTFP. The lack of integration limits the Council’s ability to use the LTFP to accurately forecast its future financial position.

Armidale Regional Council measures its performance against the LTFP using the OLG performance indicators and benchmarks. However, the Council executive does not report regularly to the elected council on progress and is not fully informing the elected council of the long-term financial position and performance.

By June 2027, and in the planning and adoption of future Long-Term Financial Plans, Port Stephens Council should:

1. include financial modelling for different scenarios as required by the Integrated Planning and Reporting Guidelines
2. identify and implement mitigations for financial risk to bring the residual risk within its risk appetite
3. ensure the financial modelling reflects and is consistent with the assumptions set out in the Long-Term Financial Plan.

By June 2027, and in the planning and adoption of future Long-Term Financial Plans, Armidale Regional Council should:

4. identify, implement and monitor mitigations for financial risk to bring the residual risk within its risk appetite
5. ensure that the Long-Term Financial Plan identifies and incorporates the implementation costs of all key elements of Integrated Planning and Reporting
6. ensure that the asset data in the asset registers is up to date, including by addressing the findings of the asset management maturity assessment
7. include more detailed sensitivity analysis and scenario planning in the Long-Term Financial Plan as required by the Integrated Planning and Reporting Guidelines
8. provide regular reporting of current financial information to the elected council as required by statutory timeframes to ensure that its financial position is appropriately monitored.

Financial sustainability in local government is the ability of councils to generate, manage and maintain sufficient resources to meet their current and future financial obligations, and fund levels of service and infrastructure as agreed with their communities. Principles for sound financial management and strategic planning are prescribed in the Local Government Act 1993 (LG Act), including that council spending should be responsible and sustainable. These principles are presented in Appendix 2.

A key aspect of financial sustainability is long-term financial planning. Long-term financial planning relies on:

• alignment and integration with councils’ strategies and plans to link resourcing requirements and budgets to planned actions
• collection, analysis and reporting of relevant data to inform planning assumptions, revenue and expenditure forecasts, sensitivity analysis, risk assessment and financial modelling for different scenarios
• informed decision makers who have the capability to interpret and assess relevant financial information to demonstrate how a council’s goals may be resourced and funded
• availability of consistent, quality-assured and accurate performance reporting to assess a council’s financial position and identify remedial action required
• ongoing monitoring and review that supports both strategic and day-to-day decision-making, planning updates and continuous improvement.

The LG Act establishes strategic planning requirements, known as Integrated Planning and Reporting (IP&R), for councils to bring plans for the future together under one framework (Exhibit 1). IP&R is intended to provide a way for elected representatives to have meaningful conversations with the community about priorities and to ensure that resources can be allocated in a way that allows these priorities to be delivered.

Under section 403 of the LG Act, every council must have a long-term Resourcing Strategy for the provision of the resources that are required to perform its functions, including implementing the strategies set out in the Community Strategic Plan.

The Resourcing Strategy plays a critical role because it is intended to integrate with the Community Strategic Plan, the Delivery Program and the Operational Plan by setting out the resourcing and financial requirements of each of these plans and ensuring that the council can fulfil these sustainably.

The Resourcing Strategy has three components:

• The Long-Term Financial Plan
• The Workforce Management Strategy
• Asset Management Planning.

The LTFP is a 10-year rolling plan that helps to ensure that councils can remain financially viable and inform their ability to meet future financial obligations, community aspirations and goals. If this is done successfully, councils should be able to ensure that strategic goals and activities can be achieved within council resources. In this way, the LTFP assists councils to ensure that their resources are sustainably managed.

The LTFP captures the financial implications of asset management and workforce planning. It integrates with the Community Strategic Plan, the Delivery Program and the Operational Plan by demonstrating how the council’s goals, activities and actions will be resourced and funded. It is a key decision-making tool for councillors because it should inform the preparation and delivery of all IP&R strategies, plans and other council planning documents.

In addition to the requirements of the LG Act and the LG Regulation, the IP&R Guidelines state that the LTFP must include the following essential elements:

• projected income and expenditure, balance sheet and cash flow statement for the 10-year period
• the planning assumptions used to develop the LTFP
• sensitivity analysis that identifies the factors and/or assumptions that are most likely to affect the LTFP
• financial modelling for different scenarios, such as planned, optimistic, and conservative
• methods for monitoring financial performance.

In addition, the IP&R Guidelines require the LTFP to be reviewed and updated at least annually as part of the development of the Operational Plan and reviewed in detail as part of the 4-yearly review of the Community Strategic Plan.

The IP&R Guidelines also require the LTFP to be integrated with other IP&R strategies and plans. As part of this, the LTFP must be used to inform decision-making during the preparation and development of the Community Strategic Plan and Delivery Program. In addition, the other elements of the Resourcing Strategy, namely the Workforce Management Strategy and Asset Management Plans, must be reflected in the LTFP.

The IP&R Guidelines state that in developing the LTFP, the council must give due regard to promoting its financial sustainability by:

• progressively eliminating operating deficits
• establishing a clear revenue path for all rates linked to specific expenditure proposals
• ensuring that any proposed increase in services and/or assets is within the financial means of the council, including a proposed special rate variation
• ensuring the adequate funding of infrastructure maintenance and renewal
• borrowing, where appropriate and financially responsible
• fairly and equitably distributing the rate burden across all rate payers.

The LTFP must be publicly exhibited for at least 28 days, and submissions received by the council in that period must be accepted and considered before the final LTFP is adopted by the council.

The IP&R Guidelines state that a council’s LTFP must include methods for monitoring financial performance. The IP&R Handbook outlines performance indicators that councils may report on. These indicators include targets to allow councils to benchmark their performance. In conjunction with the OLG measures, councils are required to report on Delivery Program progress every 6 months and report financial performance against their original budget at quarterly intervals via their Quarterly Budget Review Statements (QBRS). These statements outline budget variances and recommendations if performance is not satisfactory.

The IP&R Guidelines state that Asset Management Plans must contain long-term projections on asset costs that are then to be reflected in the LTFP. The IP&R Handbook also recommends that the LTFP should incorporate the lifecycle costings of assets over the 10-year period.

The LG Act and the LG Regulation have a range of other requirements that impact the development and monitoring of the LTFP. Under the LG Act, councillors must make all reasonable efforts to acquire and maintain the skills necessary to perform their role. To support this, the LG Regulation requires councils to ensure that:

• induction training is delivered to newly elected mayors and councillors
• refresher training is provided for returning mayors and councillors in the first 6 months after each ordinary council election
• the mayor and councillors have access to ongoing training and professional development throughout their term.

The OLG’s Councillor Induction and Professional Development Guidelines cover suggested training content and capability attributes for councillors and the mayor. The training content includes how to interpret and understand financial information, the council’s LTFP and other components of a council’s Resourcing Strategy, including revenue and expenditure sources.

Under section 428A of the LG Act, each council must have an Audit, Risk and Improvement Committee (ARIC) to independently review and advise on aspects of the council’s operations. These include financial management and the implementation of the Community Strategic Plan and the Delivery Program and strategies, such as the LTFP. The OLG’s Guidelines for Risk Management and Internal Audit for Local Government in NSW outline suggested responsibilities for ARICs, including to review and provide advice on:

• the adequacy and effectiveness of the council’s IP&R processes
• whether appropriate reporting and monitoring mechanisms are in place to measure progress against objectives
• whether the council is successfully implementing and achieving its IP&R objectives and strategies.

Financial management, planning and sustainability are some of the local government sector’s highest risk areas. Several reviews, inquiries and reports have addressed the financial planning risks and issues facing councils. Some of these reviews have commented on the LTFPs and their use by councils.

In 2024, the NSW Parliament released the ‘Ability of local governments to fund infrastructure and services’ report. The focus of this inquiry was the financial sustainability challenges faced by councils. Challenges cited in the report include rate income limitations, the growing costs of delivering services and infrastructure, and external impacts such as natural disasters. One of the recommendations of the report included ensuring that there is a greater focus on the IP&R framework and its use as a planning tool for councils.

The Auditor-General’s ‘Local government 2025’ report outlined the extent of compliance with the essential elements of the LTFP in the IP&R Guidelines. The report’s findings include that some regional and rural councils need to improve their sensitivity analysis and methods for monitoring financial performance. Exhibit 2 presents the results of this analysis across the sector.

Source: Audit Office of NSW.

This audit considers 2 regional councils: Port Stephens Council and Armidale Regional Council. Exhibit 3 outlines each Council’s local characteristics.

Source: OLG and council data.

¹ Based on the most recent OLG data.

² Net infrastructure, property, plant and equipment (IPP&E) value as at financial year 2024–25.

Port Stephens Council has effectively developed its Long-Term Financial Plan (LTFP). The Council included all of the essential elements of the Integrated Planning and Reporting Guidelines in its 2025–35 LTFP, except scenario modelling which it has now included in the draft 2026–36 LTFP. As required by the Integrated Planning and Reporting framework, the LTFP is informed by appropriate data and modelling, and is integrated with most of the Council’s other strategies and plans.

Port Stephens Council regularly monitors and reports on performance against the LTFP to the executive team and the elected council. The Council measures performance using the OLG performance indicators and benchmarks.

By June 2027, and in the planning and adoption of future Long-Term Financial Plans, Port Stephens Council should:

1. include financial modelling for different scenarios as required by the Integrated Planning and Reporting Guidelines
2. identify and implement mitigations for financial risk to bring the residual risk within its risk appetite
3. ensure the financial modelling reflects and is consistent with the assumptions set out in the Long-Term Financial Plan.

Source: Port Stephens Council financial statements.

Financial challenges and risks

Port Stephens Council’s LTFP identifies several key financial challenges that place ongoing pressure on its long-term financial sustainability. For example, revenue growth has not kept pace with increases in operating costs, leading to an imbalance between the Council’s income and expenditure, which has been exacerbated by a sustained period of high inflation. The Council has also identified reliance on commercial revenue streams as a financial risk, with independent analysis in 2022 demonstrating the vulnerability of these revenue streams to external shocks, including state-mandated COVID-19 lockdowns.

In addition, Port Stephens Council anticipates an increase in the frequency and severity of natural disasters, which may result in significant unplanned expenditure and cash flow pressure. From financial years 2023–24 to 2025–26, the Council has been subject to 5 natural disaster declarations including fires, storms and floods. The Council’s capacity to respond to the impact of disaster events is partially dependent on the availability of external funding. While the Council has implemented mitigation measures, including the establishment of a specific natural disaster financial reserve, these challenges remain largely external in nature and require ongoing monitoring to manage risks to financial sustainability.

Special rate variation

In its 2022–32 LTFP, Port Stephens Council forecast operating deficits from 2026 onward. After consulting an independent expert, the Council applied to the Independent Pricing and Regulatory Tribunal (IPART) to increase rates above the cap level, set by IPART, in order to maintain service levels and restore financial sustainability. The Council’s special rate variation (SRV) application was approved on 15 June 2023, allowing the Council to increase rates annually by 9.5% for 3 consecutive years (a cumulative increase of 31.29%). The SRV began on 1 July 2023 with rates increased each year until financial year 2025–26.

Capital works and assets

Most of the Council’s planned capital spending is focused on renewing and maintaining existing infrastructure and assets rather than delivering new assets. Capital expenditure is primarily directed at renewing core infrastructure, with the largest share allocated to roads, bridges, footpaths and car parks. The Council is responsible for assets valued at $1.7 billion as at 30 June 2025. Key asset groups include transport infrastructure (40%), land and buildings (29%), stormwater drainage (17%) and Newcastle Airport infrastructure (9%). The Council’s total road length (including local and regional roads) is 744.9km with a metre road length per capita of 9.4.

The LTFP shows that no new major capital works are planned over the next 10 years unless they are fully funded through developer contributions, voluntary planning agreements, reserves or confirmed grants. Consistent with this approach, the Community Strategic Plan does not identify any significant new capital works to 2035. Through community feedback, the Council has determined that priority areas for investment include road maintenance, the condition of public spaces, and the protection of the natural environment and waterways.

Newcastle Airport

Port Stephens Council and Newcastle City Council jointly control Newcastle Airport, although the airport functions under its own structure. This means that the Council does not manage the airport’s day-to-day operations. The Council may receive an annual dividend through its share in the airport, which contributes to its non‑rate revenue. However, Port Stephens Council has not received a dividend from the airport since 2019 and does not expect to receive one until 2027.

Port Stephens Council’s LTFP complies with all of the essential elements, except for scenario modelling

In line with mandatory requirements, Port Stephens Council has prepared and adopted a LTFP that covers a 10-year period. The Council’s previously adopted LTFPs have each included the essential elements of key planning assumptions, balance sheet and cash flow statements, and projected income and expenditure figures. The 2025–35 LTFP also identifies the methods used by the Council to monitor its financial performance.

In 2022, Port Stephens Council reviewed its LTFP to comply with the requirement that a detailed review occurs every 4 years as part of the Community Strategic Plan review. This is in addition to the requirement for an annual update of the LTFP, which the Council complied with in each year of the audit period. The current 2025–35 LTFP was exhibited on the Port Stephens Council website for public consultation for a minimum of 28 days before it was adopted by the Council in line with requirements.

Although it is mandatory, Port Stephens Council did not include scenario modelling in its 2024–34 or 2025–35 LTFPs. The Council advised that this was because the SRV for financial years 2023–24 to 2025–26 restricted the use of additional revenue for the purposes approved by IPART as part of the SRV application. It also advised that it would include scenario modelling once the SRV was fully incorporated. The draft 2026–36 LTFP includes scenario modelling.

The IP&R Guidelines require sensitivity analysis to identify the factors or assumptions most likely to affect the LTFP. During the audit period, Port Stephens Council’s LTFP included sensitivity analysis based on key financial variables moving by 1%, then determined if this would have a high, medium or low impact on the Council’s finances. The sensitivity analysis also assessed the Council’s level of control over each variable.

Port Stephens Council has considered financial sustainability in developing its LTFP

The IP&R Guidelines state that, in developing its LTFP, a council must give due regard to promoting the financial sustainability of the council. A component of financial sustainability is the elimination of operating deficits. In its 2022–32 LTFP, the Council forecast operating deficits from 2026 onward. The Council applied for a SRV, which allowed it to increase its rates above the cap set by IPART. The purpose of the SRV was to eliminate these forecast budget shortfalls and allow the Council to maintain its level of service to the community. This request was approved by IPART in 2023.

The 2025–35 LTFP incorporates the final year of the 3-year SRV that began in the financial year 2023–24. The SRV has generated an additional $2.5 million in 2023–24 and $6.2 million in 2024–25. The Council’s projections in the 2025–35 LTFP indicate that it should have a positive operating result for each year over the 10-year period.

The Council developed a Financial Sustainability Strategy for 2023–26. The strategy identifies 6 objectives designed to ensure the sustainable management of financial resources by the Council, which are outlined in the 2025–35 LTFP. Each objective has action items, some of which relate to the LTFP. These include the implementation of monthly councillor finance briefings, cash flow reporting and forecasting, and strengthening linkages between the Council’s LTFP and other resourcing documents. Scenario modelling is also listed in the strategy as a high-priority action item for the LTFP, although it was not included in the 2024–34 or 2025–35 LTFPs.

In 2024, the Council began reporting to the executive team on progress against the action items in the Financial Sustainability Strategy. Over time, the Council has continued to add action items against each of the 6 objectives in the strategy. As at October 2025:

• 32 of 51 (63%) action items were completed
• 17 of 51 (33%) action items were in progress
• 2 of 51 (4%) action items had not started.

A key aspect of the 2023–26 Financial Sustainability Strategy is the establishment of a resilience fund that is financed through surplus non-rate revenue. Established in 2023, the fund aims to promote financial sustainability by allowing the Council to invest in significant infrastructure and other projects that are aligned with the Council’s strategic priorities, without needing to redirect funds from existing projects or business as usual activities. The amount of surplus revenue to be allocated is determined by the Council’s Financial Services Manager at the end of each financial year. The fund is also due to receive dividends from the Newcastle Airport when those payments to the Council resume.

Allocations into the resilience fund are included in the financial projections of the 2025–35 LTFP. The resilience fund may also be used for financial investments, with the returns from any investments allocated back into the fund. As of January 2026, the balance of the resilience fund was $3.5 million.

There is insufficient documentation of key decisions and discussion related to developing and updating the LTFP

The LG Act outlines principles that councils should apply when exercising their functions and decision-making. These include that decision-making should be transparent and decision makers are to be accountable for decisions and omissions. Under the State Records Act 1998, councils must make and keep full and accurate records of their activities.

Port Stephens Council was able to provide evidence of LTFP-relevant presentations that were made to the executive team. However, no minutes or records of discussions, actions or outcomes from these briefings were recorded. Not documenting these discussions limits the transparency around the decision-making relating to the development of the LTFP. It also means that the Council cannot demonstrate that it updated the LTFP in line with its documented process.

The Council was also able to provide evidence of LTFP-relevant presentations that were made during informal briefings to the elected council. Similarly, no minutes or records of discussions or actions were recorded. The informal briefings to the elected council were not ordinary council meetings and did not involve formal decision-making by the elected council. The Council advised that these informal briefings ceased following the release of the revised Model Code of Meeting Practice (the Code) in 2025, but the council is reassessing this as a result of the 2025 version of the Code being disallowed by the Legislative Council in May 2026.

Port Stephens Council is identifying and monitoring financial risks

A risk appetite statement describes the amount of risk an organisation is willing to accept in pursuing its strategic objectives. Port Stephens Council has developed a risk appetite statement that articulates the type and amount of risk the Council is willing to pursue or retain in pursuit of its Community Strategic Plan. The Council’s risk appetite statement defines financial risk as the risk of the Council failing to maintain financial viability to sustainably fund strategic initiatives and meet its obligations and service standards as they become due. The Council has determined that it has a low appetite for financial risk.

To help manage its financial risks, the Council maintains a financial services risk register and includes financial risks on its enterprise risk register. The financial services risk register identifies risks that are specific to the Council’s financial services section. The enterprise risk register includes risks to all areas of the Council which includes the risks identified in the financial services risk register.

There are no risks associated specifically with the LTFP in either register, although both registers list the LTFP as a control for some of the financial risks. Both registers identify a financial risk related to revenue, performance and sustainability. The Council defines this as the risk that revenue streams are not fit for purpose and/or underperform, and that revenue sources operated and relied on by the Council are not optimised and/or do not adequately fund the Council's operations. This risk is rated as inherently high across both registers.

Port Stephens Council has articulated a low appetite for financial risk but accepts a ‘high’ residual risk for revenue performance and sustainability, which is above the target rating

For each risk in its enterprise risk register, the Council records:

• the causes, impacts and controls
• the target rating and the residual risk rating
• whether the residual risk has been accepted by the Council
• if accepted, the rationale for why the residual risk has been accepted.

The enterprise risk register indicates that for the risk to revenue performance and sustainability, the residual rating is high and that this has been accepted. This residual risk rating of high is greater than the target risk rating of medium. The risk is reviewed quarterly by the General Manager.

The Council has not documented the rationale for accepting this level of residual risk within the register, despite it being above the target rating and the Council’s tolerance for financial risk being low. While the Council has implemented additional mitigations over time, including the SRV and its Financial Sustainability Strategy, the residual risk rating remains above the Council’s risk appetite.

Port Stephens Council is monitoring key risk indicators against its revenue performance and sustainability risk

The Council’s risk management plan states that a key risk indicator (KRI) must be developed for inherently high and extreme risks. The KRI should monitor changes to the risk, as well as the quality of the controls for the risk. The Council has developed KRIs to monitor its revenue performance and sustainability risk. Some of these include:

• rates collection
• the performance of the Council’s investment portfolio
• non-rate revenue
• restricted and unrestricted cash levels
• income and operational expenditure against budget for each directorate and for the Council as a whole.

The Council monitors and reports performance against the KRIs to the elected council each month. The benchmark levels are determined by considering the Council’s risk appetite statement and include input from the executive team. The Council’s reporting indicates that it has generally met these benchmarks over the audit period. Where a benchmark has not been met, the Council’s staff provide explanations and advice to the executive team and elected council as part of the monthly reporting process.

The Council’s Audit, Risk and Improvement Committee reviews the LTFP and monitors relevant financial risks

Port Stephens Council has established an Audit, Risk and Improvement Committee (ARIC) that meets quarterly, is governed by a terms of reference, and reports to the Council. The ARIC’s terms of reference include a responsibility to provide assurance and advice on a range of topics, including the Council’s governance, compliance and risk management.

Each year during the audit period, the ARIC reviewed the draft LTFP before the elected council formally adopted the final LTFP. The ARIC also reviewed the Council’s annual financial statements, which include key financial sustainability indicators.

Risk management is a standing agenda item for the ARIC, and the Council provides risk management updates every meeting. These include any changes to enterprise risk levels from the previous meeting, any emerging risks, and any incidents that have occurred that relate to the risks. The reporting identifies which KRIs are outside of the Council’s risk appetite for further discussion by the ARIC, including the risk to revenue performance and sustainability.

The Council also provides the ARIC with KRI reporting each meeting. However, for financial performance, the reporting only includes the monthly KRIs for income and operational expenditure against budget for each directorate and for the Council as a whole. The ARIC has not requested that the other KRIs that were developed to manage the Council’s high-rated risk to revenue performance and sustainability be provided for review.

Port Stephens Council provides professional development for councillors to support the elected council in understanding financial information and the LTFP

Port Stephens Council provides induction training for newly elected councillors. One aspect focuses on the LTFP and financial statements. The induction training provides an overview of the Council’s main sources of revenue and expenditure as well as the financial reporting required by the IP&R Guidelines. Council staff also provide specific LTFP training to councillors, which provides details on the LTFP process, the financial statements and projections, and key projects that are incorporated into the LTFP (such as the SRV and any upcoming major capital projects). In October 2024, 9 of the 10 councillors attended the induction training.

Councillors also complete a councillor professional development plan which is reviewed each year. There are capabilities in the development plan that relate specifically to finance, such as being able to discuss implications of the Council’s LTFP, audited financial statements and budget reviews. Councillors are required to self-assess their capability against each area in the plan on a 5-point scale. The Council advised that it would arrange opportunities for additional finance training for a councillor if they rated their financial capability as low (1 out of 5) on the development plan.

The LTFP is integrated with the Workforce Management Strategy and the Strategic Asset Management Plan

The Council outlines its workforce planning in the Workforce Management Strategy. Details about the Council’s assets, the management of these assets (including any planned maintenance) and its capital works program are outlined in the Strategic Asset Management Plan. The Workforce Management Strategy and the Strategic Asset Management Plan list projects and initiatives that describe how the Council intends to use its workforce and asset resources to deliver the commitments in the Community Strategic Plan.

In its LTFP model, the Council maintains a consolidated list of these projects and initiatives, which includes budgets for projects scheduled for completion in the current or next financial year. The value of these projects is incorporated into the LTFP and projected over a 10-year period. The executive team then reviews this information and allocates budgets to each business unit, ensuring they can deliver on Workforce Management Strategy and Strategic Asset Management Plan commitments that support the Delivery Program and the Operational Plan.

The Council’s Strategic Asset Management Plan indicates that the Council has a high degree of confidence in the data used to assess the condition of its assets and a moderate degree of confidence in data relating to the functioning of assets. This indicates that the LTFP is based on generally reliable asset data. The 2024–25 financial audit performed by the Audit Office of NSW did not identify any issues with the Council’s asset data.

To support financial sustainability, the Council only includes asset renewal or rehabilitation projects in its capital works program if they are fully funded through the LTFP or have confirmed grant funding. Routine maintenance activities are not included in the capital works program as these are undertaken through business-as-usual activities. The Council advised that asset condition (for example, poor, good or excellent) is reviewed annually, and feedback gathered through community satisfaction surveys also informs which projects are prioritised for funding.

The LTFP is integrated with the Delivery Program but not with the Operational Plan

The Council’s 2025–29 Delivery Program and its 2025–26 Operational Plan provide a detailed list of the actions to be undertaken by the Council to achieve the outcomes in the Community Strategic Plan. The Council’s Delivery Program sets out the actions to be completed to fulfil the Community Strategic Plan and provides an estimated total cost to complete these actions over the 4-year period. The Council maintains an internal worksheet that estimates the total yearly costs to complete the projects in the Delivery Program and these costs are incorporated into the financial projections in the LTFP.

The IP&R Guidelines state that the Operational Plan must include a detailed budget for the actions to be undertaken in that year. The Council’s 2025–26 Operational Plan does not provide any cost information or resourcing requirements for any action that it lists. The Council’s 2 previous Operational Plans also did not include cost information for listed actions. This limits the integration between the action items listed in the Operational Plan and the resourcing that is required to achieve those items, as set out in the LTFP.

Port Stephens Council participated in the IP&R peer review program led by the OLG that ran between 2023 and 2024. As part of this program, the Council’s 2023–24 Operational Plan was assessed against the requirements in the IP&R Guidelines. The peer assessment of the Council’s 2023–24 Operational Plan indicated that there should be stronger links between the Operational Plan and the budget as no budget was provided for action items.

Port Stephens Council analyses relevant internal and external data to inform its LTFP model assumptions and documents the determination of each assumption

Port Stephens Council collects and analyses relevant external data to inform the LTFP model assumptions. For example, the Council has used the Australian Bureau of Statistics' Consumer Price Index data to help inform its assumptions about user fees and charges, and materials and services inflation. It also analyses the waste levy rates set by the NSW Environment Protection Authority to inform its assumption about other expenses.

In addition, the Council analyses its own data to inform some of the LTFP model assumptions. For example, the Council analyses the historical performance of its investment returns to determine the assumption for cash and investment returns. For the assumption about other revenue, the Council analyses the historical growth rate year on year since 2017 to determine the assumed rate for future years to be used in the LTFP model.

The data and the determination of the assumptions are documented in internal workpapers. There is a workpaper for each model assumption used to develop the 2025–35 LTFP. The workpapers set out the data sources, methodology, and analysis for determining the assumptions. When relevant, the workpapers also identify any standards (such as those set by the Australian Accounting Standards Board) that are considered when developing the assumptions.

Some of the assumptions used by the Council in its financial projections for the LTFP are inconsistent with the assumptions documented in the LTFP

The IP&R Guidelines state that the Council must review the financial modelling assumptions used to update the LTFP. This requirement is incorporated into the Council’s internal process map for the LTFP, which includes steps for updating the assumptions stated in the LTFP to reflect assumptions used in the model and to review the related commentary to ensure it is still relevant. While no new assumptions have been included in the modelling, the Council updated the values in the assumptions table in the LTFP each year of the audit period.

The audit identified inconsistencies between the assumptions documented in the 2025–35 LTFP and those used in the financial model. As shown in Exhibit 5, these differences affected forecast revenues. For example, while the 2025–35 LTFP states that additional rate assessments would be 200 per year, the model used to generate the forecasts applied a value of 250 for one year. This resulted in forecast rate assessment revenue being $50,000 higher in the following financial year and 0.1% higher in total over the 10-year period to 2035.

Similarly, the LTFP model applied a 2.5% increase for user fees and charges from 2029 onward, rather than the 3% that was documented in the LTFP. This resulted in forecast user fees and charges revenue being approximately $200,000 lower in the following financial year and 1.5% lower in total over the 10-year period to 2035. The Council advised that both of these inconsistencies were administrative errors.

Source: Audit Office analysis of Port Stephens Council 2025–35 LTFP and 2025–35 LTFP model.

There were also inconsistencies in the values documented for certain assumptions and the values applied in the model for the 2024–34 LTFP. These inconsistencies related to assumptions about:

• additional rate assessments per year
• user fees and charges
• rates growth
• rental income
• employee costs
• materials and services.

Most of these inconsistencies have since been corrected in the 2025–35 LTFP model.

The Council’s process map for updating the LTFP does not include steps to ensure that the updated assumption values in the table are accurately incorporated into the financial model used to generate the financial statement forecasts. Council staff have advised that there are informal quality assurance checks to ensure that the financial modelling is accurate. However, without formal quality assurance processes for updating the values of the assumptions and ensuring they are accurately applied, these deviations may not be identified when updating the LTFP in the future. This may lead to the Council not accurately forecasting the resources available to achieve its Delivery Program and Operational Plan commitments.

Port Stephens Council uses the OLG performance indicators, and has developed its own measure, to assess performance against its LTFP

Port Stephens Council has identified each of the OLG key performance indicators (KPIs) and benchmarks in its Resourcing Strategy. The LTFP identifies all of the KPIs relevant to monitoring financial performance, and the Strategic Asset Management Plan identifies the asset maintenance ratio and infrastructure backlog ratio that are relevant for monitoring asset financial sustainability. The LTFP and the Strategic Asset Management Plan provide a description of how the metrics are being calculated by the Council as well as the relevant OLG benchmark for each.

Port Stephens Council calculates its ‘own source operating revenue ratio’ differently from the OLG’s recommended approach and the approach set out in the Council’s LTFP. The ratio is designed to measure the degree to which the Council relies on external funding sources, such as operating grants and contributions. In the LTFP, the Council describes the calculation of this ratio as being inclusive of capital grants and contributions, aligning with the OLG’s calculation of the ratio. However, Port Stephens Council does not include capital grants and contributions when calculating the value of the ratio. This means that the result for this metric reported by Port Stephens Council is more positive than what would be reported using the definition provided in the LTFP. This deviation is not explained in the LTFP or other reporting.

In addition to the OLG indicators, Port Stephens Council has also opted to report on its own metric to assess financial sustainability. In its 2025–35 LTFP, the Council includes reporting and forecasting of its ‘underlying result’, which measures the Council’s budget position after one-off expenses and income items are removed. The Council advised that it does this to provide a more accurate representation of underlying financial performance without the impact of unusual or extraordinary income and cost items. The target for the metric is ‘better than budget’ when compared to the end of year budgeted result reported in the financial statements.

Port Stephens Council forecasts its performance against 5 of the OLG benchmarks

Although the IP&R Guidelines do not require the Council to do so, Port Stephens Council forecast most of the benchmarks against the target levels each year during the audit period. In its 2025–35 LTFP, the Council forecast that it will meet each of the OLG benchmarks of financial performance that it measures for the 2025–26 financial year and across the rest of the 10-year period of the LTFP. The Council forecast the value of its own underlying result metric over the 10-year period, but these forecasts were not compared to the relevant target.

Port Stephens Council did not forecast all of the OLG benchmarks in its 2025–35 LTFP. The Council advised that it did not forecast the outstanding rates and annual charges benchmark because it does not relate to budgeted income or expenditure or to any assumptions in the LTFP model. In addition, the Council advised that it did not forecast the unrestricted current ratio due to fluctuations in cash movements. The Council’s draft 2026–36 LTFP shows that it has started to forecast these OLG benchmarks.

The Council also advised that it did not forecast the asset maintenance ratio or the infrastructure backlog ratio because forecasting asset condition is subjective, relying on professional judgement following asset inspections and assumptions about future asset usage. The value of these ratios is not forecast in the Council’s draft 2026–36 LTFP.

The current year and the following 3 years of forecast results as well as the relevant benchmarks are shown in Exhibit 6.

* Includes restricted and unrestricted funds.

** Port Stephens Council reports this metric as ‘capital expenditure ratio’ in its 2025–35 LTFP.

n/a Indicates that Port Stephens Council does not forecast this metric.

Source: Port Stephens Council internal modelling – consolidated figures.

The Council’s data indicates that it will meet the own source operating revenue ratio benchmark of 60% regardless of whether capital grants and contributions are included or excluded. The Council’s forecast of the own source operating revenue ratio that excludes capital grants and contributions is greater than 90% each year. If the Council did include capital grants and contributions, the own source operating revenue ratio would still be above the benchmark of 60%. The ratio would be approximately 86% in 2026 and 89% from 2027 onward.

Port Stephens Council regularly reports to the elected council on the performance against its LTFP

The Council is required to provide Quarterly Budget Review Statements (QBRS) to the elected council on its financial performance. The QBRS give the elected council recommendations for budget adjustments and provides reasoning for any such adjustments each quarter. There are 3 QBRS each financial year – in September, December and March. The updated LTFP is adopted in the June quarter and so a QBRS is not provided in that quarter.

In addition to these statements, staff from the finance business unit prepare presentations for the elected council that demonstrate the Council’s performance against the financial performance indicators each quarter. The Council also reports to the elected council on other financial measures and KRIs – such as restricted and unrestricted cash levels – in the QBRS and on a monthly basis as part of its regular reporting.

Council staff also report regularly to the executive team. This includes the QBRS that are presented to the elected council as well as monthly reporting on the financial performance and KRIs for each directorate area. Council staff also provide the executive team with progress reports throughout the year on the action items listed in the Financial Sustainability Strategy.

Armidale Regional Council has not effectively developed its Long-Term Financial Plan (LTFP). While the Council’s 2025–35 LTFP includes the essential elements of the Integrated Planning and Reporting Guidelines, the analysis in the plan lacks detail and there are deficiencies in the asset data used to inform the LTFP. Further, Armidale Regional Council did not update its LTFP as part of developing the 2024–25 Operational Plan as required by the Integrated Planning and Reporting Guidelines.

The LTFP is not integrated with Armidale Regional Council’s other strategies and plans. The Council is not proactively monitoring its financial risks and integrating them into the LTFP. The lack of integration limits the Council’s ability to use the LTFP to accurately forecast its future financial position.

Armidale Regional Council measures its performance against the LTFP using the OLG performance indicators and benchmarks. However, the Council executive does not report regularly to the elected council on progress and is not fully informing the elected council of the long-term financial position and performance.

By June 2027, and in the planning and adoption of future Long-Term Financial Plans, Armidale Regional Council should:

4. identify, implement and monitor mitigations for financial risk to bring the residual risk within its risk appetite
5. ensure that the Long-Term Financial Plan identifies and incorporates the implementation costs of all key elements of Integrated Planning and Reporting
6. ensure that the asset data in the asset registers is up to date, including by addressing the findings of the asset management maturity assessment
7. include more detailed sensitivity analysis and scenario planning in the Long-Term Financial Plan as required by the Integrated Planning and Reporting Guidelines
8. provide regular reporting of current financial information to the elected council as required by statutory timeframes to ensure that its financial position is appropriately monitored.

Financial challenges

In its 2022–32 LTFP, Armidale Regional Council forecast operating deficits resulting in operational and service decline without the intervention of a special rate variation (SRV). In February 2023, the Council applied to the Independent Pricing and Regulatory Tribunal NSW (IPART) to increase rates above the cap in order to eliminate its general fund operating deficit, deliver on initiatives and services outlined in its strategic planning, and meet asset renewal funding requirements.

On 15 June 2023, IPART approved the SRV application, allowing the Council to increase its rates over financial years 2023–24 to 2025–26 by a cumulative increase of 58.8%. This allowed the Council to raise an additional $18.9 million in total general income over this period. The SRV began on 1 July 2023 and increased each subsequent year until the 2025–26 financial year.

The Council’s current 2025–35 LTFP base model scenario forecasts an operating surplus for the general fund in all financial years except 2028–29 and 2032–33. However, asset maintenance and renewal are forecast to remain a major challenge for Armidale Regional Council. The Council’s low population density presents a challenge to raise own source revenue to meet infrastructure asset maintenance and renewal requirements and this is reflected in the forecasts.

The Council is responsible for assets valued at $1.3 billion as at 30 June 2025. Key asset groups include transport infrastructure (50%), water supply (16%), land and buildings (13%), and sewerage network (8%). The Council’s total road length (including local and regional roads) is 1,861 km with a metre road length per capita of 62.8.

Between financial years 2020–21 and 2024–25, the Council delivered $89 million on infrastructure asset maintenance and $64 million on infrastructure asset renewals. Despite this, the share of infrastructure assets in need of renewal rose from 9.7% in 2020–21 to 31.1% in 2024–25. The Council’s LTFP base model scenario forecasts indicate that the funding requirements to maintain and renew assets will not be met, with sustained decline from financial year 2027–28 onward.

Significant ongoing expenditure is required to maintain these assets to a satisfactory condition and to meet the community’s service expectations. The Council must ensure adequate funding for asset renewal. The Council’s financial modelling and scenarios are discussed further below.

Source: Armidale Regional Council financial statements.

Significant impacts and capital works

In 2019, the Council experienced its driest and warmest conditions on record. From financial years 2020–21 to 2025–26, it endured 11 natural disasters including fires, storms and floods. These events resulted in the Council committing to unprecedented capital expenditure to restore damage to the Kempsey-Armidale Road and address water security risks. The Council has identified that, without major supply augmentation, the local government area’s (LGA) water supply cannot meet demand during drought. The 2025–26 budget for capital works is $167 million, with $98.8 million dedicated to the Kempsey-Armidale Road restoration.

A significant number of complex capital works projects are being scheduled and planned by the Council; these link to the Community Strategic Plan and the Local Strategic Planning Statement’s (LSPS) growth aspirations. The LSPS identifies planned actions that aim to increase the LGA’s population by 10,000 people and generate 4,000 new jobs in the LGA by 2043. Key actions include increasing airport capacity, developing new employment zoned lands to support horticulture, renewable energy and manufacturing growth, and expanding water security and supply infrastructure.

Armidale Regional Council’s LTFP includes the essential elements set out in the Integrated Planning and Reporting Guidelines

The Council’s LTFP meets the essential elements of the IP&R Guidelines by having 10-year projected budgets for income and expenditure, and balance sheet and cashflows for general, water, sewer and consolidated funds. The LTFP identifies operating revenue, operating expenditure and capital assumptions.

The Council’s sensitivity analysis identifies inflation, interest rates, financial assistance grants and unexpected events as factors that may affect the LTFP. However, the sensitivity analysis is descriptive and does not apply long-term projections to identify the impact that fluctuations in these factors may have on the Council’s future revenue and expenditure.

The Council has included 2 scenarios that mostly have the same assumptions: one considers a scenario where water rates do not increase and the other considers a scenario where they do increase. No other scenarios are included in the LTFP.

The LTFP outlines the Council’s methods for monitoring performance against forecast budgets and actual expenditure. These include monitoring performance against the OLG key performance indicator (KPI) benchmarks in the Council’s annual audited financial statements and the Quarterly Budget Review Statements (QBRS).

The IP&R Guidelines also state that in developing the LTFP, due regard must be given to promoting the financial sustainability of the Council. The LG Act outlines principles of sound financial management, which include considering sustainability to ensure responsible service and infrastructure spending. The Council considers financial sustainability in the LTFP and challenges to that sustainability, such as asset renewal, operating performance, external environmental impacts and its cash position.

Armidale Regional Council has not regularly updated its LTFP as required

Armidale Regional Council has not updated or reviewed its LTFP on an annual basis. The Council’s 2022–32 LTFP was adopted in January 2023 as part of the Council’s application to IPART for a permanent SRV. The Council stated that the LTFP would be updated once IPART’s decision was known.

However, following IPART’s approval in June 2023, the Council did not review or update the LTFP for financial year 2023–24 or adopt a LTFP to cover financial years 2024–34 as part of the development of the 2024–25 Operational Plan. That is, the plan was not reviewed or updated between January 2023 and April 2025. The LTFP was most recently reviewed and updated as part of the development of the Operational Plan and the Delivery Program for financial year 2025–26. This version was exhibited on the Council’s website for public consultation for 28 days prior to being adopted on 30 June 2025.

The Council is required to update its LTFP at least annually to highlight factors that may affect the Operational Plan. Regular reviews and updates also assist councils to create relevant scenarios to navigate potential challenges and mitigate financial impacts over the period of the Delivery Program and in the long-term.

Armidale Regional Council’s executive team discussions and key decisions about long-term financial planning are not documented

The LG Act outlines principles that councils should apply when exercising their functions and decision-making. These include that decision-making should be transparent and decision makers are to be accountable for decisions. Under the State Records Act 1998, councils must make and keep full and accurate records of their activities. However, the meetings of the Council executive team are not minuted.

The Council does not have a documented process that describes when and how financial decisions should be made by the executive team. There is no documented governance framework that sets out the roles and responsibilities of the executive team in relation to the development of the LTFP or in making long-term financial planning decisions.

Armidale Regional Council does not have governance arrangements designed to ensure integration of asset management planning with the LTFP

The IP&R Handbook notes that one of the ways to support the integration of IP&R documents is to have a planning working group drawn from across the Council. This enables data sharing, strategic alignment, an understanding of resourcing requirements and organisational buy-in.

In January 2022, the Council established several working groups to integrate planning, asset management and financial management functions. For example, the Asset Register working group’s objective was to develop consistent approaches to asset data to enable improved integration with financial operations, the LTFP, the capital works program and Operational Plan development. In addition the Council established an Asset Management Reference working group. The group’s objectives were to coordinate asset and financial management functions across directorates, including to develop a policy, guidelines and strategy that would create clear ownership on procedures, systems and operations.

However, the Council advised that the working groups are no longer operating. The lack of working groups and progress in developing an asset management framework and procedures has led to governance gaps between the Council’s asset and finance directorates. Asset management data, particularly lifecycle costings, is an essential input that informs expenditure forecasts in the LTFP. The Council’s 2022 Asset Management Maturity Assessment Report identified improved integration and governance over asset and financial data as improvement actions but these remain outstanding. The Council listed system integration and asset data improvement for more efficient financial management as actions in its 2025–26 Operational Plan.

Armidale Regional Council’s Audit, Risk and Improvement Committee did not review the 2025–35 LTFP

In the 2024–25 financial year, the Council’s Audit, Risk, and Improvement Committee (ARIC) met 5 times. The agendas and minutes from these meetings indicate that the ARIC did not review the Council’s 2025 IP&R strategies or plans. This includes the LTFP, as well as the Community Strategic Plan (adopted 26 March 2025), the Operational Plan and Budget, the Delivery Program and other elements of the Resourcing Strategy (adopted 30 June 2025).

Although the Council’s IP&R strategies and plans have been reviewed by the elected council and have been publicly exhibited, ARIC review of the LTFP can help to provide independent advice to the Council and inform the Council’s decision-making. The Guidelines for Risk Management and Internal Audit for Local Government in NSW outline suggested ARIC responsibilities, which include advising the council on the adequacy, effectiveness and successful implementation of its IP&R documents.

Armidale Regional Council is not proactively monitoring its financial risks, which means that these are not being integrated into the LTFP

The Guidelines for Risk Management and Internal Audit for Local Government in NSW mandate that councils have up-to-date documented processes and procedures for risk management. As part of this, the Council has developed a risk register, though risk mitigations and treatment plans are not comprehensively stated. The risk register identifies extreme and high financial risks related to assets, services and project management that are relevant to the LTFP. These were last updated and reviewed in 2024. There is no indication that the risks have been reviewed since. Extreme and high residual risks that affect long-term financial performance include:

• insufficient funds allocated for roads infrastructure maintenance resulting in increased risk of catastrophic failure, decreased community satisfaction, increased risk of liability claims (trips, potholes), increased risk of crashes and increased future costs to replace failed assets if not satisfactorily maintained
• inadequate maintenance of current and future infrastructure which leads to reduced asset life and increased maintenance and renewal costs
• failure to achieve long-term sustainable development and whole-of-life costs if the Council does not adequately plan for its strategic infrastructure projects.

Effective risk assessment and management allow a council to identify potential risks and impacts to long-term financial performance, which may then be reflected in the LTFP. Without this, the Council’s LTFP assumptions, sensitivity analysis and scenarios are not integrated with the Council’s risk management.

Armidale Regional Council has accepted financial risks above its agreed risk appetite

A risk appetite statement describes the risk an organisation is willing to accept in pursuing its strategic objectives. The Guidelines for Risk Management and Internal Audit for Local Government in NSW require councils to establish and implement a risk appetite statement that conveys how much risk will be tolerated by the elected council in the pursuit of the council’s strategic objectives.

The Council has developed a risk appetite statement that articulates the type and amount of risk it is willing to pursue or retain in pursuit of its strategic objectives. The risk appetite statement states that the Council prefers safer options and is resistant to taking, retaining or accepting financial risks. The Council maintains a desire to take on only small amounts of adverse exposure when necessary.

The Council’s risk register identifies extreme and high residual risks for both asset risk and financial risk, which affect long-term financial performance. The Council has not articulated whether this level of risk is acceptable, particularly since the mitigation actions do not reduce the residual risk-rating levels. The extreme and high residual ratings do not align with the Council’s stated tolerance for financial risks.

Armidale Regional Council provides minimal induction training to newly elected mayors and councillors

The Council delivers financial and asset management induction training to its elected councillors and mayor. However, the training does not cover the Council’s IP&R processes, the LTFP, or other components of the Council’s Resourcing Strategy, such as the Workforce Management Strategy or Asset Management Plan. The training is only partially aligned to the Councillor Induction and Professional Development Guidelines content and the Council advised that it has no formal learning and development system. Moreover, the Council has not developed a capability framework to outline councillor or staff learning and development expectations.

The induction training content is delivered by the executive leader of each Council directorate. The Council advised that the Chief Financial Officer (CFO) provides financial management and planning induction training to councillors via presentations. The training register was last updated in September 2024 and it is unclear whether additional training or ongoing professional development has been delivered since.

Armidale Regional Council’s LTFP is not used to inform decision-making during development of the Delivery Program

The Council advised that from 2022–23 to 2025–26, each business unit undertook planning to inform development of initiatives and budgeted for the Operational Plan and the Delivery Program. Business cases for operational and capital projects were submitted by each business unit for review and prioritisation by the executive team. The Financial Services team allocated budget and resourcing using the indicative costs for projects provided by the relevant business unit, which informed the Delivery Program. Following councillor review and input, the Delivery Program was finalised.

The LTFP is not being used as part of this process to inform decision-making or prioritisation of initiatives and their required resources. This creates a risk that the long-term financial implications of decisions are not being considered during development of the Delivery Program.

Armidale Regional Council’s LTFP does not identify resourcing for the activities and projects in the Delivery Program

The IP&R Handbook advises that it is best practice for the LTFP to identify Delivery Program activities and projects, and how these commitments will be funded.

The projects, programs and actions set out in the Council’s Delivery Program are not identified in the LTFP or the models used to develop it. The Delivery Program and the LTFP do not indicate the resourcing required for these activities or the source of funding. Identifying the funding of planned projects and services for each year in the Delivery Program and aligning each initiative to the LTFP’s forecasts would allow the Council and the community to clearly identify the impact these activities will have on resourcing.

Armidale Regional Council’s LTFP does not consider whole-of-life costs for new or renewed assets

The IP&R Guidelines state that Asset Management Plans must contain long-term projections on asset costs that are then to be reflected in the LTFP. The IP&R Handbook also recommends that the LTFP should incorporate the lifecycle costings of assets over the 10-year period.

There are a significant number of complex capital works projects being scheduled and planned by the Council to address damage and risks caused by natural disasters and to achieve the Council’s growth aspirations identified in its LSPS and Delivery Program. Major infrastructure projects currently underway include the Kempsey-Armidale Road Restoration Project. The Council has also planned projects to address water supply and treatment capacity requirements, such as the restoration of the Oaky River Dam, raising the Malpas Dam wall, expansion of the airport, and actions to support and leverage development of the future renewable energy zone. The estimated costs across these projects are in excess of $1 billion.

The Council has not set out the whole-of-life costs for these projects. Therefore, it is unclear how the ongoing maintenance costs or depreciation of major assets will affect the Council’s long-term financial sustainability.

The LTFP forecast scenarios include depreciation, but the Council advised that costs beyond 4 years are indexed due to the uncertainty of receiving grants, such as those relating to the Kempsey-Armidale Road Restoration Project. The scenarios and corresponding sensitivity analysis do not forecast expenditure on maintenance, other ongoing operational costs, depreciation and/or provisions for replacement costs. As such the LTFP does not consider projects from a whole-of-life perspective.

There are deficiencies in Armidale Regional Council’s asset data that limit its ability to accurately inform the Long-Term Financial Plan

There are significant deficiencies in Armidale Regional Council’s asset management data that limit its reliability in informing forecasts in the LTFP. In 2022, the Council engaged NSW Public Works to conduct an asset management maturity assessment. The review found that:

• the condition rating within the Council’s financial statements did not accurately reflect the state of the Council’s assets
• asset valuations were carried out but valuation results did not appear to be used to inform investment in asset renewals
• lack of understanding of loss of service potential (depreciation) may lead to underfunding of renewals
• asset data was stored in Excel spreadsheets and asset registers were poorly managed.

The Council has developed Asset Management Plans that were adopted in 2023 for each asset class. However, the Council has advised that the plans are not being used to inform the LTFP. The Council relies on fixed asset registers to record its asset data, for example, attributes, acquisition costs, conditions, and replacement costs for transport, water and sewer assets. The Audit Office of NSW’s financial audit reports to the Council covering financial years 2022–23 to 2024–25 identify a number of key weaknesses that limit the reliability of these registers.

The Council’s Asset Management Strategy indicates that the Council has very low confidence in data relating to the current condition of assets, noting that most of the Council’s assets are not regularly inspected, monitored or assessed. Up-to-date asset management data (for example, condition, costs and value) is essential to provide accurate long-term operational, maintenance, renewal, replacement and disposal cost forecasts.

The Asset Management Strategy contains an update on the maturity assessment report’s recommended improvement actions. The following three recommendations are relevant for informing the Council’s long-term financial planning:

• implementing an asset inspection regime for each stage of the asset lifecycle that is specific for each asset class to inform forward works programs and long-term financial forecasts
• establishing and implementing a decision-making framework for asset-related expenditure and funding and utilising asset valuation results to guide investments in asset renewals
• investing in an enterprise asset management information system for all asset classes linked to the financial system so there is a single repository for asset information.

However, there is no evidence that these improvement actions are progressing. The 2025–26 Operational Plan lists actions such as conducting condition assessments and delivering the asset management framework. However, these are not linked to or measured against the asset improvement plan actions.

Improving the quality of asset data would assist decision makers with accurate LTFP forecasts, allowing funding requirements for asset renewal and backlog reduction to be factored into planned expenditure.

Armidale Regional Council’s Workforce Management Plan does not inform the LTFP

The Council has developed a Workforce Management Plan as part of its 2025–29 Resourcing Strategy. The Council’s workforce represents a significant expense from continuing operations. The Workforce Management Plan states that employee costs are 29.3% of total operating expenditure. Therefore, any planned increases to workforce capability and capacity will need to be reflected in the LTFP. However, the LTFP does not reflect the costs associated with delivering an expanded worforce.

The Workforce Management Plan identifies that the main workforce priority for the Council is to develop an alternative organisational structure, which includes a specialist Region Building Infrastructure portfolio. The plan states that this is to build capacity and capability in the Council to deliver on its major infrastructure projects. The Council notes that the infrastructure commitments will require strategic expansion of both the indoor and outdoor workforce. However, the Council’s LTFP has not budgeted for this workforce expansion.

A total of 26 actions are identified in the Council’s Workforce Management Plan to mitigate risks and address the Council’s identified workforce challenges. However, only one action from the Workforce Management Plan has budget allocated in the Operational Plan, with the remaining items not costed in the Delivery Program.

Armidale Regional Council’s LTFP assumptions do not reflect the long-term financial implications associated with its strategic planning

Financial planning assumptions are long-term estimates of future financial and economic conditions. They may include factors such as population growth, interest and inflation rates, revenue, expenditure and cashflow sources. These inputs are used to inform projected budgets. The IP&R Guidelines require councils to include planning assumptions in their LTFPs.

The Council’s LTFP lists assumptions for operating revenue, operating expenditure and capital works over the 10-year period. The assumptions largely reflect historical cost increases, such as those in the previous LTFP (adopted January 2023). For example, the population growth forecast is 0.71%, employee costs are 2.5%, materials and contracts increase in line with the Consumer Price Index of close to 2.5%, and grants and contributions at 2.75%.

In developing its assumptions, the Council has not reflected the planned significant expenditure or potential funding sources in the Delivery Program or the LSPS. These plans schedule major infrastructure asset renewal, acquisition and ongoing service costs that will require substantial materials, contracts and workforce. For example, the Council’s LSPS outlines plans to facilitate population growth by 33% from 2023 to 2043, with major residential, business zoning and water supply development to accommodate increased housing supply, community services and industry development. However, the LTFP does not reflect the significant expenditure required to facilitate this growth.

Armidale Regional Council’s sensitivity analysis and scenario modelling are limited

The Council has identified inflation, interest rates, changes to the value of financial assistance grants and unexpected events as factors that may affect the LTFP. However, the sensitivity analysis is descriptive and does not apply long-term financial projections that identify potential impacts to the Council’s future revenue and expenditure from these changes. The Council only assesses the effects of a change in the amount of financial assistance grants received. The Council advised that a 10% reduction in the level of these grants would result in reduced service levels, an operating deficit and impact unrestricted cash. Without long-term financial projections for some of the other potential changes, the LTFP does not clearly communicate impact if there are variations in the assumptions.

Another limitation of the Council’s sensitivity analysis is that it only describes external factors outside the Council’s control. The Council’s sources of revenue and expenses, such as rates and annual charges, employee benefits and on-costs, materials and services or cash flows from investments, are not considered. These financial line items have been subject to material budget variation over the period of review and have directly impacted the Council’s previous budget projections.

The IP&R Guidelines require councils to include financial modelling for different scenarios in their LTFPs. Currently the LTFP has 2 scenarios projected over 10 years. Scenarios 1 and 2 compare the impacts of either increasing water rates or holding water rates stable. The Council is subject to a range of factors that may impact its financial position over the long-term. Additional scenario planning could include the Council’s significant infrastructure renewal works, planned water security projects, or other potential external influences.

Armidale Regional Council monitors financial performance against 6 of the OLG benchmarks

The Council’s LTFP outlines methods for monitoring performance against forecast budgets and actual expenditure. These include measuring actual results against OLG benchmarks presented in the Council’s audited Annual Financial Statements, Operational Plan estimates against actual results and the OLG KPIs presented in the QBRS.

The Operational Plan progress report tracks the percentage of actions completed during the financial year. While these reports provide the executive team and elected council transparency on progress against actions, there is no indication of how projects are tracking compared to their budget. Tracking financial data at the action level would allow the Council to assess budget variances earlier and initiate corrective action if required.

The Council measured performance against the OLG benchmarks in its audited Annual Financial Statements for financial years 2022–23 and 2023–24 through the ‘Statement of Performance Measures’. It has also measured performance against the OLG’s Operating Performance and Own Source Operating Revenue ratio benchmarks in its QBRS. The Council advised that these metrics are primarily used to inform the Operational Plan’s financial year budget.

The Council’s LTFP includes forecast values from financial years 2025–35 for most OLG benchmarks against the target levels for 2 scenarios. The adopted budget indicates that the Council’s consolidated fund will meet most performance benchmarks set by the OLG. The results over the course of the Council’s 2025–29 Delivery Program can be seen in Exhibit 8.

* Includes restricted and unrestricted funds.

n/a Indicates that Armidale Regional Council does not forecast this metric.

Source: Armidale Regional Council’s LTFP.

The Council’s LTFP notes that the own source operating revenue ratio and the building and infrastructure renewals ratio will be impacted by high levels of infrastructure expenditure in all funds, with this expenditure planned to be predominantly grant funded. The own source operating revenue ratio forecast performance improves from financial year 2030–31 onward. The building and infrastructure renewals ratio forecast performance deteriorates from financial year 2027–28 onward, ranging between 41.4% and 70.4% across financial years 2027–28 to 2034–35.

The own source operating revenue ratio and building and infrastructure renewals ratio are heavily influenced by the Council’s estimates of grants and contributions revenue. Grants and contributions are forecast to remain at high levels over financial years 2025–26 to 2028–29, which will reduce the own source operating revenue ratio and increase the building and infrastructure renewal ratio. As noted, the revenues and costs for infrastructure projects beyond the Delivery Program are indexed or estimated due to the uncertainty of receiving grants, such as those relating to the Kempsey-Armidale Road Restoration Project, and future growth-based projects. From financial year 2029–30, the LTFP assumes that the Council will receive fewer grants towards infrastructure projects, which will have an impact on the own source operating revenue ratio.

The IP&R Handbook notes that, as well as monitoring the LTFP performance against the OLG benchmarks and the annual budget, councils may also develop additional measures to assess their long-term financial sustainability. The Council has advised an additional financial performance measure it considers is ensuring a minimum of $4–5 million is available as unrestricted cash before setting aside funds as internal restrictions. This position was introduced as a requirement for the Council as part of the OLG’s Performance Improvement Plan in 2020, and the Council has maintained it since.

The LTFP notes that a key financial challenge is the Council’s cash position. The base model scenario’s consolidated cashflow statement identifies that unrestricted cash with the exception of financial years 2028–29 and 2029–30, is above $4 million. However, the lack of detailed sensitivity analysis and limited scenario modelling in the LTFP places the Council at risk of not maintaining this level of unrestricted funds.

Armidale Regional Council does not report regularly to the elected council on its investments and Delivery Program updates

The LG Act, IP&R Guidelines and the OLG’s Quarterly Budget Review Statement Guidelines for Local Government (QBRS Guidelines) provide mandatory timeframes for the Council to report on its cash and investments, Delivery Program progress reports and QBRS. The Council reports to the elected council via ordinary and extraordinary meetings. These include regular project updates, such as on the Kempsey-Armidale Road Restoration Project, covering risks, financial expenditure and budget. However, reports on the Council’s investments and Delivery Program and Operational Plan progress reporting have not always met required timeframes.

The Council’s cash and investment reports must be provided to the elected council each month. However, the cash and investment reports from May 2025 to December 2025 were provided to the elected council at the Ordinary Council Meeting on 18 February 2026. This means that 8 months of investment reporting was delayed before being reviewed by the elected council. Cash and investment reports provide transparency to the Council on whether surplus funds are being appropriately invested and to ensure sufficient cash levels are available for day-to-day operations. As noted above, a key financial challenge is the Council’s cash position. Regular cash and investment reporting ensures that there is a sufficient financial buffer against unexpected events that may materially impact the LTFP budget.

Similarly, while the Council develops Delivery Program and Operational Plan progress reporting, these reports must be provided to the elected council at least every 6 months. Since April 2023, the Council’s Delivery Program and Operational Plan progress reporting has not been provided to the elected council within the 6-month timeframe. The progress reports give the Council a breakdown on initiatives completed, progressing, not progressing, on hold or deferred. As noted above, these reports do not identify budget allocations. However, timely progress reporting allows decision makers to address barriers to initiatives that have multiple dependencies promptly. Without this visibility, current initiatives and future activities or services that rely on their completion are at greater risk of not being finalised on time and within budget, which may impact the Council’s LTFP.

Regular financial and progress reporting enables councillors and the community to assess progress regularly and measure the Council's financial health. Without consistent and timely reporting, the administration and elected council will not be informed if changes or adjustments need to be made to the Delivery Program and how this may affect long-term resourcing.

Armidale Regional Council’s Delivery Program reporting, QBRS and project updates are not informing the LTFP

The Council’s Delivery Program and Operational Plan progress reporting tracks progress and risk indicators against actions. However, expenditure against actions in the Delivery Program and the Operational Plan is not tracked through this reporting. This limits its value in demonstrating whether the Council remains on track to meet its planned objectives, targets and outcomes for specific initiatives within allocated resources.

The QBRS Guidelines require that recommended changes to the revised budget must include an explanation and identify any impact this will have on the Operational Plan, the Delivery Program and the LTFP. This includes impacts of year-to-date expenditure on recommended changes to the budget. However, the Council’s QBRS do not include explanations for how recommended changes, variances or financial impacts may affect the LTFP, which are important in understanding why budget changes are necessary. The Council’s QBRS also inconsistently monitor and report on the OLG benchmarks. These are limited to operating performance and own source operating revenue.³ The other OLG performance indicators are not tracked on a quarterly basis.

The Council’s LTFP is not considered when project variances and associated risks impact forecast revenue and expenditure. For example, ARIC minutes in March 2025 note that the Kempsey to Armidale Road Restoration Project Steering Committee raised financial risks and challenges associated with delivering the project scope within the available funding. In particular, the ARIC noted that the estimated cost of the works is significantly higher than the allocated funding. However there is no evidence that the LTFP was used to determine the potential impact of this on the Council’s long-term sustainability.

³ The QBRS for periods 1 Jul 25 to 30 Sep 25 and 01 Oct 25 to 31 Dec 25 did not contain KPIs.