Financial sustainability

Council rate revenue and certain other Council revenues have been regulated in NSW under an arrangement known as 'rate pegging' for the past five decades.

Acting on the advice of the Independent Pricing and Regulatory Tribunal (IPART), the NSW Government determines the percentage figure by which councils can increase their total general rate income each year through its rate-pegging policy. Independent scholarly evidence, has shown that the ‘rate peg’ is often well below the increases we face as a council to deliver the quality services and infrastructure valued by our community.

Applications for what is known as a ‘special variation’, which is where councils can apply for a larger rate increase, have become common and a periodic necessity for nearly all councils across NSW.

Further details on special variations can be found on IPART’s website here: https://www.ipart.nsw.gov.au/Home/Industries/Local-Government/Special-Variations

Council rate revenue and certain other Council revenues have been regulated in NSW under an arrangement known as 'rate pegging’ for the past five decades.

Acting on the advice of the Independent Pricing and Regulatory Tribunal (IPART), the NSW Government determines the percentage figure by which councils can increase their general rate income each year through its rate-pegging policy.

Independent scholars have shown that the ‘rate peg’ is routinely set well below the increases we face as a council to deliver the quality services and infrastructure valued by our community.

It is important to note that the costs faced by Council are completely different to the inflation rate (Consumer Price Index) routinely reported in the media.

The Independent Pricing and Regulatory Tribunal (IPART) makes decisions on applications for special variations from councils across NSW, within the policy framework set out by the NSW Government’s Office of Local Government and supported by the Local Government Act (1993, NSW).

IPART reviews each application to ensure it meets the following criteria:

• a demonstrated need for higher increases to charges
• community awareness of their plans
• a reasonable impact on ratepayers
• a process to exhibit relevant council documents to the public
• a history of well-documented council productivity improvements and cost containment strategies

IPART will then either approve the special variation application as proposed, approve a different rate increase, or deny the request.

It is important to note that neither the Councillors, council staff nor the community have a role in approving an SV – this is entirely the responsibility of IPART. Councillors adopt a motion to put a proposal to IPART and also provide important evidence. Council staff and community contribute to the brief of evidence and shaping of the proposal to IPART.

Further details on how special variations are assessed can be found on IPART’s website here: https://www.ipart.nsw.gov.au/Home/Industries/Local-Government/Special-Variations

The community will be consulted on any specific application to vary rates in the Cessnock LGA. Council is exploring a special variation to address a structural imbalance and thus to remain financially sustainable. Any application will balance affordability for the community with what Council needs in order to maintain existing service levels.

Professor Joseph Drew and his team of three scholars have been engaged to provide further independent advice and community consultation surrounding an application for a special variation, following a review of Cessnock City Council’s financial sustainability.

The advice of these independent experts will be important in shaping Council’s journey to financial sustainability.

Council’s Long Term Financial Plan (LTFP) indicates multiple years of ongoing operating deficits when capital grants and contributions are excluded. Our Community Strategic Plan paints a picture of optimism for our future, while recognising the challenges we face as a growing community.

As a council, we have been upfront for several years about budgetary challenges we are facing in this local government area. Future funding obligations have been consistently included as a specific risk in every Operational Plan for the past two terms of Council.

These budget challenges are largely due to factors such as a rapidly growing population, an ageing and growing asset base, cost shifting by successive state governments, and increases to costs and materials outpacing allowable rate increases capped by the state government.

Many of these problems are not unique to our Council, and are faced by numerous other councils.

An independent Financial Sustainability Review into our financial health, by the University of Newcastle, confirmed that rising costs and decades of underfunding have placed pressure on Council’s ability to deliver services and maintain infrastructure. The Financial Sustainability Review recommended additional revenue to maintain existing services and fix critical infrastructure gaps. It will be complemented by a suite of other important sustainability measures.

While it’s true that population growth increases rate revenue, it also increases liabilities and expenses through providing council services and infrastructure like roads, parks, and playgrounds.

Developers pay a contribution towards building this infrastructure however these contributions are capped and are typically paid later in the development process. Importantly, contributions are indexed at CPI only and not at a level that meets increases in construction costs.

This means that by the time developer contributions are received, construction costs have escalated. This results in a funding gap that must be met through general rates - transferring the financial risk of development away from developers and onto councils and communities.

Council is also left to carry maintenance and depreciation costs on these assets.

It’s also worth noting that rate revenue currently covers less than 25 per cent of council costs of delivering services and infrastructure to our residents, as per the draft 2025 Financial statements.

At Cessnock City Council, we deliver a range of high-quality services and infrastructure, which are valued by our community. To do this, we rely on various funding mechanisms including rates.

As Council’s most recent draft financial statements show, rates accounted for less than a quarter (25%) of Cessnock’s revenue in 2024-25. Moreover, the operating result (excluding capital grants and contributions) was a deficit of over $33 million.

Rates are used to deliver and subsidise infrastructure maintenance and upgrades, such as local roads and bridges, community and cultural facilities including libraries, community centres, parks, recreation and sporting facilities, and public aquatic centres. Depreciation, employee costs, and materials and contracts are also among the significant expenses Council faces.

Improving efficiency always has a role to play but will not address the structural budgetary challenges faced by council alone. Council’s financial challenges are primarily related to high levels of population growth, an ageing and growing asset base, cost shifting by successive state governments, and increases to costs and materials outpacing allowable rate increases capped by the state government.

These problems are not unique to our Council, and are faced by the vast majority of the local government sector.

Amid these growing financial challenges, our Council has remained an efficient organisation when it comes to its people. For example, a recent independent financial review found that Cessnock City Council consistently had the absolute lowest staff expenditure when assessed against other comparable councils in each of the past four years.

While closing facilities may appear to save money in the short term, they play a vital role in our community’s social connection and wellbeing. Removing services may have lasting social and economic impacts. Additionally, results of the recent 2025 Customer Satisfaction Survey showed that the community places a high value on the services Council provides.

We routinely look to sell underperforming or surplus assets with the consent of the elected council. Asset sales do not meaningfully address the structural challenges – where the revenue generated through rates does not increase at the same pace as expenses, cost of materials and supplies.

The NSW Government, through the Office of Local Government, sets the framework through which the Independent Pricing and Regulatory Tribunal assesses and rules on special variation applications from councils across NSW according to the Local Government Act (1993, NSW). The NSW Government, after advice from IPART, also sets the rate peg.

The NSW Government has indicated an intention to change the process for larger rate increases following a parliamentary inquiry. The proposed changes include introducing a new pathway to increase rates for reasons such as financial sustainability through a Comprehensive Spending Review, while the existing special variation pathway would be used for specific projects or programs.

Council is monitoring developments closely and will work with the Office of Local Government and IPART to progress an application for the 26/27 financial year in the appropriate form, as outlined in our Delivery Program and Long-Term Financial Plan.

We’ll be leveraging the independent expert advice from Professor Drew and his team to inform decision making. A recommended figure will be shared with the community during the upcoming consultation, following completion of research and analysis by Professor Drew’s team. Council would then need to apply for a special variation, for IPART to determine.

A full public consultation process will be undertaken in the coming months, including surveys, drop-in sessions, and the opportunity for written submissions. Council is encouraging the community to engage thoughtfully and provide feedback throughout the process.

Joseph Drew, is adjunct Professor of Economics in Australia and abroad. Professor Drew is one of the leading local government finance scholars in the world today as demonstrated by his vast scholarly record in the best journals in the world. This includes several books published with the best academic publishing houses: (i) Local Government in Australia; (ii) Reforming Local Government; (iii) Saving Local Government, (iv) Natural Law and Government, (v) Selling Public Policy and (vi) Creating Human Value. Moreover, Professor Drew has consulted for a number of governments abroad on projects of national significance, as well as scores of local governments, state governments, and peak bodies in Australia.

Joseph works from his small farm in Moonbi, NSW, and is passionate about helping rural and regional local governments to get the best outcomes for their communities. He has been called on as an expert witness for several state and federal senate inquiries and is frequently in demand by leading media outlets.

Professor Drew is a qualified accountant, economist, natural law philosopher, and accomplished mathematician as demonstrated by a host of national and international academic awards. This skillset is truly unique and means that Joseph has an unrivalled capacity to holistically understand the complex financial challenges facing local government.

Professor Drew has had several adjunct professorships conferred on him at some of the most highly regarded universities in the world which is further testament to his unparalleled skills and the global esteem in which he is held. Indeed, he is also an editor at one of the world’s best academic journals.

He disseminates his work and helpful advice via YouTube at ‘Professor Joseph Drew’.

Qualifications: Doctor of Philosophy (Economics, UNE), Masters of Commerce (Accounting; Griffith University), Diploma Theology, Bachelor of Education (Physical Mathematics), Justice of the Peace (Qual). 

Diogo Ferreira is a mathematician of some note in scholarly circles with a special focus on cutting-edge envelopment analysis (used to empirically quantify efficiency). Indeed, he and Professor Marques are the leading scholars in this field globally and both are based at the leading university in Portugal (which is also one of the best in Europe).

Professor Ferreira has worked with Professor Drew on a number of Australian local government projects and also collaborated with him on academic papers. Diogo is a master of several complex mathematical techniques for analysing corporate and government performance and has demonstrated these in the best scholarly journals in the world in European, South American, and Australian contexts. Professor Ferreira’s participation in projects is thus able to assure that the teams impressive empirical work is indisputably best-in-world standard.

Masato Miyazaki is one of the foremost scholars of local government economics, based in Japan. He is an extremely accomplished empiricist and sits on a number of important regulatory boards in his native country in addition to the board of the Japan Economics Society. Masato is Professor of Economics at Saitama University in Japan where he is actively engaged in teaching and research. Professor Miyazaki is often called upon to make contributions to prominent local government reforms both in Japan and Australia. His empirical prowess in all forms of econometrics makes him a leading scholar in Japan and thus in high demand also abroad. Professor Miyazaki has consulted for a number of local governments in Australia, co-authoring reports with his long-time colleague Professor Drew. Professor Miyazaki is a valued adjunct at the University of Newcastle.

Qualifications: PhD (Economics, Keio University).

Yunji Kim is an associate professor in the Graduate School of Public Administration, Seoul National University (South Korea) – the top university in Korea and one of the leading public administration programs in the world. She has worked in close collaboration with Professor Joseph Drew on several papers about local government finance and policies in Australia and Korea.

Her research focuses on local government service delivery, public finance, community development, and community wellbeing indicators. She has published her works in both English and Korean in the top public administration and local government journals. She is also the co-author of Local Autonomy: Politics and Policy (in Korean) – a leading textbook on local government administration in Korea.

Professor Kim has participated in large scale projects in the U.S. to collect local government service delivery and finance data to provide a more balanced assessment of local governments and their responses to fiscal stress, especially for rural communities. Yunji was also a member of a 10-year government funded project to collect community wellbeing data in Korea and around the world in collaboration with scholars from Australia, Canada, China, Germany, Mexico, Netherlands, Taiwan, and the U.S. She has also shared her research with hundreds of local government officials and practitioners through presentations and popular publications.

Qualifications: Professor Kim received her doctoral degree from Cornell University (2017), her master's degree from the Graduate School of Public Administration at Seoul National University (2011), and her bachelor's degree from Georgetown University (2009, cum laude).