Own Source Revenue
Own source revenue ratio measures financial flexibility. It indicates the degree of reliance on external funding sources such as grants and contributions received by councils. A council has improved financial flexibility with a higher level of own source revenue. Own source revenue includes rates, annual charges and user fees and charges. The benchmark for this ratio is 60% or greater.
Councils’ own source revenue ratios ranged from 9.8% to 87.3% in 2021-22.
The ratio is calculated by total continuing operating revenue (excludes fair value adjustments, net gain/loss on sale of assets, net share/loss on joint ventures) less all grants and contributions divided by total continuing operating revenue (excludes fair value adjustments, net gain/loss on sale of assets, net share/loss on joint ventures) inclusive of capital grants and contributions.
Unrestricted Current Ratio
The unrestricted current ratio (UCR) measures the adequacy of working capital and the ability of a council to satisfy its obligations in the short term. It does not include externally restricted activities such as water, sewer or specific grants and contributions.
An unrestricted ratio of 4.45 means that council has $4.45 in unrestricted current assets to meet each $1.00 of unrestricted current liabilities. A ratio of less than 1.5 is considered unsatisfactory and could indicate, along with other financial indicators, that the council may face some financial risk.
For 2021-22, councils’ UCRs ranged from 1.0 to 49.5.
The ratio is calculated by current assets less all external restrictions divided by current liabilities less specific purpose liabilities.
Debt Service Cover Ratio
This ratio measures the availability of operating cash to service debt including interest, principal and lease payments. Councils have approximately twice as many financial assets as they do outstanding borrowings. The benchmark for this ratio is greater than 2.0.
A high ratio indicates the council has significant capacity to repay debt.
For 2021-22, councils’ debt service cover ratios ranged from – 0.0 to 13.3%.
The ratio is calculated by operating results (excludes fair value adjustments, net gain/loss on sale of assets, net share/loss on joint ventures) before capital, excluding interest and depreciation/impairment/amortisation divided by principal repayments (from Statement of Cashflow) and interest on loans.
Debt Service Ratio
The debt service ratio measures the proportion of general income that is used to repay debt and interest charges. Prudent and active debt management is a key part of councils’ approach to both funding and managing infrastructure and services over the long term. It is considered appropriate for councils to hold some level of debt. The benchmark for this ratio is greater than 0% and less than 20%.
For 2021-22, councils’ ratios ranged from 0% to 65.3%. Five councils reported they have no debt.
Councils with low or zero debt may be placing the funding burden on current ratepayers when in fact it would be more appropriately spread across generations. The ratio is calculated by the cost of debt service (interest expense and principal repayments) divided by total continuing operating revenue (excludes fair value adjustments, net gain/loss on sale of assets, net share/loss on joint ventures) excluding capital grants and contributions.
Cash Expense Cover Ratio
This ratio indicates the number of months a council can continue paying for its immediate expenses without additional cash inflow. Benchmark for this ratio is greater than 3 months.
For 2021-22 councils’ cash expense cover ratio results ranged from 1.2 months to 46.3 months. The ratio is calculated by current year’s cash, cash equivalents and term deposits divided by payments from the cash flow of operating and financing activities, multiplied by 12.
Rates & Annual Charges Outstanding Ratio
This ratio assesses the impact of uncollected rates and annual charges on liquidity and the efficiency of councils’ debt recovery. Some councils may have agreements in place to assist ratepayers in an attempt to reduce the debt owed to council. The benchmark for outstanding rates is <5% for city and coastal councils and <10% for regional and rural areas.
Councils’ outstanding rates and annual charges ratios ranged from 1.5% to 19.6%. The amounts outstanding ranged from $189,000 to $21.74 million. Total rates and charges outstanding for the sector was $494.77 million in 2021-22, compared to $460.97 million in 2020-21. This ratio is calculated by rates and annual charges outstanding divided by rates and annual charges levied by council.