BUDGET – What to look for when concidering a budget proposal March 2017

ANALYSIS OF PROPOSED BUDGETS

Hilton Conroy – 2 March 2017

WHAT TO LOOK FOR WHEN CONSIDERING A VILLAGE BUDGET PROPOSAL

Under S102A of the Retirement Villages Act 1999 (RVA) a scheme operator must adopt a budget (the general services charges budget) for each financial year. The general services charges budget must allow for raising a reasonable amount to provide the general services for the financial year and fix the amount to be raised by way of contribution to cover the amount. Charges payable by residents must be worked out in the way specified in the PID.
When considering a budget proposed by an operator it is suggested that the basic points outlined below, whilst not an exhaustive list, would serve as a good starting point for residents and committees to identify matters needing further clarification from the village operator;

  1. Compare the total of income and general service expenses of the proposed budget to the budget for the previous year.
    This will give a quick view of whether there is any major change in the overall scope of the budget and village operations.
  2. Consider amounts proposed for individual GSC line items.
    Make comparisons and seek further information on all line items in the budget proposed that have significant increases or decreases – when compared to last years’ budget and cumulative expenditure to date.
    For example; consider whether the individual line items are in accord with known changes in the village e.g. more or less staff or more units, more facilities, etc.
    Have items been simply increased by the maximum percentage allowed by the RVA S106 without being properly calculated on a reasonable basis?
    Decreases may also need to be queried as well as increases,with the aim being to ensure an appropriate level of funds will be available for the service concerned.
  3. Are there any new line items for an expense on a service that has not been previously provided to residents.
    Any new items listed may require the approval of residents by a special resolution vote under S108(1). This does not apply if;
    • a service is a cost-effective alternative after consideration under S107(a),
    • is a personal service or
    • “the PID given to all residents stated that the service was proposed to be supplied”.
    Note that S108(3) to (6) determine when two quotes are required.
  4. Have any line items in the previous years’ budget been removed from the budget being considered for the coming year.
    A line item deleted may mean a service has been discontinued and appropriate inquiries should be made with the operator where considered necessary.
  5. Does the proposed budget have enough information, by virtue of sufficient break up of line items, or by full explanatory notes, to allow for a fully informed consideration of the budget.
    This is essentially about transparency in budgeting e.g. broad headings may not show sufficient information for residents to properly consider what they are actually being asked to approve. Where any doubt exists further information on the make up of the item should be sought from the operator.
  6. Carry out a budget compliance check under S106 & S107 of the RVA (see ARQRV website for a spreadsheet to assist).

S106 of the RVA aims to provide protection to residents from excessive increases in General Service Charges by limiting increases to the “all groups” CPI for Brisbane. The CPI in this case means the published CPI for the quarter ending immediately before the start of the financial year and the published CPI before the end of the financial year. For 2016/17 the percentage limit is 1.7%.

NOTE : The percentage increase allowed is NOT simply the increase in the total budget proposed above the total budget for last year. To determine whether a proposed budget is compliant the total of each S107 item which is above the percentage allowed, is deducted from the total of general services charges for general service charges for both years before the percentage increase between the years is calculated. If the budget increase calculated is greater than the percentage allowed, then residents are entitled to a vote on all S106 items that are above the percentage e.g. 1.7% for considering 2016/17 budgets.
For CPI information see;
http://www.qgso.qld.gov.au/products/tables/cpi-all-groups-bris-wt-avg-eight-qtr/index.php,

S107 items are;
• Taxes or charges levied under an Act in relation to the retirement village land or its use.
• The salary or wages of a person engaged in the retirement villages operations which is payable under an award, certified agreement, Qld workplace agreement or other agreement under the Industrial Relations Act 1999 or a Commonwealth Act.
• Insurance premiums or excesses paid in relation to the village or its use.
• maintenance reserve contributions.

If you believe that the budget proposed is not compliant with S106, you may wish to discuss the matter with your village manager or the Residents Committee.

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