News / Council

Volatile building costs put council capital works program at risk

Merri-bek is forecasting a surplus of $22 million this year despite a blow out in capital works expenditure

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Mark Phillips

MERRI-BEK Council is warning that growing construction and supply chain costs could impact on its ability to deliver an ambitious $112.6 million capital works program next financial year.

The council has budgeted for an increase in capital works spending in 2023-24, but admits project costs are difficult to estimate due to the volatile economic environment.

Next year’s capital works program would represent an increase of 22% on spending this year, and is spearheaded by $28 million to be spent on redeveloping the Fawkner Leisure Centre, $16 million on the Saxon Street, Brunswick community hub, and $8.5 million on new kindergarten and early childhood facilities, including the proposed centre in Albert Street.

Other highlights for the Brunswick area from the capital works program are an allocation of $1.1 million to a new park opposite the town hall at 260 Sydney Road park, and $1 million towards the Brunswick Velodrome pump track project.

But the difficulty of estimating the costs of capital works has been highlighted by a blow out in spending in the current financial year, which is forecast to be 59% higher than originally budgeted.

The current budget was based on forecast inflation of 3.5%, which is half the actual consumer price index for the 12 months to end of March.

Inflationary building costs have already forced significant revisions of high-profile council projects, including the Saxon Street hub, which is now budgeted to have a total cost of $29 million, double what had originally been planned.

For this reason, the council’s budget for next financial year contains a blunt warning that some projects may need to be delayed.

To cover for further unexpected costs, the budget proposes setting aside a $13.3 million for a “Significant Projects Reserve” to fund future projects.

“It is noted that construction costs are escalating due to supply chain issues, lack of resources and availability of contractors due to increase of infrastructure projects throughout Melbourne and it is expected that cost estimates will not be accurate,” says a note in the proposed budget.

“Officers expect that for 2023-24 and 2024-25 years, cost pressures will continue to increase and may impact our ability to deliver the full program.”

The proposed budget was adopted by the council for public comment last month. Community feedback is open until May 19.

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The council is forecasting it will finish this financial year with an underlying operating surplus of $22 million and $22.6 million next year. Revenue is forecast to grow by 4.8% in 2023-24 to $263.1 million, with rates making up 70.4% of that amount. Spending will grow by 1.8% to $216.1 million.

Total rates income will grow by 3.5% next year under the state government cap, which will see the average property owner paying an extra $1.22 a week or $63.48 a year.

Waste collection charges will increase by 68 cents a week or $35.15 a year, which the council attributes to the costs of introducing new household glass and recycling bins.

The council is also expecting a 4% increase in revenue from fines and infringements to $9.5 million “as things return to normal post-COVID”, but after controversy this year, there will be a reduction of $500,000 from collecting fines for unpaid and late animal registrations.

Employee costs of will grow by 5% to $107.3 million with the council employing 930.9 full-time equivalent staff in 2023-24, while expenditure on consultants and professionals will increase by 41% to $5.3 million due to “several new operating projects across the organisation”.

Mayor Angelica Panopoulos said the budget had been put together in “a challenging economic environment”.

“The State Government has set the rate cap at 3.5%,” she said.

“We know cost of living pressures are high for our community and this cap is higher than recent years. However, it is much lower than the inflation rate, and the costs of goods and services procured by Council have risen by more than 3.5% due to inflation.

“Despite increasing expenses and difficulties in some areas, we remain in a strong, sustainable financial position.”

The budget has also adopted six community suggestions costing $278,000 which were chosen from 26 ideas. These include $100,000 for accessible tennis facilities and reserves and $80,000 for shade in parks and playgrounds.

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