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BAYSIDE CITY COUNCIL
COMMUNITY SERVICES REVIEW
Sandringham and Hampton Child Care Centres
Bayside City Council Child Care Report
Review of Outcomes: 7, 8, and 9
T & J Mulcahy
March 2013
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Contents Executive Summary .................................................................................................................................................... 3
Introduction ............................................................................................................................................................ 3
Required Outcomes: ........................................................................................................................................... 3
Outcome 7 .......................................................................................................................................................... 3
Methodology: ..................................................................................................................................................... 3
Child Care Services .............................................................................................................................................. 3
Strategic Context. ............................................................................................................................................... 4
Compliance Standards ........................................................................................................................................ 4
Major findings and implications. ............................................................................................................................ 4
Outcome 7 .............................................................................................................................................................. 6
Scope: ................................................................................................................................................................. 6
General information ........................................................................................................................................... 6
What is Competitive Neutrality? ........................................................................................................................ 6
Findings: .................................................................................................................................................................. 7
Implications; ....................................................................................................................................................... 8
Outcome 8: – .............................................................................................................................................................. 8
Scope:. .................................................................................................................................................................... 8
General information and data. ........................................................................................................................... 8
Staffing Hours and costs. ...................................................................................................................................... 10
Table 6: Occupany based on Child Care Standards and Regulations. .............................................................. 11
Table 8: Average: On the floor staff actuals /children ratio as at 30th
June 2012. ........................................... 12
Findings: ............................................................................................................................................................ 12
FINANCIAL ANALYSIS ................................................................................................................................................ 13
Assumptions , data and information used in the financial analysis. .................................................................... 13
Precis of actual revenue and expenditure as at 30th June 2012. ........................................................................ 14
Budget information: ............................................................................................................................................. 14
HAMPTON CHILD CARE CENTRE: Precis of estimated revenue and expenditure from 2013/2014 TO 2022/2023 ........................................................................................................................................................ 15
HAMPTON BUDGETS PROJECTED FROM 2012 ACTUALS OUT TO 2023. (using actuals from year ended 30th
June 2012 less any one off cost). ..................................................................................................................... 15
Definition of costs. ............................................................................................................................................ 16
Graphic presentation of selected years to demonstrate break even analysis. ................................................ 16
Table 11: Precis of financial findings: Substantiation based on three designated years:-. .............................. 17
Net Present Value Based on a 3.1% Discount Rate of Return. ......................................................................... 18
Findings ............................................................................................................................................................. 18
SANDRINGHAM BUDGETS PROJECTED FROM 2012 ACTUALS OUT TO 2023. (using actuals from year ended 30
th June 2012 less any one off cost). .............................................................................................................. 19
Graphic presentation of selected years to demonstrated break even analysis. .............................................. 20
Net Present Value Based on a 3.1% Discount Rate of Return. ........................................................................ 22
Findings ............................................................................................................................................................. 22
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Executive Summary
Introduction
The Bayside City Council in September 2012 resolved not to proceed with the tender process, to lease long term, the operating and management of its two child care centres in Hampton and Sandringham. At the same time Council resolved to receive a report in early 2013 on future options for Hampton and Sandringham Child Care Centres.
This Review forms part only of a review due in 2013 and consists of outcomes 7, 8 with input into 9 of the Council information Session No 2 document.
Required Outcomes:
Outcome 7
Is the Assessment and determination of whether Council’s child care services meets the definition of a “Significant Business” in accordance with National Competition Policy (NCP) and if so undertake a NCP compliance review of the child care centre services.
Outcome 8
Outcome 8 is to undertake a full financial assessment of operations, including staffing ratios and provide a 10 year proposed operational budget, including fees.
Outcome 9
This outcome is input only from figures obtained from the Bayside City Council.
This outcome will be achieved in collaboration with the Council who will provide the expected capital and maintenance costs for this period. These costs (if appropriate) will be factored into the 10 year Net Present value calculations and costings obtained in outcome 8.
Methodology:
Initially each of the outcomes will be addressed separately with findings and implications. A summary of these findings and implications will form the key outcomes of this review.
Outcome 7 will show alignment and compliance with the NCP directives. A “Significant Business’ checklist of both Child Care Centres will be documented.
Outcome 8 will be achieved utilising Activity Based Costing methodology and actual 2012 data given by management of the Child Care Centres.
Outcome 9 will be achieved using information given by Council staff in relation to the expected cost of capital expansion (if appropriate) and asset maintenance. These costs will be factored into outcome 8.
Child Care Services
The Bayside City Council’s Child Care Centres are part of the Australian Government’s Department Education, Employment and Workplace Relations (DEEWR) Child Care Support Program and have the key aim to provide families with high quality, accessible and affordable integrated early childhood education and care services that ensure all Australian children are fully prepared for learning and life. These services benefit the health, education, development and care of children, their families, our community and the economy, and are critical to supporting the government’s productivity agenda by supporting workforce participation. The Australian Government and State and territory governments are involved in the operation, funding, regulation and the quality of Council’s child care services.
The quality of services is monitored by the State Government Department of Education and Early Childhood Development (DEECD) who have a legislative responsibility to monitor child care services adherence to the Children’s Services Regulations. In addition all Children’s Services are currently required to meet the National
Quality Framework Accreditation standards to maintain funding. (refer table 1)
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The Bayside City Council operates two long day care centres in Hampton and Sandringham.
The Council owns (but does not operate) the assets used by fourteen kindergarten services. (Allen’s Consulting Group)
Hampton and Sandringham Child Care Centres are owned and operated by the Council, are accessible for 11 hours per day, for two hundred and thirty six days a year.
The Council’s two Child Care Centres at Hampton and Sandringham have attained quality accreditation which is externally validated.
Standards Hampton Sandringham Up to
National Education and Care Act and Regulations
Compliant Compliant Next unannounced visit
National Quality Framework and Standards
Deemed high quality at last assessment
Deemed high quality at last assessment
Due to be reassessed
Internal procedures and policies Compliant Compliant Reviewed annually in October
Strategic Context.
Early childhood services are currently the subject of a significant National Reform Agenda. The Agenda focuses on improving quality and support of early childhood services, including increased staff qualifications and staff:child ratios, expanding the trained workforce, engaging parents and the community
In recent years the growth and demand for early childhood services across Australia has increased.
For the next ten years the Bayside Population Forecasts are predicting a small increase in the 0 – 5 years category. This data shows small increases over the next ten years in the Highett, East Brighton and Sandringham suburbs, between 10% - 15%.
Compliance Standards The following frameworks, standards and policy directions specify the service delivery requirements for each Hampton and Sandringham program:
a. Victorian Early Years Learning Framework;
b. Early Learning Framework for Australia;
c. Maternal and Child Health Framework – Key Ages and Stages;
d. National Quality Standards for Early Childhood Education and Care and School Age Care – 2009;
e. Australian Government Child Care Services Handbook (for all approved child care services operating under the Child Care Management System (CCMS);
f. Blueprint for Education and Early Childhood Development;
g. “Growing, learning and thriving; Building on Victoria’s achievements in Early Childhood Development”; and
h. COAG National Early Years Reform Agenda.
i Outcome alignment with National government and business Strategies. (Refer attachment 1)
Major findings and implications.
Under the ‘Significant Business’ two criteria , the Business determination and Assessment Criteria must be
complied with.
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o Sandringham and Hampton Child Care Centres meet the Business Determination Criteria.
o Sandringham and Hampton Child Care Centres at 30th
June 2012 do not meet the Business
Assessment criteria . For the year ended 30th
June 2012 both centres did not currently reflect
or include full reflection of true costs of operating the centres.
o It is recommended that corporate on costs be included in the year ending 30th
June 2013
budgets.
o Post financial year ending 30th
June 2013 Sandringham will be compliant if the charge out fee of
$115 is applied from the 1/7/2013. This will enable Sandringham Child Care Centre to meet
the’ significant business’ criteria as stipulated by the ACC.
o Hampton will not be able to meet the ‘significant business’ criteria.
o The Hampton Child Care Centre in its current form is not financially viable.
Past deficits funded by ratepayers from 1/7/2011 to 30/6/2013 will be approximately $501,489 for
Hampton Child Care Centre and $269,672 for Sandringham. These funding shortfalls are indicative of a
lower than commercial or cost of operation fee per day being applied in past years.
From 2014 to 2023 Bayside Council will either be subsidising each family that utilises the Hampton Child
Care Centre $2479 to $3,28 8 per annum per family (59 families) or
From 2014 to 2023 Bayside Council will be subsidising each child who attends the Hampton Child Care
Centre $2,089 to $2,094 per annum per child (70 Children)
Hampton cannot with present restrictions on capacity and license numbers break even.
Hampton Child Care if it is to remain open from 2013 to 2023 will need short fall funding from the
Council of $1,929,493.
From the 1/7/2013 it is recommended that a commercial mid- range child care fee of $115 per child per
day be applied to both Child Care Centres.
If the above fee structure ($115) is not applied from this date and the current $108 per day per child
continues into 2013/2014 the shortfall funding increases. (Refer pages 14 and 18)
If the fee per child per day is increased to $115 from the 1/7/2013 it will enable Sandringham to meet
the significant business criteria, to break even and make a small profit from 2015 and ensuing years
when operating at 41 places per day.
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Outcome 7
Scope:
Does the Bayside City Council Child Care Centres meet the Significant Business definition in accordance with National Competition Policy (NCP)?
General information
What is “Significant Business” within Local Government? How does it impact on the Sandringham and Hampton Child Care Centres?
During the span from 1996 to 2005 the Australian and all State and Territory Governments agreed to implement competitive neutrality policies as part of the National Competition Policy (NCP) 1996 reform package.
Under clause 7 of the Competition Principles Agreement states and territories committed to apply this reform at local government level.
The Australian Government and all state and territory governments undertook to ensure that their publicly owned businesses did not enjoy any net competitive advantage simply because they are publicly owned. For significant government businesses, governments undertook to adopt a corporatisation model where appropriate and to impose on the business, costs and or fees and to apply these to the business regulations normally applying to private sector businesses.
The following excerpt from the Australian Competition Reform Agenda (Hilmer Report) is enclosed to illustrate how ‘Significant Business determination links with these government policies.
Diagram 1.
To determine whether the Sandringham and Hampton Child Care Centres comply with the Significant Business assessment and determination the Centres must first meet the Competitive Neutrality assessment.
What is Competitive Neutrality?
Competitive neutrality policies aim to promote efficient competition between public and private businesses. Specifically, they seek to ensure that government businesses do not enjoy competitive advantages over their private sector competitors simply by virtue of their public sector ownership.
The principle of competitive neutrality does not extend to competitive advantages arising from factors such as business size, skills, location or customer loyalty.
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Competitive neutrality also seeks to ensure that government businesses do not enjoy competitive advantages over their private sector competitors simply by virtue of their public sector ownership. When making decisions regarding future sustainability the Council must take into consideration any shortfall in revenue that may be contributed to the Child Care Centres to enable them to continue trading in a private competitive market.
How is it applied to government businesses?
The Competitive Neutrality Policy Statement sets out a number of criteria for determining whether a particular government activity is a 'significant business'.
Do the Hampton and Sandringham Child Care Centres meet the business determination and business assessment criteria.?
Table 2: Checklist for Business Determination as at 30th June 2012.
Business Determinates. Hampton Sandringham
The activity must charges for its services
There must be actual or competitive competitors
Managers of the activity must have a degree of independence in relation to the production or supply of the goods and the price at which they are provided
Do the Child Care Centres meet the Government Business Assessment?”
Table 3: Checklist Business Assessment as at 30th June 2012
Business Assessment Hampton Sandringham
Charge prices that fully reflect costs No No
Pay or include corporate on costs that reflect pay roll tax, workers compensation, cost of utilities and corporate overheads.
No No
Pay or factor in commercial rates of interest on borrowings No No
Generate commercially acceptable financial results No Yes
Comply with the same regulations that apply to private businesses (such as the Trade Practices Act and planning and environmental laws).
The policy statement also specifies that Australian Government businesses are not to be commercially disadvantaged (or advantaged) by requirements to deliver 'non-commercial' services or to provide services at subsidised rates to particular groups of consumers.
No No
Findings:
Under the ‘Significant Business’ criteria both Sandringham and Hampton Child Care Centres meet the Business Determination Criteria.
However under the Business Assessment criteria both centres do not currently reflect or include full reflection of true costs of operating the centres.
Post financial year ending 30th
June 2013 Sandringham will be compliant and be able to meet the’ significant business’ criteria as stipulated by the ACC. Providing fees are increased to off set costs.
Hampton will not be able to meet the ‘significant business’ criteria.
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Implications;
Hampton and Sandringham Child Care Centres from the 1/7/2012 to factor into the cost of service delivery all commercial costs including their percentage of Corporate On-costs to ensure the Bayside City Council comply with the Significant Business Criteria for this sector of their Child Care service delivery. (Refer to worksheets attachments A and B ).
If the Child Care Centres did not factor in their share of Council corporate on costs the Council (as the owners of the business) would be in breach of the Australian Competition and Compliance Policies. It could also lead to qualified audits and complaints from private commercial operators.
Council ‘s decision making should also take into consideration the additional amount, if any, of any deficits or shortfall in operations of the Child Care Centres that are funded by Council to enable the centres to continue trading. It is good financial governance for Council to know the true costs of operating the centres. If the Council decided not to apply the significant business criteria it would have to apply and pass the “Public Interest Test”
To be exempted under the “Public Interest Test” there are three processes by which all levels of government can seek to exempt anti-competitive arrangements from reform in the public interest. Each requires consideration of public interest issues.
`i) Subclause 1 (3) of the Competitive Practices Agreement.
ii) Authorisation of anti-competitive practices prohibited by the Trade Practices Act.
iii) Statutory exemption approved by Commonwealth, State or Territory Law S51 of the TPA.
This test can be time consuming and hard to justify if a government body is competing with the private sector for the provision of goods or services.
Outcome 8: –
Scope:.
To undertake a full financial assessment of operations, including staffing ratios and provide a 10 year proposed operational budget, including fees.
General information and data. Information shown in this section of the review is a summary only from detailed information contained in worksheets.
Demographics: Hampton child care centre.
A total of 59 families and 70 children across the municipality used the centre for the year ended 30
th June 2012.
The greatest number of children attending the child care centre came from the Hampton area. Hampton Child Care is licensed to care for 31 children . Occupancy for the year ended 30
th June 2012 was calculated at 99.2%
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The Australian Government offers two types of financial assistance for child care: the Child Care Rebate and the Child Care Benefit.
The Child Care Rebate is not income tested. This rebate helps to cover the costs of approved child care, including out of school hours care. All children attending the Hampton Child Care Centre receive the Child Care Rebate.
The Child Care Rebate pays up to 50% of out of pocket costs up to $7,500 per child per year.
The Child Car Benefit is means tested and 18 children received these benefits, whilst 4 children considered at risk from abuse, neglect or from families suffering short term financial hardship were in receipt of Special Child Care Benefits
Demographics: Sandringham child care centre.
A total of 75 families and 87 children across the municipality used the centre for the year ended 30th
June 2012.
The greatest number of children attending the child care centre came from the Sandringham area.
Sandringham Child Care has 45 licence places and operates at 41 places. .
Occupancy for the year ended 30th
June 2012 was at 95.33%
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The Australian Government offers two types of financial assistance for child care: the Child care Rebate and the Child Care Benefit.
The Child Care Rebate is not income tested. The Rebate helps to cover the costs of approved child care, including out of school hours care. All children attending the Sandringham Child Care Centre receive the Child Care Rebate.
The Child Care Rebate pays up to 50% of out of pocket costs. Up to $7,500 per child per year.
The Child Car Benefit is means tested and 31 children received these benefits, whilst 6 children considered at risk from abuse, neglect or from families suffering short term financial hardship were in receipt of Special Child Care Benefits
Staffing Hours and costs.
Total Equivalent Full Time Employees (EFT’s) across the Child Care Centres total 22.36 EFT
Hampton Child Care Centre have 10.46 EFTs whilst the Sandringham Centre has 11.90 (EFTs)
Costing methodology is based on productive working hours. Refer Table 3.
Available working time (236 days) has been calculated taking weekends, recreational leave, sick pay, public holidays and closure of the centres for three weeks over the Christmas Break ( to enable staff to have their holidays without having to back fill the positions)
The Child Care Centres are open for 11 hours of child care per day.
All figures in the following tables have been calculated from actual figures for year ended 30th
June 2012.
Table 4.Productive working hours within the Child Care Centres:
Productive working hours based on 30
th June 2012 actual figures.
Hampton Sandringham Total
Productive working hours 27,154 30,888 58,402
Average wage and salary cost per hour (Total hours averaged on 47% and 53%
respectively)
$26.53 $24.62 $25.52 Av.
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Table 5: Actual Capacity (places per day) of Child Care Centres for the year ended 30th June 2012 Historically child care fees have been set at the commencement of each calendar year. Budgets and financial statements are prepared on financial years ended twelve months 30
th June each year. During the year ended
30th
June 2012 the first six months from July to December 2011 licenced places differed from the regulated licenced number for the latter six months of the year, January to June 2012. Differing dollar rates per day also applied in this period. To reconcile with actual revenue received to optimum revenue over this period the figures were averaged for the year. The following table demonstrates the average numbers for the year ended 30
th June which impact on revenue
able to be received for that period.
Hampton Sandringham Timeframe 1/7/2011-1/12/2011 1/1/2012– 3/6/2012 1/7/2011-1/12/2011 1/1/2012 – 30/6/2012
Numbers (places per day)
10 10 15 35 8 8 15 31 10 10 25 45 8 8 25 41
Average (places per day)
9 9 15 33 9 9 25 43
Note: Child care ratio at Hampton for the first six months of the year was 35 reduced to 31 for the last six months and Sandringham was 45and 41 respectively. (Due to ratio changes)
Table 6: Occupancy based on Child Care Regulations.
Location: Hampton Sandringham
Occupancy under child care standards and regulations from 1/1/2012.
31 children 41 children
Actual occupancy at 30th June 2012 99.2% 95.33%
Factors impacting on staffing and staffing ratios. The New National Quality Framework for all Early Learning services requires increased staffing ratios, a staff member with a degree level qualification in teaching in every child care centre by 1/1/2014 with an overall increase in training requirements for all staff. There is no funding contribution by either the Federal or State governments for these requirements. These costs have been factored into the budgets from 2013/2014 years. Currently both centres meet the’ staff on the floor to children ratio ‘ regulations.
Child Care Regulations.
Table 7 Changes: Staffing to child ratio, December 2011 to January 2016. Staff to child ratios in accordance with Child Care Regulation Location Hampton Sandringham
Service delivery 0-2 Room
2-3 Room
4-5 Room
0-2 Room
2-3 Room
3-4 Room
Required Staff:Child ratios Jul-Dec 2011
1:5 1:5 1:15 1:5 1:5 1:15
Required Staff:Child ratios Jan-Jun 2012
1:4 1:4 1:15 1:4 1:4 1:15
Required Staff:Child ratios from Jan 2016
1:4 1:4 1:11 1:4 1:4 1:11
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Table 8: Average: On the floor staff actuals /children ratio as at 30th June 2012.
This table represents a mathematical calculation of the “on the floor staff to children ratio” to determine whether the centres meet the required ratios. However, it does not represent actuals as the figure does not factor in the provision of staff breaks or lower numbers of children at the beginning and end of each day.
The centres meet ratios and at certain times operate slightly above the required ratio.
Location: Hampton Sandringham
Service Delivery : 0-2 yrs 2-3yrs 4-5yrs 0-2 yrs 2-3yrs 3 -4 yrs
On the floor staff to child ratio- mathematical average.
1: 3.63 1: 3.63 1: 6.55 1: 3.46 1: 3.46 1: 7.42
Findings:
From the 1/1/2014 under new standards a qualified Early learning Teacher must be employed
These figures need to be read in conjunction with all other financial information.
The Hampton Child Care building has reached an occupancy of 99.22% of 31 licenced places. Currently the Hampton site cannot accommodate more than 31 children and has reached its capacity. It is unable to offer more places to become more financially viable. .
Implications.
There is no room to increase the number of children in the 4 – 5 room at the Hampton Child Care Centre. Generation of extra income from this source is not possible.
Another option was to increase revenue and occupancy by opening the Child Care Centres during the 3 week holiday period. The calculation showed this was not a viable option as the additional income received did not offset additional staff, and variable costs.
The replacement of an existing Child Care Worker position with an Early Learning Teacher position has been factored into the budgets.
The current on the floor staff ratio to children can achieve the above implication.
Additional money has been allowed for the salary difference in the budgets.
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FINANCIAL ANALYSIS
Assumptions , data and information used in the financial analysis.
Table 9 Information obtained from worksheets
Particulars Hampton Sandringham
Information based on 30th
June 2012 actual information Yes Yes
30th
June 2012 financials calculated on six monthly tranches due to charges in pricing and child care standards number.
Yes Yes
Equivalent Full Time Staff (EFTs) 10.46 11.90
Days open per year 236 days 236 days
Open hours for child care per day (working hours) 11 hours 11 hours
Consumer price Index for the period 2.7%. on all costs except for wages and salaries increments that have been included at 3.9% on directives of council manager.
Yes Yes
Number of children able to be cared for under the Regulations and standards
31 41
Occupancy calculated on possible revenue to actual revenue earned
99.2% 95.33%
Budget estimates taken out to 2023, with emphasis on 2014 and 2016 due to costing and regulation changes. These changes have been factored into the calculations.
Yes
Yes
One off costs have not been spread across the ten year estimates.
Correct Correct
Child Care worker to be replaced by an Early Learning Teacher as from 1/1/2014.
Yes Yes
Corporate on costs in line with Competition Neutrality Competition Policy (Corporate oncosts have been calculated at 10% of operating costs and include the provision of Human Resources, IT and financial administration for example)
Yes Yes
Council contribution to shortfall funding taken into consideration in determination of ‘significant business’ compliance
Yes Yes
Factors impacting on fees Service utilisation has a direct impact on income received. The budget is set based on utilisation targets which are directly related to the average actual in the 2011-2012 financial year. In the child care centres utilisation has progressively reached its capacity in Hampton 99.2% and increasing in Sandringham to 95.33%.
Future population expectation.
It has been estimated, in statistics provided by Allens Consulting that an increase in children requiring child care in the Bayside Municipality over the next 5 – 10 years will see gradual increases in this age group of between 15% - 20%
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Precis of actual revenue and expenditure as at 30th June 2012.
Both Child Care Centres had different fee structures and child care capacity numbers up to the end of June 2012. Six monthly financial figures were calculated at 31
st December 2011 and 30
th June 2012.
The financial viability of child care centres is directly linked to the size of the program and the age composition of the children in care Ie higher staffing ratios for children under 3 years results in higher wages and salaries. New Child Care Centres are generally being purpose built to accommodate up to 70 children to maximise compliance ratios, minimise fixed costs and to evoke economies to scale that will return a profit.
Table 10 (i) : Hampton Child Care Centre: 2011-2012 Financial year.
HAMPTON
Occupancy 99.2%
Corporate on costs included Corporate on costs not included
Revenue 730,219 730,219
Variable costs 219,165 219,165
Fixed Costs 694,021 561,425
Deficit 182,967 50,371
Shortfall funded by Council. 182,967 50371
Table 10 (ii) : Sandringham Child Care Centre: 2011-2012 Financial year.
Sandringham
occupancy 95.33%
Corporate on costs included Corporate on costs not included
Revenue 885,318 885,318
Variable costs 173,126 173,126
Fixed Costs 850,681 702,926
Surplus/Deficit 138,489 9,266
Shortfall funded by Council 138,489 Nil
Budget information: Commencing 1/1/2013 the fee structure for both centres was increased to $108 fixed rate per child per day across both centres.. The Child Care Centres operate on an 11 hour day. These figures are reflected in the budget extract shown on pages 15 (Hampton) and page 19 (Sandringham) for the year ending 30
th June 2013.
In line with commercial rates charges per day have been adjusted for 2013/2014 year and forward. Other Child Care Centres have a range of pricing policies, some charge hourly rates, some have fixed daily rates spread over fixed hours, and some offer fee for service on expanded services. Rates set for the year ended 30
th June 2012 were $99 for first six months and $108 for latter six months (average
$103 for the 2012 year). Fees charged from 1/1/2012 were $108 per child per day across both locations. The rates set ($115) for both Hampton and Sandringham Child Care Centres from 1/7/2013 were set to be comparable with like centres who provide similar services and consumables. Currently rates charged per child in comparable private child care centres as at March 2013 range from, $108 to $130, per child per day New rate to be set for the base year calculations for forward estimates (budgets) 1/7/2013 up to 2023 commence at $115 per child fixed rate for 236 days per year for an 11 hour day.
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Budgets were calculated using 2.7% CPI to all financial items except wages and salaries. Wages and salaries on directive of Council were calculated at 3.9% to allow for Local Government annual salary increments. Occupancy rates, opening hours, operating days as stated previously have been taken into all yearly calculations.
HAMPTON CHILD CARE CENTRE: Precis of estimated revenue and expenditure from 2013/2014 TO 2022/2023
HAMPTON BUDGETS PROJECTED FROM 2012 ACTUALS OUT TO 2023. (using actuals from year ended 30th June 2012 less any one off cost).
Detailed information shown on Hampton worksheets.
The following corporate on costs are factored into the budgets to meet the Competitive Neutrality and Competition Policy. Corporate 0n -costs
Costs have been separated into fixed and variable to assist with determination of break even figures and graphs.
Implication : If the Fee per day per child is not increased from $108 to $115 from 1/7/2013. Revenue would reduce to 783,864 Expenses would remain the same 980,960 Hampton Child Care shortfall for the year would be $197,096 Wages and Salaries have been calculated showing a 3.9% increase per year. This amount has been factored into fee increases over the budgeted period 2014 – 2023 The $ has been rounded to the nearest $.
Hampton : Budget estimates based on 30th June 2012 actuals.
Year/period Actual 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021 2021/2022 2022/2023
Variables as for actuals Av
Fees per day to be charged $103 $115 $120 $125 $130 $135 $140 $145 $150 $155 $160
Fees per day to be charged (non council funded) $135 $140 $145 $151 $156 $162 $168 $174 $180 $187
Funding variance per child $20 $20 $20 $21 $21 $22 $23 $24 $25 $27
Total Occupancy Days @ Shown Rate(7316) 7,258
Occupancy based on 99.2%ccupancy 99.22%
Total revenue Hampton Child Care 730,219 $747,574 834670 870960 907250 943540 979830 1016120 1052410 1088700 1124990 1161280
Council contribution to shortfall 182,967 318882 146290 145784 146608 148810 152443 157561 164219 172476 182392 194030
913,186 1066456 980960 1016744 1053858 1092350 1132273 1173681 1216629 1261176 1307382 1355310
Corporate on costs 74,596 76610 78679 80803 82985 85225 87526 89889 92316 94809 97369 99998
Capital renewals 16,000 16432 16876 17331 17799 18280 18773 19280 19801 20335 20885 21448
Maintenance 42,000 43134 44299 45495 46723 47985 49280 50611 51977 53381 54822 56302
On off capital expenditure 120000
132,596 256,176 139,853 143,629 147,507 151,490 155,580 159,780 164,094 168,525 173,075 177,748
Total expenditure for the year. 913,186 1066456 980960 1016744 1053858 1092350 1132273 1173681 1216629 1261176 1307382 1355310
Fixed Costs
Variable Costs
Total Costs
0.76 Fixed Costs
0.24 Vaiable Costs
694,021 810,506 745,529 772,726 800,932 830,186 860,527 891,997 924,638 958,494 993,610 1,030,035
219,165 255,949 235,430 244,019 252,926 262,164 271,745 281,683 291,991 302,682 313,772 325,274
913,186 1,066,456 980,960 1,016,744 1,053,858 1,092,350 1,132,273 1,173,681 1,216,629 1,261,176 1,307,382 1,355,310
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Definition of costs. Fixed Costs.: Over a specific time frame regardless of level of activity you are committed to these costs e.g.,
employee contracts, leases, insurance policies. Variable Costs: These costs change due to the level of activity. There is a direct relationship to numbers. .e.g. number
of meals cooked, casual wages. .
Graphic presentation of selected years to demonstrate break even analysis. 2014 Changes to staffing standards.
016 Changes to child ratio standards.
17
2023
Findings: Hampton Child Care Centre is licensed to care for 31 children. The Break even number is 38.5 children Hampton
centre cannot achieve the breakeven number to become a viable business unit.
The Hampton Child Care Centre is dependent for its sustainability and viability on contributions from the council.
(refer to Table 11) –Annual Council contribution per child is $2089 - $2772 pa or stated another way Council contribution per family $2479 - $3,288 pa.
The capacity or occupancy of the Hampton Child Care Centre has reached its potential (99.2%) with the building unable to meet any accommodation increase.
Hampton Child Care Centre does not meet the ‘Significant Business ‘ or Competitive Neutrality Standards.
Table 11: Precis of financial findings: Substantiation based on three designated years:-.
Hampton Child Care Centre. Financial findings
Financial Year Ending 2014 ($115 daily fee)
Financial Year Ending 2016 ($125 daily fee)
Financial Year Ending 2023 ($160 daily fee)
Total cost of operating the centre. 980,960 1,053,858 1,355,310
Council contributed to shortfall. 146,290 146,608 194,030
Fees charged per child per day $115 $125 $160
Unit Cost per child per hour. $135 $145 $187
Council contribution to each child per hour $20 $20 $27
Either ; Council contribution to each family using the child care centre per annum .
$2479 $2485 $3,288
Or Council contribution to each child using the child care centre per annum
$2,089
$2094 $2,772
Extract quoted from the CNP Standards. Competitive neutrality also seeks to ensure that government businesses do not enjoy competitive advantages over their private sector competitors simply by virtue of their public sector ownership. When making decisions regarding future sustainability the Council must take into consideration any shortfall in revenue that may be contributed to the Child Care Centres to enable them to continue trading in a private competitive market.
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Net Present Value Based on a 3.1% Discount Rate of Return. The net present value (NPV) function is used to discount all cash flows using an annual nominal interest rate that is
supplied by the Reserve Bank of Australia or Treasury.
The interest rates used in discounted cash flow analysis is for determining the present value of future cash flows.
The discount rate also takes into consideration the time value of money.
What $ dollar value will be required in the stated years using the same variables i.e. to achieve the same level of
service, with same costing variables?
Table 12; Net Present Value calculated on designated years.
Base Year 2014 $
2016 $
2019 $
Future Value 2023 $
980,960 1,075,047 1,178,157 1,331,184
Findings
The Net present value calculation assists in the validation of forward budget estimates. Budget estimates spanning ten years with variations in costs, on off cost adjustments plus annual wage increments differing from CPI adjustments precludes mathematical checking of the Hampton input data over a long period of time.
Hampton Child Care Centre is not a viable commercial business. The Council contribution to shortfall in funding is growing exponentially. (Refer page 14)
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Budgets were calculated using 2.7% CPI to all financial items except wages and salaries. Wages and salaries on directive of Council were calculated at 3.9% to allow for Local Government annual salary increments. Occupancy rates, days centres are open plus operating hours as stated previously have been taken into all yearly calculations.
SANDRINGHAM BUDGETS PROJECTED FROM 2012 ACTUALS OUT TO 2023. (using actuals from year ended 30th June 2012 less any one off cost).
Detailed information shown on Sandringham worksheets.
The following corporate on costs are factored into the budgets to meet the Competitive Neutrality and Competition Policy. Corporate On costs.
Costs have been separated into fixed and variable to assist with determination of break even figures and graphs.
Implication : i) If the fee per day per child is not increased from $108 to $115 from 1/7/2013.
Revenue would reduce to 996.192 Expenses would remain the same 1,072,820 Sandringham Child Care shortfall for the year would be $ 76,628
ii). Sandringham Child Care Centre would not meet the significant business compliance criteria.
Wages and Salaries have been calculated showing a 3.9% increase per year. This amount has been factored into fee increases over the budgeted period 2014 – 2023 The $ has been rounded to the nearest $
Sandringham : Budget estimates based on 30th June 2012 actuals. 95.33% occupancy - this was applied to the 2013/2014 year
Year/period Actual 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021 2021/2022 2022/2023
Variables as for actuals
Fees per day to be charged $103 $115 $120 $125 $130 $135 $140 $145 $150 $155 $160
Fees per day to be charged (non counci l funded) $116 $121 $125 $129 $134 $139 $144 $149 $155 $160
Funding variance per chi ld $1 $1 -$0 -$1 -$1 -$1 -$1 -$1 -$0 $0
Total Occupancy Days @ Shown Rate 9,224.0
Occupancy based on 95.33% occupancy 95.33%
Total revenue Sandringham Child Care 885,318 950072 1060760 1106880 1153000 1199120 1245240 1291360 1331392 1383600 1429720 1480213
Council contribution to shortfall 138,489 131183 12060 4894 -820 -5038 -7703 -8758 -2054 -5792 -1643
1,023,807 1081255 1072820 1111774 1152180 1194082 1237537 1282602 1329338 1377808 1428077 1480213
Corporate on costs 85,755 88070 90448 92890 95398 97974 100619 103336 106126 108992 111934 114957
Capita l renewals 7,000 7189 7383 7582 7787 7997 8213 8435 8663 8897 9137 9384
Maintenance 55,000 56485 58010 59576 61185 62837 64534 66276 68065 69903 71791 73729
One off capita l expense. 46000
197744 155841 160049 164371 168809 173366 178047 182855 187792 192862 198069
Total expenditure for the year. 1,023,807 1081255 1072820 1111774 1152180 1194082 1237537 1282602 1329338 1377808 1428077 1480213
Staffing will meet new directives/standards if an exisiting on the floor member is replaced by an ELT. Additional cost factored in from 1st January 2014.
Fixed Costs 850,681 898,415 891,406 923,773 957,346 992,163 1,028,269 1,065,714 1,104,547 1,144,821 1,186,589 1,229,909
Variable Costs 173,126 182,840 181,414 188,001 194,834 201,919 209,267 216,888 224,791 232,987 241,488 250,304
Total Costs 1,023,807 1,081,255 1,072,820 1,111,774 1,152,180 1,194,082 1,237,537 1,282,602 1,329,338 1,377,808 1,428,077 1,480,213
0.8309 Fixed Costs
0.1691 Vaiable Costs
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Graphic presentation of selected years to demonstrated break even analysis. Year Ended 30
th June 2014
Year ended 30
th June 2016
21
Year ended 30th
June 2023
Financial findings: Sandringham Child Care Centre is licensed to care for 41 children. The Break even number is slightly under 41 children
The Sandringham Child Care Centre is a commercially viable operation based on assumptions and introduction of future fee structures. Corporate on costs have been included in all financial calculations.
The capacity or occupancy is currently at 95.33% (39.5) and there is enough slack in the 3 4 room (depending on rostering of clients) even with new staffing ratios, for 1.5 additional children to be accommodated. In 2014 this would generate additional net revenue of approximately $30,000
With strict cost control and no additional capital expenditure the centre is viable.
However if Child care costs rise faster than the CPI the economies of scale in the future will not be there for Sandringham Child Care Centre.
Table 13: Substantiation: Based on three designated years:-.
Sandringham Child Care Centre. Financial findings
Financial Year Ending 2014 ($115 daily fee)
Financial Year Ending 2016 ($125 daily fee)
Financial Year Ending 2023 ($160 daily fee)
Total cost of operating the centre. 1,072,820 1,152,180 1,475,840
Council contributed to shortfall. 12,060 Nil (small profit) Nil
Fees charged per child per day $115 $125 $160
Unit Cost per child per hour. $116 $125 $160
Council contribution to each child per hour $1 Nil Nil
Either: Council contribution to each family using the child care centre per annum .
$160 Nil Nil
Or: Council contribution to each child using the child care centre per annum
$138 Nil Nil
Note: For the Sandringham Child Care Centre to break even it is necessary to charge $115 per day per child from 1/7/2013.
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Implications: Sandringham Child Care Centre under the present indexed costs and implementation of future recommended fee increase is a commercially viable business. Sandringham post 2014 complies with the Competition Neutrality Regulations. The centre covers both corporate on costs and receives no council contribution.
Net Present Value Based on a 3.1% Discount Rate of Return.
The net present value (NPV) function is used to discount all cash flows using an annual nominal interest rate that is
supplied by the Reserve Bank of Australia or Treasury.
The interest rates used in discounted cash flow analysis is for determining the present value of future cash flows.
The discount rate also takes into consideration the time value of money.
What $ dollar value will be required in the stated years using the same variables ie to achieve the same level of
service, with same costing variables?
Table 12; Net Present Value calculated on designated years.
Base Year 2013/ 2014 $
2016 $
2019 $
Future Value 2023 $
1,072820 1,175,717 1,288,483 1,455,840
Findings
The Net present value calculation assists in the validation of forward budget estimates.
Budget estimates spanning ten years with variations in costs, on off cost adjustments plus annual wage increments
differing from CPI adjustments precludes mathematical checking of the Sandringham input data over a long period of
time.
Sandringham Child Care Centre could continue operating as a viable commercial business if budget indicators are
strictly complied with.
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Attachment 1: Compliance Standard (i)
Australian Government COAG
Early Years Reform Agenda “All children have the best start in
life to create a better future for themselves and for the nation”
Department of Education,
Employment and Work Place Relations (DEEWR)
Supports and promotes access to quality child care for children
families and communities through strategies that assist families – CCB
and CCR
Department of Education and Early
Childhood Development. Commitment to ensuring that every young Victorian thrives, learns and grows, enjoying every opportunity to realise a rewarding and fulfilling
life.
Bayside Council - Strategic Commitments
1. Lifestage
wellbeing or our
community
2. Advocacy for
and with our
community
3. Managing
our built
environment
4. Natural
environment,
open space and
biodiversity
5. Community
engagement
and having real
conversations
6. Stewardship,
governance and
leadership
Divisions within Bayside Council
Corporate Services Infrastructure services City Strategy Community Services
Divisional Departments within Community Services
Aged and Disability Services
Family & Cultural Services
Policy & planning Unit
Youth Recreational and Events
Maternal Child Health and Immunisation
Children’s Services Libraries Arts and Culture
Child Care Services : Objectives Action /Work based Plans
Vacation Care Child Care Kindergarten Central Enrolment
Child Care services: Work based plans (WBPs)
Hampton child care services Sandringham child care services
Continuous Improvement
Continuous Improvement
Risk Assessment
Child Care Plan / Service
Delivery / budgets
Risk Assessment
Child Care Plan / Service
Delivery / budgets
