The ALGA has commissioned PricewaterhouseCoopers to prepare a report titled, A Practical Way Ahead: National Financial Sustainability Study of Local Government. Its findings were released on 4 December and can be accessed at www.alga.asn.au
Chairman of Federal Government Services for PricewaterhouseCoopers, Grahame Morris, outlined some of the major findings and recommendations of this report to delegates. Former Chief of Staff to Prime Minister John Howard, Grahame Morris has held various key positions in both Federal and State political arenas as well as the media. He said that Local Government spends over $20 billion per annum representing two per cent of GDP, it employs 1.3 per cent of the nation’s workforce and in many areas is the largest employer.
Dispensing with any notion that one size fits all, Grahame Morris pointed to Brisbane City Council with 950,000 residents and a budget of $1.7 billion, as against Jerildie with 1908 residents and an annual budget of $6.4 billion.
The report documents that Local Governments have a sizeable amount of ageing infrastructure coupled with a large and growing renewal backlog. Councils with smaller numbers of residents (and usually larger areas) are struggling more. These Councils are usually located in rural areas. However, some of the fringe urban Councils that have experienced recent rapid population growth are also struggling to keep up with the demand for new infrastructure.
“Rising community expectations for increasing services coupled with constrained revenue raising opportunities is creating operational deficits, deferred renewals and a backlog of work.” Grahame Morris said.
In compiling the report, PricewaterhouseCoopers surveyed 100 Councils reflecting the percentage of Councils in each State and Territory and the per cent of Councils falling within the seven size categories used by the Department of Transport and Regional Services. It found that in New South Wales 25 per cent of Councils were not sustainable, in South Australia 38 per cent, Western Australia 58 per cent and Victoria ten per cent. Queensland, Tasmania and the Northern Territory were all around the 35 per cent mark.
On current funding arrangements Local Government receives $21.4 billion, but PricewaterhouseCoopers says, to meet its commitments, it should be receiving $23.56 billion. In other words, there is a nine per cent shortfall or gap. It found that costs to Councils are often increasing at twice the inflation rate (CPI), that a number of Councils have limited financial and asset management skills and, due to community demands, Councils are battling to provide escalating community services.
Grahame Morris said that the report recommends that Local Government needs to clearly demonstrate its credentials in self help initiatives.
“What has Local Government done in recent times to help itself,” he said. “There is a reasonably good story to tell. Local Government has lifted its own game and it is prepared to do more.”
He said Councils need to look for opportunities to expand their own revenue sources, to be setting priorities, establish robust long term service plans that include how those services will be undertaken. The report recommends that Councils need to secure long term funding prior to taking on any new services.
Local Government must improve its capacity in asset management and financial planning including asset reporting and data collection. The report recommends a nationally consistent approach for data collection.
“Local Government must drive all of this,” Grahame Morris said. “It is hard to prove your case if you don’t have the raw data.”
However, he said that self help can only go part of the way – funding reforms are also necessary. The report calls for an overhaul of the current Financial Assistance Grants (FAGs) and a new formula that takes account of both wage cost and construction cost indexes not just CPI.
The Roads to Recovery program needs to be made permanent, and the report recommends that a similar funding program for local community infrastructure renewal be established.
The report states that between $200 to $250 million per annum is required to support Councils in the $1 billion backlog of renewal of community facilities. It says priority should be on renewal and replacement not building new facilities.
“The time is ideal to progress this approach,” Grahame Morris said. “With the Federal election coming up, all Parties are searching for new policy ideas. Helping communities at the grass roots delivers mutual benefits all round. Local Government is an important sphere of government, but one third of Councils are in trouble in meeting their operational costs let alone their infrastructure backlog.”
