Transcript Progress on NSW Local Govt. Sustainability since the 2006 Inquiry National L.G.

Progress on NSW Local Govt.
Sustainability since the 2006 Inquiry
National L.G. Asset Management and Public Works
Engineering Conference, Melbourne, May 12th 2010
© Professor Percy Allan AM
Research Director
Review Today Pty Ltd
Local Government Inquiry


2
In September 2005 the LGSA (NSW) appointed an
independent 3 person panel to review the future
sustainability of NSW local government.
The Panel’s chair and research director was Prof.
Percy Allan, a public finance adviser who had
previously been Secretary, NSW Treasury (1985-94)
and Finance Director, The Boral Group (1994-96).
6/11/2015
Local Government Inquiry



3
The Local Government Inquiry completed its 2 volume
(1000 pages) report in May 2006.
Subsequently Prof. Allan with Mr. Bob Gaussen
(Mediate Today) formed a consulting consortium (with
AE and GHD) to undertake sustainability reviews of
individual councils.
So far Newcastle, Albury, Wollongong and Great
Lakes, Greater Taree, Armidale, Dubbo and Coffs
Harbour councils have used its services to review their
long term sustainability.
6/11/2015
Local Government Infrastructure

Findings
–
–
–
4
The public wanted more attention given to local
roads, pavements and kerbing. (IRIS Research
opinion poll). Upgrading the environment and the
appearance of public areas also rated highly.
Overall underspending on infrastructure renewal
had been of the order of $500 million per annum.
It would cost over $6.3 billion to restore these
assets to a satisfactory condition.
6/11/2015
Local Government Infrastructure

Findings
A further $14.6 billion was needed to replace existing
assets over the next 15 years. This did not take
account of new infrastructure needs for a growing and
shifting population.
– Only one in five councils were managing infrastructure
risk via asset or risk management plans. As assets
deteriorated, councils risk exposure was increasing.
- Most councils significantly understated their
depreciation rates because they had not updated the
fair value of their assets since accrual accounting was
introduced in the mid 1990s.
–
5
6/11/2015
Local Government Services

Findings
–
–
6
Only a small proportion of councils had undertaken
long term assessments and planning of their
community’s service needs.
Most councils did not prioritise beyond 3 years
(management plan) or budget beyond 1 year.
6/11/2015
Local Government Finances

Findings
–
–
7
The balance sheets of most councils were
exceptionally strong, displaying very low levels of
indebtedness to other sectors of the economy.
On average, the net financial liability of councils was
little more than 2% of their total assets. Only a
handful of councils exceeded 10%. This compared
with 25% for the NSW Government and over 50%
for PPP infrastructure operators.
6/11/2015
Local Government Finances

Findings
–
–
By contrast, the operating statement of most
councils was heavily in deficit.
Excluding commercial utilities (e.g. water and
sewerage) councils* on average ran an operating
deficit of almost 5% of their total own-source
revenues. Over 20% ran operating deficits in excess
of 20%.
* After adjustment of depreciation of physical assets at fair value
8
6/11/2015
Local Government Finances
Council Operating Balance Ratios*
40%
20%
0%
-20%
-40%
-60%
9
* Council operating deficits/surpluses to total own source revenues
6/11/2015
Local Government Finances

Findings
–
–
10
Councils’ operating deficits were largely funded by
running a surplus on capital account rather than
resorting to borrowings. This meant capital
contributions, capital grants and proceeds of asset
sales were mainly used to prop up operating costs
rather than undertake capital renewals and
enhancements.
For one in four councils the long-term outlook was
particularly bleak. Without substantial rate increases
and/or disruptive expenditure cuts, they were
financially unsustainable.
6/11/2015
Define Councils’ Role
LGI
Recommend
11
LGSA
Support
Good
Progress
Partial
Progress
Little-No
Progress
Policy
Initiative
1. Constitutional
Recognition
Yes
X
ALGA –C/w
Agreement
2. Inter-Govt
Agreement
Yes
X
NSW
Opposition
Committed
3. Annual Cost
Shifting Survey
Yes
4. Red Tape
Review
Yes
X
LGSA annual
survey
X
Review Today Pty Ltd
Renew Infrastructure

LGI Rec: Restrain Services
All councils with an infrastructure renewal gap and backlog voluntarily agree
to restrain operating expenditure by adopting an ‘optimalist’ approach to new
recurrent services until their physical assets are restored to a satisfactory
condition. This would involve devoting the bulk of future real growth in council total
revenues to renewing and enhancing local infrastructure, especially roads, kerbing,
pavements and bridges, until the renewal gap and backlog was overcome.
12
6/11/2015
LGI Proposals:
Renew Infrastructure

LGI Rec: Infrastructure Funding Strategy:
To minimise the impact on council rates, fees and charges of
overcoming the $6.3 billion infrastructure backlog and closing the
$0.5 billion annual infrastructure renewals gap, the Inquiry proposed
local government:
– Borrow $5,300 million to overcome the infrastructure backlog (other
than that in water and sewerage which DEUS insists can be funded
with existing charges). This would generate about $400 million in debt
charges (interest and principal repayments) annually;
– Raise an extra $900 million per annum in revenue to both close the
renewals gap ($500 million) and meet the new debt charges ($400
million); and
– Derive the extra $900 million by seeking $200 million in extra C/w and
State grants, $200 million in council expenditure savings and $500
million from a one-off 13% increase in rates, fees and charges.
13
6/11/2015
LGI Proposals:
Renew Infrastructure

LGI Rec: Infrastructure Management
The State Government provide financial incentives and technical
assistance to enable all councils within three years to adopt a total
asset management (TAM) system with consistent asset accounting
practices.

LGI Rec: Regional Roads
The NSW Government assume responsibility for all regional roads in
rural shires since such councils do not have the financial capacity
and asset management systems to maintain and renew them. This
would cost about $45 million a year and be part of the State’s
increased grants effort.
14
6/11/2015
Renew Infrastructure
LGI
Recommend
5. Operating
Gowth Cap
No
6. Introduce
Asset Mgt
Systems
Yes
7. C/w/ State
Backlog Funding
Grants
15
LGSA
Support
Good
Progress
Partial
Progress
Little-No
Progress
Policy
Initiative
X
X
Yes (ip)
DLG/ IPWEA
Guidelines
X
Review Today Pty Ltd
C/w RLCIF
of $1 Billion
Renew Infrastructure
LGI
Recommend
LGSA
Support
8.Depreciation
Fully Funded
Deferred
9.State takeover
of Regional
Shire Roads
Yes (ip),
but only
where no
funding is
provided
16
Good
Partial
Little-No
Progress Progress Progress
X
DLG
Depreciation/
Renewal Index
X
Review Today Pty Ltd
Policy
Initiative
Prioritise Services
LGI
Recommend
17
LGSA
Suppor
t
Good
Progress
Partial
No
Policy
Progress Progress Initiative
10. Opinion
Surveys
Yes
X
11. Services
Plan
Yes
X
DLG Delivery
Plan
12. Joint
Purchasing
Yes
X
LGSA permit
from DLG &
Shared Service
Centres (e.g.
Hunter
Councils)
Review Today Pty Ltd
DLG Engage
Strategy
Prioritise Services
LGI
Recommend
18
LGSA
Suppor
t
Good
Progress
Partial
Progress
No
Policy
Progress Initiative
13. Resource
Enhancements
Yes
X
Parking
meters
14. Business
Commercialisation
Yes
X
Water Utility
Guidelines
Review Today Pty Ltd
State and Local Land Use Planning
19
LGI
Recommend
LGSA
Support
Good
Partial
Progress Progress
No-Little
Progress
15. Single
Planning Doc
Yes (ip)
X
16. Long-term
Usage Plan
Yes
X
17.Devt
Delegations
Deferred
X
18. Advisory
Panels
Deferred
19. Councillor
Voting Records
Deferred
X
Regional Plan
Panels
X
Review Today Pty Ltd
Policy
Initiative
State and Local Land Use Planning
20
LGI
Recommend
LGSA
Support
20. Planning
Commission
Deferred
Good
Progress
Partial
Progress
X
Review Today Pty Ltd
No
Policy
Progress Initiative
LGI Proposals:
Boost Revenues

LGI Rec: Rate Pegging
The State Government free councils to determine their own income by
removing statutory limitations on their rates (i.e. rate pegging) and certain
fees (e.g. development application processing fees) in return for councils
adopting longer-term strategic and financial planning with outcome targets.

LGI Rec: Financial Assistance Grants
The Commonwealth Government increase its financial assistance grants
(FAGs) to Local Government by 20 per cent ($300 million in 2003/04 values)
and then set them at a fixed percentage of:
– Gross domestic product (0.22 per cent); or
– Total Commonwealth collected taxes, including GST (0.86 per cent); or
– Total income taxes (1.27 per cent)
so as to restore part of the reduction in the Commonwealth’s Local Government
funding as a proportion of GDP in the last two decades and also partially address
the vertical fiscal underutilisation (VFU) between the Commonwealth and the lower
tiers of government, especially in relation to Local Government (see Access 2004).
21
6/11/2015
Boost Revenues
22
LGI
Recommend
LGSA
Good
Support Progress
Partial
Progress
No-Little
Progress
21. Abolish Rate
Pegging
Yes
22. Rate Peg
Catch-ups
Yes
X
23. Fund Rate
Exemptions
Yes
X
24. Fund
Pensioner
Concessions
Yes
X
25. Issue Service
Pricing Guidelines
Yes
X
X
Review Today Pty Ltd
Policy
Initiative
Govt asked
for IPART
Review
Boost Revenues
LGI
Recommend
26. Developer
Contribution
Accountability
Yes
27. Fix FAG as
Ratio of GDP
Yes (ip)
X
28. Fix GAG as
Ratio of Tax Rev
Yes (ip)
X
No
X
29. Revise
Grants Com
Methodology
23
LGSA
Good
Partial
No-Little
Support Progress Progress Progress
X
Review Today Pty Ltd
Policy
Initiative
State Caps on
Council DCs
Boost Revenues
LGI
Recommend
24
LGSA
Good
Partial
No-Little
Support Progress Progress Progress
30. Publish
Council
Disability Calcs
Yes
X
31. NSW Govt.
publish its total
LG assistance
Yes
X
Review Today Pty Ltd
Policy
Initiative
Improve Management

LGI Rec: Long-term Planning
All councils develop and adopt a long-term
strategic and financial plan in close consultation
with their communities that would be subject to
annual external compliance audits and updated in
the first year of each council’s term. There would
still be an operational plan – the existing annual
management plan with a detailed 3-year operating and
capital budget.
25
6/11/2015
Improve Management
LGI
Recommend
LGSA
Support
Good
Progress
Partial
No-Little
Progress Progress
32. Governance
No
Structure Choices
X
33. Increase Cap Yes
on Councillor Pay
X
34. Council
Strategic and
Financial Plans
Yes
35. Revise DLG
Performance
Measures
Yes
26
X
DLG IP&R
Guidelines
enacted
X
Review Today Pty Ltd
Policy
Initiative
Improve Management
27
LGI
Recommend
LGSA
Good
Partial
No-Little
Support Progress Progress Progress
Policy
Initiative
36. Councils
Benchmark
Own
Performance
Yes
DLG IP&R
Reporting
Guidelines
37. Council
Resource
Sharing
Functional
Analysis
Yes
X
X
Review Today Pty Ltd
Upgrade Financial Management

LGI Rec: Financial Data
The DLG amend its Code of Accounting Practice and Financial Reporting for
councils to standardise key accounting and reporting policies, especially in
relation to asset condition assessment, asset valuation, depreciation rates,
capital expenditure (including the distinction between asset maintenance,
renewal and expansion), a high-level chart of accounts, a workforce profile
database (each with agreed definitions of terms as exists in the NSW general
government sector) and key financial indicators. Any such changes should be
done in close consultation with the DLG’s Accounting Advisory Group which
includes members of the LGFP and LGAA.

28
LGI Rec: Financial Benchmarks
The LGMA re-issue its Sustainable Financial Health Check Manual with an
expanded list of financial KPIs and an appropriate range of lower and upper
benchmarks for each KPI along the lines shown in the table in the Inquiry’s
Final Report (e.g. net financial liabilities be set between 5% and 15% of a
council’s capital employed) The expanded list should be determined
collaboratively by the LGMA, LGSA, DLG, LGPP, LGAA and other relevant bodies.
6/11/2015
Upgrade Financial Management
LGI
Recommend
29
LGSA
Support
Good
Progress
Partial
Progress
No-Little
Progress
38. Standardise
Financial Data
Yes
X
39. Revise LGMA
Financial
Benchmarks
Yes
X
40. Boost Local
Infrastructure
Borrowings
Yes (ip)
X
41. Clarify
Councillors’
Financial Duties
Yes
X
42. Councillor
Finance Training
Yes
DLG IP&RG &
Accounting Code
changes
X
Review Today Pty Ltd
Policy Initiative
DLG Debt Service
Ratio Red Alert set
too low
DLG, LGSA and
other training
Upgrade Financial Management
30
LGI
Recommend
LGSA
Support
43. Annual
Sustainability
Ratings Review
Good
Progress
Partial
Progress
No-Little
Progress
Policy
Initiative
Yes
X
Only
FiscalStar’s
own efforts
44. LGSA Industry
Statistics and
Database
Yes
X
45. Capacity
Building Grants
and Assistance
Yes
46. Councils to be
in Surplus within 35 years
No
X
47. Financial
Governance
Statement in AR
Yes (ip)
X
X
Review Today Pty Ltd
C/w LG Reform
Fund of $25m
Next Steps
LGI
Recommend
LGSA
Good
Partial
No-Little
Support Progress Progress Progress
Policy
Initiative
48. Hold
Summit
Conference
No
Subsumed by
Strengthening
LG Taskforce
X
49. Independent No
Commission
31
X
Review Today Pty Ltd
Major LG Reforms post LGI

State Govt
–
–
–
32
Commissioned IPART to review Local Government
revenue raising capacity, but no final report
released yet.
Introduced Regional Planning and Development
Assessment Panels
Established NSW Planning Commission to deal with
projects of State significance, but Planning Minister
may override its decisions
Review Today Pty Ltd
Major LG Reforms post LGI

State Govt
–
–
33
Applied a $20,000 threshold on developer
contributions to councils
Commissioned Armstrong/ Gellatly Review of
Council Water Utilities which recommended various
options for aggregating existing 104 local water
utilities into 32 standalone regional groups and/ or
looser strategic alliances. Govt has not responded
to report.
Review Today Pty Ltd
Major LG Reforms post LGI

DLG
–
–
34
Updated LG Code of Accounting Practice and
Financial Reporting introduced new Financial
Statistics Template including an asset depreciation/
renewals gap indicator
Issued new asset valuation and building expenditure
guidelines
Review Today Pty Ltd
Major LG Reforms post LGI

DLG Integrated Planning and Reporting
Guidelines requiring:
–
–
35
A 10-year Community Strategic Plan with social, economic,
environment and civic leadership objectives plus strategies for
achieving them. Community priorities and needs identified by
community engagement processes;
A 10-year Resourcing Strategy to fund the CSP that
includes long term asset management, workforce
management and financial plans.
Review Today Pty Ltd
Major LG Reforms post LGI

DLG Integrated Planning and Reporting
Guidelines requiring
–
–
36
A 4 year Delivery Program detailing the principal activities to
be undertaken to implement the CSP within the limits of the
RS during a council's term in office.
A yearly Operational Plan listing the activities to be undertaken
in the current year as part of the Delivery Program. It includes
the Council’s revenue policy for the year. [ Note: Revenue
policy sits really awkwardly within the Operational Plan since it
should be part of the Resourcing Strategy]
Review Today Pty Ltd
Major LG Reforms post LGI

DLG Integrated Planning and Reporting
Guidelines requiring
–
–
37
An Annual Report covering achievements in implementing the
Delivery Program and, in election years, including
achievements in implementing the CPS by the last council.
[Note: For political reasons, the State of the Environment
Report has been retained as a stand alone document even
though it should be part of the CSP planning and reporting
process above]
Review Today Pty Ltd
Major LG Reforms post LGI

IPWEA
–
38
Issued Australian Infrastructure Financial
Management Guidelines that integrate asset and
financial management practices
Review Today Pty Ltd
Major LG Reforms post LGI

C/w Govt
–
–
39
Introduced Regional and Local Community
Infrastructure Fund (RLCIF) for a once off boost to
Council infrastructure spending worth $1 billion.
ALGA lobbying to make it a recurrent annual grant.
Introduced Local Government Reform Fund (LGRF)
to build Councils’ asset management capacity worth
$25 million
Review Today Pty Ltd
Major LG Reforms post LGI

LGSA
–
–
40
Initiated Strengthening Local Government Taskforce
comprising various stakeholders, but not clear what
it has achieved.
Introduced annual survey of cost shifting by State
govt onto Local govt.
Review Today Pty Ltd
Reform Overview Conclusion
41
LGI
Recommend
LGSA
Support
LGSA
Part Support
LGSA
Deferred
Decision
LGSA
Opposed
49
31
6
5
7
Review Today Pty Ltd
Reform Overview Conclusion
42
LGI
Recommend
Good
Progress
Partial
Progress
No-Little
Progress
49
8
14
27
Review Today Pty Ltd
Reform Overview Conclusion



43
Except for 4 recommendations, progress in
implementing the recommendations of the LGI has
been patchy at best.
Fault for slow progress rests with each of the three
tiers of government, but most can be traced to the
inertia of the state government.
Nevertheless progress by the DLG on 4 key LGI
reforms is heartening.
6/11/2015
Reform Overview Conclusion

Four key LGI proposals that have progressed:
–
–
44
Rec 6 (Government provide assistance to enable all councils
within 3 years to adopt a total asset management system
consistent with asset accounting practices)
Rec 11 (Each Council should develop and adopt a long-term
services plan that takes into account demographic, political,
economic, environmental, social and technological trends as
well as existing community priorities based on opinion surveys
and community consultations that disclose the costs and
benefits of alternative scenarios. This plan should be a
subcomponent of the long term strategic and financial plan in
Rec 34. )
6/11/2015
Reform Overview Conclusion

Four key LGI proposals that have progressed:
–
–
45
Rec 34 (All Councils develop and adopt a long term strategic
and financial plan in consultation with their communities that
would be subject to annual external compliance audits and
updated in the first year of each council’s term), and
38 (DLG amend its Code of Accounting Practice and Financial
Reporting for Councils to standardise key accounting and
reporting policies especially in relation to asset condition and
assessment, asset valuation, depreciation rates, capital
expenditure …)
6/11/2015
Review Today’s contact
details

Review Today Pty Ltd
Mona Vale Business Centre
www.reviewtoday.com.au
1800 500 035

Bob Gaussen
Managing Director
[email protected]
04 1912 2255
46

Percy Allan
Research Director

[email protected]
02 9810 6346
Review Today Pty Ltd