Victorian local government: Ripe for disruption under ratecapping



By Toni Jones, Partner, KPMG Enterprise

All councils have to deliver on the mantra of doing more with less and constraint is often a trigger for innovation.  In the case of local government in Victoria, the introduction of ‘Fair Go rate capping’ has been the catalyst for many councils to critically reassess the way they run their organisations, responding and meeting to the needs of citizens, providing the best of services, and doing so with maturity and efficiency. 

Since commencing the role of CEO Mornington Peninsula Shire, Carl Cowie has made a number of changes to drive efficiency and improve service provision.  He took on the role from the private sector over two years ago and says although rate capping has not impacted his approach, it now helps his argument.  

Mornington Peninsula Shire has over 1,200 staff, a $28 million debt, multi-million dollar contracts with major contractors and a revenue of $220 million. For Carl Cowie, that’s equivalent to running a business. 

He says that the private sector is a benchmark of efficiency and profit maximization and equates ratepayers to shareholders. For him, the obligation of councils is to provide the best possible return for the money ratepayers pay to local government. Rate capping means that with declining income, councils have to think radically to provide ratepayers with similar or better services over a ten year plan.

Many of the 79 Victorian councils are facing deficits between revenue earned from rateable properties and their running costs.  Some already feel the impact; for others, this will come later. 

Mature councils with stable population growth and limited revenue growth from rateable properties, are facing the challenge of meeting citizens’ needs, determining what services to provide and their appropriate delivery model. They’re questioning where to innovate, and how to deliver in the most efficient and cost effective way.  This includes procurement and the potentially overlooked opportunity of exploring other revenue-generating opportunities, particularly where large land and property portfolios exist. 

Growth area councils benefit from population growth and increasing revenue, however in addition to the challenges faced by mature councils, they also need to fund new infrastructure requirements and respond to an increasing and changing demographic demanding new and different services.  In addition, they need to build internal organizational capability and maturity to transition from what were largely rural councils to large and fast growing urban organisations. This requires not only skilled resources, and mature processes but the introduction of smart innovation technology solutions.

The expectations of citizens and constituents is also changing and driving their interaction with councils, their expectations of services offered and the level of maturity of councils in the data and information they hold and manage on their behalf.  This reflects a growing recognition that citizens are ‘customers’ who expect the same ease and speed of service from government that they currently enjoy from leading commercial providers.

Michael Hiller, KPMG National Leader for Infrastructure, Government and Healthcare, says that the nominal lack of competition within government means customers can’t ‘leave’ per se, but the old adage of immunity no longer holds true.  He believes that today, customers aren’t afraid to express themselves when service levels don’t meet their expectations, and the presence of social media and 24 hour news add pressure to show that issues are being addressed.

In his experience, customers will no longer accept a public sector that is behind the times. They want their tax dollars spent wisely and expect good service, meaning the sector must keep up with the pace of change set by the private sector. In addition, demographics are changing and community areas now have a mix of generations and ethnicities impacting on the way such ‘customers’ want to interact with councils, and how councils interact across these diverse community needs.

All of this is complicated by the current technology situation faced by many councils.  KPMG has assisted several councils plan for their IT strategy, and we have seen a significant majority starting from the same position and with the same pain points.  By and large councils have acquired disparate IT systems, some of which are 20 to 30 years old, and now support a complex technology environment, with often hundreds of software applications supported through a set of customised integrations, and aging infrastructure. 

There has been under-investment in IT, with technology historically not seen as an enabler to business. Typically, few CIOs have a seat at the executive table.  Technology’s speed of advancement and the capabilities now available presents a compelling argument for transformation.  Cloud technology is a game changer for local councils, as well as any medium sized business.  Martin Hopley, CIO at Mornington Peninsula Shire, is one advocate, acknowledging the Cloud has enabled councils to quickly adapt and run their business from anywhere.

 Technology companies are also now willing to invest and work with councils to develop and test potential solutions.  This brings healthy competition and a range of options that weren’t available in the sector before. 

So why is now the right time to transform and disrupt?  For many councils, rate capping has been the blunt instrument forcing structural reform.  The release valve of guaranteed revenue no longer exists.

For Steven Lambert, Director City Transformation, Wyndham City Council, within the new environment, local councils must live within their means like never done before.  At the same time, these hard choices on what services to provide and how to deliver them will drive efficiencies and priorities, creating a new landscape for partnerships, more sophisticated service planning, and initiatives such as shared council services, reliance on private sector partnerships and more efficient procurement. 


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