Muzzle bites Financial Assistance Grants review

By Julian Bajkowski

The announcement of a long-awaited review of the $2.1 billion Financial Assistance Grants (FAG) mechanism by the Commonwealth has been overshadowed by an attempt to gag local government criticism of a big funding shortfall caused by botched federal estimates.

On Friday federal local government minister, Simon Crean, revealed the terms of reference for a formal review of the FAGs system, a move announced in the 2011-2012 Budget after years of intense lobbying by councils.

The review is being undertaken in two parts by the Commonwealth Grants Commission and a release from Mr Crean said that $37 billion had been paid to local governments under FAGs since its commencement in 1974.

"Whilst the program has been a successful one and allowed local governments to invest in key local priorities, a comprehensive review of the Local Government Financial Assistance Grants program has not occurred for many years — a lot has changed since then," Mr Crean said.

Although the review has been broadly welcomed by local government associations, anger is still simmering over a clawback of FAGs funds triggered by a bungled Commonwealth forward estimate of the Consumer Price Index and population growth figures which came in lower than expected.

Because part of the FAGs payments were effectively paid as an advance in the 2011-2012 financial year, the rubbery statistical guesswork went on to produce an overpayment which the Commonwealth is now seeking recoup in the following financial year.

Some in local governments believe that the miscalculation was in part was created by pressure to shift outgoings from the 2012-2013 federal Budget to other years to help Canberra achieve a surplus.

In mid-July the New South Wales Local Government Grants Commission wrote to councils telling them of a “significant negative adjustment” — or cutback — to FAGs funding that totalled $52 million across Australia and $15.6 million to the state.

Adding to the irritation was the demand that councils not discuss the shortfall — a difficult ask given that it could result in local government projects and services being curtailed or budgets being pushed into the red.

“Council is advised that that the details are provided in confidence and are not for media comment or publication,” NSW Grants Commission documents obtained by Government News say.

“Council is also advised that the final 2012-13 recommendations will be subject to approval bgy the Commonwealth Minister for Regional Australia, Regional Development and Local Government, the Hon. Simon Crean MP,” the letter to councils said.

Despite the anger, the Australian Local Government Association is, at least in public, looking beyond the immediate dispute to the longer term benefits of the FAGs system.

"ALGA has long argued that the amount of funding provided by the federal government to councils is not adequate,” ALGA president, Mayor Genia McCaffery said.

“While we welcome the Government's decision to undertake a review of this funding, we believe it should include an assessment of the adequacy of the amount of grants and whether the current approach to indexation is effective, given the annual cost increases faced by councils do not reflect CPI," she said.

ALGA is pushing for better funding on the basis that the Local Government (Financial Assistance) Act 1995 “embodies the principle that the Commonwealth should distribute a proportion of revenue to local government to support the building of resilient and prosperous communities.”

“FAGs are intended to improve local government's capacity to provide communities with an equitable level of services and to increase the effectiveness and efficiency of local government,” the body said in a statement.

In the interim, when cuts local governments are seeking to find ways to overcome the unexpected FAGs cutbacks, including spreading the shortfall over a number of future budgets rather than seeking to collect it retrospectively.

Last month the Vice President (Country) of the Local Government Association of NSW, Councillor Allan Smith hit out at the raft of problems created by the miscalculation.

“Thanks to this Government’s over-zealous projection of the 2011-12 FAGs, councils will need to re-evaluate whether they can deliver promised services and infrastructure, as detailed to communities in their budgets and operational plans,” Councillor Smith said.

“The LGSA struggles to understand how the government managed to get their estimates so wrong and hopes the FAG system is improved in the future.”

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