PwC report suggests councils need help

By Adam Coleman in Canberra

Somewhere between 10 and 30 per cent of councils have significant sustainability issues, according to preliminary findings of an ALGA -commissioned PriceWaterhouseCoopers (PwC) report, previewed at the National General Assembly of Local Government in Canberra today (November 28), which analyses the financial sustainability of local government in Australia.

“More cash flow is needed and that has got to come from efficiency reforms, smarter purchasing and optimisation of the capital programs together with some new revenue streams,” says PwC partner economics, Scott Lennon.

“Despite the efficiency gains that are available to some of the smaller councils many don’t look like they are going to get there without some extra help,” says councils with sustainability issues are also likely to be experiencing infrastructure backlogs."

The National Financial Sustainability Study of Local Government preliminary findings suggest councils that report operating deficits or operating cashflow deficits, had a strong tendency to defer or scale back renewals expenditure to upgrade existing infrastructure.

Mr Lennon says that councils with sustainability issues are likely to be developing infrastructure backlogs due to service expansions, moderate operating cost growth, minimal revenue growth giving rise to persistent underlying operating deficits and constraints on renewal expenditure.

“If you are looking at a per council result the result is broadly a backlog of $3.1 million on average per council," he says.

The PWC report endeavoured to highlight some of the characteristics of councils that are struggling.

“Typically they have minimal or negative revenue growth. The population might be static or in some places declining. They have often had a fairly rate base, which has then had fairly modest rate rises. The cost growth in the local government sector is often double the inflation rate and much higher than the income gross,” Mr Lennon says.

Further analysis found councils with sustainability issues often had a fairly small staff complement in the finance and asset management fields.

“Consequently [there is] a limited skilled capacity there," he says.

“Those that are struggling have often diversified into a range of non traditional services, into some of the human services. This is often in response to fairly urgent community demands, for the councils to step in. Those demands emerge because this sector is so responsive and can act quickly.”

The findings suggest that most of the larger metropolitan councils are viable or can achieve a turn-around in their financial situation largely through their own means, “although service expansions and rising costs have stretched them particularly in the outer urban areas”.  

PWC believes an opportunity exists for councils to consult with the community and to apply user-pays principles in certain councils to more effectively prioritise services and infrastructure spending.

“Urban fringe councils often have fairly large viability issues, but still have a strong ability to turn around their position.
Rural and remote agricultural councils faired worst in the report and were more in need of assistance," Mr Lennon says.

The National Financial Sustainability Study of Local Government will be officially launched on Monday.

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