Report criticises councils’ short-term financial focus

By Ju Yeon Jung

A report into the Queensland local government financial sustainability has found a significant number of councils are routinely recording operating deficits without appropriate long-term asset management plans.

The Queensland Treasury Corporation (QTC) released the two-year review, which analysed 109 local councils’ financial health, aiming to provide an overview of their current and forecast financial positions, together with recommendations for improving their ongoing financial sustainability.
According to the review, 38.5 per cent of councils were either financially ‘weak’, ‘very weak’ or ‘distressed’, and 65 per cent recorded continuing operating deficits.

A large number of councils were seen to be depreciating their assets too quickly, and 57 per cent did not have complete asset management plans, with their financial focus mainly set on the current year.

Business case development for major projects was deemed sporadic, with many projects approved or commencing without a realistic cost estimate or risk management plan.

It also pointed out local councils were under-utilising debt as a funding source, contributing to their over-reliance on rates revenue to fund capital work.

“Many of these issues have remained unattended for years despite these being a general industry awareness of their existence.

“This has ultimately resulted in an increased financial cost to ratepayers as local governments subsequently attempted to address their deteriorating financial position by approving large and ad-hoc rate increases,” it said.

The report recommended councils should target a balanced or surplus operating result and devise a 10-year financial forecasting model to be reviewed regularly.

It also called for financial training programs for public servants to enable them to make financially responsible planning decisions.

“Financial sustainability must be viewed as an ongoing objective rather than a one-off achievement,” it said.

Premier Warrant Pitt said the findings of the QTC report were in line with the previous national reviews, which warned without reform up to 30 per cent of councils across Australia would become financially unstable.

“The results of the financial sustainability reviews carried out by the QTC were one of the indicators supporting the local government reform program,” Mr Pitt said.

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