Recommendations

PwC has developed a series of recommendations based on a ‘twin track’ approach for improving financial sustainability being the pursuit of:

i) Internal reforms by some councils to improve their efficiency and effectiveness (recommendations a-d).

ii) Suggested changes to intergovernment funding for improved financial sustainability to primarily assist the types of councils with sustainability challenges

(recommendations e-h).

Internal reforms required by some councils

A sizable proportion of councils, often the larger local governments, have made significant progress in reforming operations to improve efficiency. However, some councils still have scope to further improve their efficiency and effectiveness mainly by improving their scale, financial management and asset management. However, it is noted that a sizable proportion of councils are performing efficiently with only minimal scope for continual further improvement.

Recommendations to improve councils’ internal policy and practices are targeted at four key objectives:

Improving efficiency, effectiveness and scale

• Further realise the gains from greater economies of scale and reduce unit costs via approaches such as regional or shared service provision, outsourcing, use of state- wide purchasing agreements etc.

Expanding own-source revenue

• Work with state government to remove or relax legislative impediments and improve the capacity of local government to raise revenue from its own sources.

Set clear and appropriate priorities

• Establish a robust long-term service plan which defines what council will provide and how services will be undertaken.

• Exercise caution prior to stepping in to attempt to resolve regional, state or national issues without a sound funding plan.

• Secure long-term funding (not just capital grants) prior to new services and infrastructure.

Deepen asset management and financial capacity

• Work with other spheres of government to facilitate improved asset management and financial skills through government-funding programs (eg the Size, Shape and Sustainability Review in Queensland and the MAV Step Program), to lift the skills in all councils to a reasonable base level.

• Use total asset management plans and systems to better manage asset renewals and replacement, and integrate into broader long-term council objectives.

• Undertake more regular asset condition reporting for key infrastructure.

• Develop nationally consistent local government financial and asset management data. There is a need for a new national program to improve the consistency and quality of council data to enable more robust and accurate analysis and planning and to produce a uniform national approach to measuring viability and financial sustainability. Ideally this would be supported by the Australian Government.

Suggested reforms to inter-government transfers

PwC sees significant merit in some reforms to intergovernment transfers, but these need to be targeted to primarily assist the types of councils with sustainability challenges. The specific suggested reforms to intergovernment transfers are:

• Establish a new Local Community Infrastructure Renewals Fund (LCIRF): this fund would support councils in the more timely funding of renewals work across a range of community infrastructure assets including community centres, aged care facilities, libraries, health clinics, sport and recreation facilities. The fund could be distributed based on relative need use the R2R or FAGs distribution methods, or perhaps through a new or hybrid approach. The size of LCIRF could be set so as to provide a similar level of renewals support as provided by R2R, which is around $200-250 million per annum.

• Revise the escalation methodology for FAGS from a mix of population growth and CPI to new escalation formula tailored more to local government cost

movements (eg a combination of the ABS Wage Cost Index and Construction Cost Index coupled with population growth).

• Make funding for the Roads to Recovery Program permanent: this program has delivered substantial benefits and there would be significant merit in extending its duration and further augmenting funding levels (including escalating the program size by the ABS Construction Cost Index).

• State governments to provide funding support to encourage the local council efficiency and asset management reforms: a significant proportion of councils have inadequate in-house skills to improve efficiency and to establish robust asset management and financial plans. There would be significant benefit in state

governments providing partial funding to aid the development of tailored state-based reform programs. This program might be along the lines of the support provided by the Queensland Government ($25 million over five years) in the Size, Shape and Sustainability Program, and the Step Program developed by MAV.

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