2009 RESEARCH REPORT &
INTERACTIVE DASHBOARD SOFTWARE
2009 Financial Sustainability Study Released NSW councils are failing to improve their financial sustainability according to the 2009 Review of NSW Local Government Financial Sustainability. The report sponsored by Dexia Credit Local Asia Pacific Pty Ltd, a subsidiary of the European bank Dexia which specialises in local government public finance and supports research into local government around the world, found that of the top 100 councils in NSW, 46 have sustainable financial policies and 37 don’t. Vulnerable councils on the verge of being unsustainable number 16. Unsustainable councils are those that over the next ten years need to increase their annual rates, fees and charges by more than double the general inflation rate to eliminate their financial and infrastructure imbalances. Lack of sustainability should not be mistaken for insolvency since councils being government authorities have the capacity to levy or borrow to pay their bills. The report rates the sustainability of the financial and infrastructure policies of each of the largest councils in NSW which together serve over 90% of resident population. Assuming price inflation averages 3% per annum, councils that are not sustainable would have to hike their rates, fees and charges by at least 6% a year for each of the next ten years to get their finances and infrastructure in order. That amounts to 80% or more over the period. The least sustainable council will needs to increases its imposts by 300% to achieve sustainability. By contrast, sustainable councils are those that should be able to achieve satisfactory financial and infrastructure outcomes with total rate, fee and charges increases of 60% or less over the next ten years. Inner metropolitan and regional rural areas have the strongest concentration of sustainable councils while regional coastal areas have the least. Compared with the 2008 Review, 14 councils were upgraded to a sustainable rating while 13 were downgraded to an unsustainable one resulting in a net improvement of only 1 council. These changes resulted from a combination of new council data and a refinement of the review methodology (e.g. replacing long term gross debt and spare cash with the all embracing concept of net financial liabilities). The latest review is based on councils’ own data for the last financial year (2007/08) and was undertaken by FiscalStar Services Pty Ltd at the instruction of Review Today Pty Ltd and sponsored by Dexia Credit Local Asia Pacific Pty Ltd. Commenting on the findings, Review Today’s Research Director, Professor Percy Allan said: “The latest study does not capture the downturn in the economy which only became evident in the first half of 2008/09. The impact of the recession on councils won’t be known until the next Review is conducted in 2010. However, it will be hard for councils to increase rates, fees and charges to repair their finances in a weak economy even if rate pegging and developer contribution caps were not an issue. “The position of NSW local government as a whole in 2007/08 can be estimated as follows:
“It’s encouraging that for the sector as a whole the $500 million annual shortfall in infrastructure spending on road, stormwater drainage, recreation facilities, building and other infrastructure renewal uncovered by the Local Government Inquiry in 2006 has shrunk to about $150 million. This was the net result of some councils overspending on asset renewals so as to overcome their infrastructure backlogs while others still continuing to under spend on renewals by a huge margin. “The overall reduction in infrastructure backlog appears to be the result of better council measurement of the condition of assets since there is still an infrastructure renewals shortfall which should be adding to the backlog. “It’s pleasing that local government as a whole is only fractionally expanding its operating expenditure faster than its underlying cost inflation. Keeping a lid on operating services is vital for ensuring any real growth in revenues can be used for rehabilitating the $4,528 million of physical assets that are in a poor condition. “Most worrying about the latest findings is that while 46 of the 100 largest councils are charting a sustainable future, the rest have fiscal policies that are unsustainable or vulnerable to failure. “Unless councils at risk undertake long term strategic, financial and infrastructure planning on how they are going to turn around their situations their communities as well as state and federal governments will be in the dark about the consequences for local finances, services, infrastructure, rates, fees and charges. “Residents and rate payers of such councils are facing mounting bills to rectify their finances and infrastructure unless other tiers of government come to the rescue. Their councillors should be asking hard questions about the sustainability of their councils’ existing revenue and expenditure policies if they don’t want to be made scapegoats for the outcome. “Councils should be using their rate notices, annual reports and web sites to bring their plight to the attention of their communities. The view that financial and infrastructure problems should be publicised only at a state-wide rather than council, ward and street level is the main reason local government is not attracting support from local citizens and MPs for remedial action. It’s simply off the radar. “But for the work of FiscalStar there would be an information gap in NSW about the sustainability of local government because the findings of the 2006 Local Government Inquiry are already dated. “On FiscalStar’s latest findings, sustainable councils should be able to achieve modest budget surpluses, modest debt and little or no dilapidated infrastructure with average annual increases in rates, fees and charges of no more than 60% over the next ten years. “By contrast unsustainable councils will have to increase their rates, fees and charges by at least 80 % over this period while vulnerable councils will have to strike increases between these two figures”, Professor Allan concluded. Mr Bob Gaussen, Managing Director of Review Today added: “Only a detailed sustainability review can provide the details necessary to develop a council’s future financial priorities and 10 year business plans. In addition the version of the model left with a council following a sustainability review enables the contribution of specific policy adjustments – such as the impact of increases or decreases in rates, fees and charges or in spending on services – to be directly assessed and compared”, Mr Gaussen said.
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