Community & Business
20 February, 2024
Council financial model restructure
The Country Mayors Association of NSW has welcomed the announcement of a review into NSW local government financial sustainability, albeit with some reservations.
“This review has been a long time coming,” CMA chair and Gunnedah mayor Jamie Chaffey said. “Rural and regional councils face greater financial sustainability barriers, with a reduced ability to generate their own source revenue than city councils,” he says.
The CMA is producing a report on the financial stability of regional councils on behalf of its members. “Data analysis of 87 CMA member councils’ financials showed that operating costs are far higher per capita [than city councils], yet low-rate bases mean our smaller councils rely on up to 80 per cent of their revenue coming from [state and federal] grants. Grant income is variable and project funding is subject to cost escalations at little to no notice.” The Independent Pricing and Regulatory Tribunal (IPART) has received draft terms of reference from the NSW government to investigate and report on the financial model for NSW local councils.
These draft terms ask IPART to review councillor and community visibility over the financial and operational performance of their councils, whether current budget and financial processes deliver value for money and whether the current funding model will sustainably support the needs of communities. It also includes reviewing how better planning and reporting systems can improve long term budget performance, transparency, and accountability to the community.
“IPART is initially seeking input into the [draft terms] … it is critical the review is tailored to optimise what can be learned and what outcomes may result from the subsequent report,” Mr Chaffey said. “The NSW and [federal] governments have repeatedly shifted their service delivery or infrastructure costs onto local councils in NSW.
“Councils have had no notice of such policy changes that impact their bottom lines. Cost shifting has cost NSW councils well over $1 billion annually in recent years,” he continued. Cost shifting will be highlighted in the CMA’s submission and will be an encouraged part of IPART’s investigation.
Commonwealth-legislated annual Financial Assistance Grants, first established in 1974, were originally set at one percent of commonwealth revenue, but after the indexation freeze in the 2014/15 budget, they are now estimated to be just .55 per cent of commonwealth revenue.
Rate pegging, the maximum amount by which council may increase its general income for the year, remains a limiting factor to financial sustainability for local government, according to Mr Chaffey.
“There has been some improvement to the rate pegging methodology in the past 12 months, but the process is far too arduous in a time when under-resourced councils are being told to be more efficient,” he said.
“This review should be focused on the financial sustainability of local government to ensure the critical services we provide can and will continue to the level of expectation of our residents… in most regional communities, council is a major employer and a public service provider. “Better and more consistent funding of rural and regional councils is critical to financial sustainability.”
