NSW LOCAL GOVERNMENT MYTHS, REALITIES & REFORM Professor
Percy Allan AM Review Today Pty Ltd www.reviewtoday.com.au Local
Government Forum, Are Amalgamations the Answer? Mercure Hotel,
Sydney Airport, 29th November 2013.
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Agenda Local Government Functions Local Government Myths Local
Government Realities Conclusions Recommendations Review Today Pty
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Local council functions Review Today Pty Ltd 3 Source:
Sutherland Shire Council, Delivery Program 2012-16, p5
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NSW local government myths Local councils are disliked Local
councils are incompetent Local government is bloated Local councils
are too small Larger councils reduce costs Larger councils lower
rates Review Today Pty Ltd 4
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The public likes local councils With two important exceptions,
the public is generally satisfied with NSW local government and
performance reviews suggest they are managed competently. Review
Today Pty Ltd 5
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Overall satisfaction with council performance Review Today Pty
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Results of other opinion surveys/ polls NSW councils are
generally considered to be good at running libraries, collecting
waste and looking after parks and sportsgrounds. But when it comes
to fixing roads and footpaths and processing development
applications, their residents are less than pleased. Ratepayers are
probably willing to pay a bit more in their rates, if it means
maintaining local services or improving local facilities. Source:
LGRP Email with Media Release summarising Elton Consultings study
of past surveys and polls of public perceptions of councils
performance, 20.2.2012 Review Today Pty Ltd 7
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Local councils administer well The 2006 Local Government
Inquiry used QMI/Probe Services to benchmark the administrative
capacity and performance of nine volunteer councils (three
metropolitan, three regional and three rural) against thousands of
other public and private organisations similarly surveyed. While
none of the nine councils rated in the elite best practice league
they were close to it except in terms of client focus where the
result was still reasonable. The conclusion was that councils have
the professional capacity to serve their communities well. 8
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NSW Councils versus World Sample Review Today Pty Ltd 9
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Australian local government is poor But based on spending to
GDP or share of public revenues, local government in Australia
(including Sydney) is the poorest in the developed world. Review
Today Pty Ltd 10
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Local councils are big by population Based on population,
Australian (including Sydney) municipalities are amongst the
largest in the world. Review Today Pty Ltd 12
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Average Size of Local Government Bodies by Population, 2011
Review Today Pty Ltd 13 Source: Review Today using data obtained
from Wikipedia
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Bigger councils dont cost less Sydney metropolitan councils
show no significant economies of scale. Average council cost per
resident has no bearing to council size. Review Today Pty Ltd
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Council Per Capita Expense versus Population Size, 2010/11
Review Today Pty Ltd 15 Source: Review Today using DLG expenditure
data and ABS population estimates
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Bigger councils charge higher rates Larger councils in NSW
generally charge higher rates than smaller to medium sized
councils. Review Today Pty Ltd 16
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Council Average Rates versus Population Size, 2010/11 Review
Today Pty Ltd 17 Source: Review Today using DLG rates data and ABS
population estimates
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NSW local government realities Growing financial crisis Huge
infrastructure backlog Dysfunctional planning system Review Today
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Infrastructure and planning failures undermine most councils
The two areas where most metropolitan councils have failed the
public and business are local infrastructure neglect and poor
development assessment procedures. The latter is of greater concern
to businesses in NSW than other states. Also council service
sharing is minimal notwithstanding 35 years of ROCs (Regional
Organisation of Councils). Review Today Pty Ltd 19
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Review Today Financial Sustainability Ratios Review Today Pty
Ltd 20 Source: Review Today FiscalStar, 2009 NSW Local Government
Financial Sustainability Review, April 2009
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The infrastructure backlog is huge and growing Review Today Pty
Ltd 21 The average NSW local council runs a modest operating
surplus and has very low debt. The main problem is that about 6% of
its infrastructure was not renewed when it reached its used by
date. A Review Today survey of NSW local government in 2009 found
that its infrastructure backlog was $4.5 billion and was growing by
about $150 million a year.
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22 Review Today Pty Ltd 22 Council infrastructure covers
Physical assets include: Roads, earthworks, footpaths, kerbs,
lighting, etc Bridges and culverts Storm-water drains Recreation,
parks and reserves Buildings Commercial businesses Waste Cultural
Total Physical Assets* * Excludes land, plant. equipment, furniture
and fittings.
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In 2009 a majority of councils faced financial difficulties
because of infrastructure backlogs Review Today Pty Ltd 24
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In 2013 NSW TCorp found that the infrastructure crisis in local
government had got worse The backlog of degraded infrastructure has
blown out to over $7 billion or 13% of physical assets. A majority
of councils are now running operating deficits that total almost
$500 million a year. Of the 152 Councils in NSW only a minority
(34) have sound to very strong finances and this number is likely
shrink to only 15 within 3 years. In all, 39 Councils are
unsustainable, a figure that will rise to 70 by 2016 on TCorps
outlook. Source: NSW Treasury Corp, Report on the Financial
Sustainability of the NSW Local Government Sector, April 2013
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Councils have run up operating costs at the expense of capital
works Infrastructure underfunding is mainly due to councils letting
their operating costs far outstrip their capital outlays since the
introduction of rate pegging in 1977. Rather than rein in operating
expenditure to redress this expenditure imbalance, local councils:
Introduced exorbitant infrastructure taxes to make developers (and
hence homebuyers) pay for neglected infrastructure backlogs; and
Refused to borrow for new infrastructure. Review Today Pty Ltd
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The infrastructure crisis needs urgent attention Councils
should stop expanding their operating expenditure to enable future
growth of their revenues to be spent instead on capital works.
State government should relax rate capping on the condition that
any future real increases in revenue from rates, fees and charges
was used exclusively to fix neglected infrastructure. State
government should set safe debt limits for each council to
encourage them to borrow more to fund pressing community
infrastructure needs. By overcoming their infrastructure backlogs
most councils would also restore their financial sustainability.
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Council planning is dysfunctional Review Today Pty Ltd 30
Common Developer Complaints about NSW State and Local Planning
Sources: Property Council of Australia and Australian Productivity
Commission.
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Council planning should address liveability and congestion The
main Council planning challenge in Sydney is to improve communal
living and reduce traffic congestion. This means accommodating the
growing popularity of apartments by rezoning traffic corridors into
multi-use social corridors that mix together dwellings, offices,
shopping, recreation and light rail to enable residents to access
most of their needs without using a car. Cities are shaped by where
people live, where they work and how they get around. When these
three things are in tune with the economy, cities operate
efficiently and productively, and drive growth and innovation.
Quote: Jane-Francis Kelly, Productive Cities: opportunity in a
changing economy, May 2013, Grattan Institute Review Today Pty Ltd
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Review Today Pty Ltd 32 Source: ANZ Bank Flats, units and
apartments now account for over 40% of total residential
approvals.
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Parramatta Road is ripe for reform Sydney needs a pilot project
to demonstrate how a joint state/council approach to planning and
infrastructure can transform a rundown area into a European-style
boulevard providing dwelling, work, shopping and leisure needs
within walking distance. The obvious candidate is Parramatta Road.
A Productivity Commission survey in 2011 found that residents of
Auburn, Strathfield and Burwood councils that straddle half this
traffic corridor do not feel part of their local community.
Residents should welcome a transformation of Parramatta Road from a
motor strip into a social corridor. Review Today Pty Ltd 33
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Parramatta Road is ripe for reform Review Today Pty Ltd 34
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Parramatta Road should be converted from a Motor Strip to a
Social Corridor Review Today Pty Ltd 35 Before After
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Conclusions Local government has aggravated Sydneys housing
crisis by: not rezoning sufficient land for affordable multiple
dwellings, not adopting clear consistent plans and regulations to
guide permissible development, not ensuring individual development
assessments are independent of political and vested interests, not
spending enough on capital works thereby creating a large backlog
of dilapidated community infrastructure not sharing the cost of
greenfield infrastructure with existing communities that inherited
free public assets from previous generations, and not sharing or
outsourcing activities that would benefit from economies of scale
and scope nor focusing enough on specific place management to
better respond to community needs at a street level. Review Today
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Making already big councils bigger wont expedite works and
approvals Review Today Pty Ltd 37
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Recommendations To solve Sydneys liveability crisis the state
government should give priority to the following reforms that
impact on local government: (a) zone all major Sydney transport
corridors and hubs in lower density middle to outer suburbs for
multi-use purposes to create vibrant self- contained villages where
people can live, work, shop and enjoy themselves without having to
travel outside their neighbourhood, (b) require councils to
introduce form-based codes to regulate the relationship between
building facades and the public realm, the form and mass of
buildings in relation to one another, and the scale and types of
streets and blocks in other than heritage suburbs, (c) require all
council development applications to be allocated (by size) for
determination by expert local and regional planning panels
independent of politicians, Continued Review Today Pty Ltd 38
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Recommendations (continued) (d) require councils to use asset
depreciation provisions and reserves for their intended purpose
(i.e. renewing degraded infrastructure), (e) require councils to
fund infrastructure rehabilitation and renewals by increasing their
average net financial liabilities ratio* from an average of 4% to a
range of 40% to 80%, (f) replace rate pegging with a cap on local
government operating expenditure so that any future real growth in
revenues is devoted to correcting the displacement of capital
spending over many decades and to contribute to a regional fund to
assist with the cost of providing essential utility infrastructure
to greenfield sites, and (g) require councils to form regional
shared service cooperatives for all back and front office
activities that would benefit from economies of scale and scope to
free up councillors and management to focus more on client and
place needs requiring customised solutions. Review Today Pty Ltd 39
*The net financial liabilities ratio of a council means its total
liabilities less (i) unrestricted cash and investments, (ii) any
restricted cash and investments matching restricted liabilities,
and (iii) receivables expressed as a percentage of total operating
revenue. A NFL ratio up to 60% should be compatible with an
investment grade (single-A) credit rating provided a council had a
minimum operating surplus/total operating revenue of 2.5% and a
minimum unrestricted current assets/unrestricted current
liabilities ratio of 1.25.
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NSW LOCAL GOVERNMENT - MYTHS, REALITIES & REFORM Review
Today Pty Ltd 40 THE END Review Today Local Government Financial
Sustainability Advisers Bob Gaussen, Managing Director Percy Allan
AM, Research Director Suite 2, Mona Vale Business Centre 90 Mona
Vale NSW 2103 www.reviewtoday.com.au [email protected][email protected] Phone: 1800 500 035 Mobile: 0419 122
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