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.
Review Today Pty Ltd
Agenda
• Local Government Functions
• Local Government Myths
• Local Government Realities
• Conclusions
• Recommendations
2
Review Today Pty Ltd
Local council functions
Source: Sutherland Shire Council, Delivery Program 2012-16, p5
3
Review Today Pty Ltd
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
4
Review Today Pty Ltd
5
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
6
Overall satisfaction with council performance
Review Today Pty Ltd
7
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 Consulting’s study of past
surveys and polls of public perceptions of councils’ performance, 20.2.2012
8
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.
Review Today Pty Ltd
9
NSW Councils versus World Sample
Review Today Pty Ltd
10
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
11
Review Today Pty Ltd
12
Local councils are big by population
• Based on population, Australian (including Sydney)
municipalities are amongst the largest in the world.
Review Today Pty Ltd
13
Average Size of Local Government Bodies by Population, 2011
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Australia
USA
Source: Review Today using data obtained from Wikipedia
Europe
Review Today Pty Ltd
Bigger councils don’t cost less
• Sydney metropolitan councils show no significant
economies of scale.
• Average council cost per resident has no bearing to
council size.
14
Review Today Pty Ltd
15
Council Per Capita Expense versus Population Size, 2010/11
Source: Review Today using DLG expenditure data and ABS population estimates
Review Today Pty Ltd
16
Bigger councils charge higher rates
• Larger councils in NSW generally charge higher rates
than smaller to medium sized councils.
Review Today Pty Ltd
17
Council Average Rates versus Population Size, 2010/11
Source: Review Today using DLG rates data and ABS population estimates
Review Today Pty Ltd
18
NSW local government realities
• Growing financial crisis
• Huge infrastructure backlog
• Dysfunctional planning system
Review Today Pty Ltd
19
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
20
Review Today Financial Sustainability Ratios
Source: Review Today – FiscalStar, 2009 NSW Local Government Financial Sustainability Review, April 2009
Review Today Pty Ltd
21
The infrastructure backlog is huge and
growing
• 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.
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.
22
Review Today Pty Ltd
23
Review Today Pty Ltd
In 2009 a majority of councils faced financial
difficulties because of infrastructure backlogs
24
Review Today Pty Ltd
25
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 TCorp’s outlook.
Source: NSW Treasury Corp, Report on the Financial Sustainability of the NSW Local
Government Sector, April 2013
Review Today Pty Ltd
26
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
27
Review Today Pty Ltd
28
Review Today Pty Ltd
29
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.
Review Today Pty Ltd
30
Council planning is dysfunctional
Common Developer Complaints about NSW State and Local Planning
Sources: Property Council of Australia and Australian Productivity Commission.
Review Today Pty Ltd
31
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
32
Flats, units and apartments now account for over 40% of
total residential approvals.
Source: ANZ Bank
Review Today Pty Ltd
33
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
Parramatta Road is ripe for reform
34
Review Today Pty Ltd
35
Parramatta Road should be converted from
a Motor Strip to a Social Corridor
Before
After
Review Today Pty Ltd
36
Conclusions
Local government has aggravated Sydney’s 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 Pty Ltd
37
Making already big councils bigger
wont expedite works and approvals
Review Today Pty Ltd
38
Recommendations
To solve Sydney’s 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 selfcontained 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
39
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.
*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.
Review Today Pty Ltd
40
NSW LOCAL GOVERNMENT MYTHS, REALITIES & REFORM
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
gaussen@reviewtoday.com.au
allan@reviewtoday.com.au
Phone: 1800 500 035
Mobile: 0419 122 255