The finances of five councils in South Australia have been rated as “potentially unsustainable” by state government body the Essential Services Commission (ESCOSA).
In its most recent report, ECOSA said the Alexandrina, Tumby Bay, Renmark Paringa, Flinders Rangers, and Wudinna councils have been advised their current financial performance and future projections are potentially unsustainable.
Two other councils, including Adelaide City Council, were ranked as potentially unsustainable in the future while Gawler council, north of Adelaide, was ranked as potentially unsustainable although likely to improve.
Under a mandate from the previous Marshall state government, ESCOSA is completing a four year program of financial advice to councils. The scheme was a compromise to rate-capping.
This year’s release was for the third tranche of 17 of the state’s 68 councils. The aim of the scheme is to provide independent, risk-based advice to assist councils when making long-term financial and investment decisions for the benefit of ratepayers.
Last year, ESCOSA found a number of councils at financial risk were not spending enough on asset renewals, and were setting themselves up for increased repair and maintenance costs in the future.
In this round, the assessment identified underfunded asset renewals, while some councils were overly reliant on rate increases above forecast inflation. Other councils were identified as basing their asset management plans on inadequate data.
ESCOSA also said it had seen examples where councils had forecast multiple years of deficits, without a plan to return to financial sustainability.
There was also insufficient transparency around forecast rate increases and the underlying assumptions, inadequate planning for cost controls, while other councils were over-accumulating cash reserves without a clear reason.
ESCOSA advised obtaining ratepayers’ opinion on the policy for any cash reserves, in conjunction with expert advice on appropriate minimum cash balances.
The Commission also supports the “judicious” use of debt for new infrastructure, to spread the cost more equitably across the community over time.
