By David Jenkins
The local government sector manages one-third of Australia’s public infrastructure assets, and it does a fantastic job with its available resources.
IPWEA’s recent submission to the Federal Government’s Inquiry into Local Government Sustainability quantified the magnitude of the task: According to the Australian Bureau of Statistics, local government in Australia has an infrastructure asset portfolio valued at $424 billion in the financial year end 2023 that it needs to manage and maintain for its communities. It must do that on a collective revenue of $60 billion.
A look at the aggregated data shows that, as a group, Australian councils are now generating sufficient operating revenue to offset operating costs.
Interestingly, when the operating result (exclusive of capital grants) is expressed as a percentage of total operating income, it has increased from 8% to 15% in the nine years to 2023.
However, that data masks the widening discrepancy between larger councils in metropolitan areas and those in rural regional areas that cover large areas but have much smaller populations.
In reality, councils with declining populations in regional, rural, and remote areas are likely to have an Operating Surplus Ratio that is, on average, negative or in decline.
Many of these councils have limited own-source revenue and spend what they can on asset maintenance and renewal. Many believe they need more capacity to invest in infrastructure simply to sustain services.
The local government sector is also highly averse to debt and is wary of the impact of how the debt is structured on their cash flow.
IPWEA’s submission points out that local governments should be allowed to use debt more effectively to improve their infrastructure, but this would require changes in financing controls and structures.
Many of these better-performing councils will have Asset Management Plans (AMPs) in place that look forward ten years and make forward estimates on demand expenditure for new and upgraded assets, the renewal of existing assets, and the cost of adequate maintenance to optimise the economic life of assets they are responsible for.
They will also have long-term financial plans (LTFPs) that align with the AMP’s forecasts to inform their annual budgets.
Once again, a closer look shows a significant gap between councils.
Data from the Australian Local Government Association shows that the percentage of councils in rural agricultural and remote areas with AMPs for their roads, buildings, parks and stormwater assets fell in the eight years to 2023. Under 50% of councils in remote areas had AMPs in 2023, against close to 90% in urban metropolitan areas.
There are often good reasons for this, and smaller councils in remote areas face resource constraints and skills shortages. However, this also means many cannot align their AMPs with LTFPs.
Without clear plans, they are more susceptible to short-term decision-making. Communities invariably prompt their councils to fulfil their immediate preferences, with little attention given to longer-term implications. The result is that asset renewal and maintenance needs are often overlooked.
IPWEA made several recommendations to the Inquiry, the first two of which were to increase awareness of asset management and commitment to education programs.
Our submission says implementing strategies to educate stakeholders about its importance, benefits, and best practices is crucial.
Having ready access to tools and templates that local governments can use is critical to improving asset management practices and long-term financial sustainability.
We also recommend reactivating nationally consistent frameworks for asset management, financial planning, and reporting.
Following a nationally consistent approach to asset management, financial planning, and reporting provides a standardised and scalable approach to achieving and maintaining financial sustainability.
It will assist in attracting and retaining asset management practitioners in local government, especially when the planning and compliance approach is of a national standard.
Our final recommendation is around investment and planning certainty.
Grant funding often focuses on providing new or upgraded infrastructure, with little consideration for the future impacts on local government operating budgets.
Considering ongoing costs would provide more significant investment and planning certainty, particularly as councils consider their options and response to climate change, population movements and technological advances.
Once again, we return to the point that better asset management is more than just about spending more money.
Sustainability results from good governance practices and the alignment of asset management and financial plans, which in turn drive priorities and inform the optimal allocation of resources.
Any initiatives the Federal Government can implement to foster this will help rural and remote councils close the gap and meet the asset management challenges they face on behalf of their communities.
This is all about leadership at all levels of government and peak bodies.
