NSW LOCAL GOVERNMENT – MYTHS, REALITIES & REFORM Professor Percy Allan AM Review Today Pty Ltd Local Government Forum, Are Amalgamations the Answer? Mercure Hotel, Sydney Airport, 29th November 2013.

Agenda Local Government Functions Local Government Myths Local Government Realities Conclusions Recommendations Review Today Pty Ltd 2

Local council functions Review Today Pty Ltd 3 Source: Sutherland Shire Council, Delivery Program , p5

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

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

Overall satisfaction with council performance Review Today Pty Ltd 6

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 with Media Release summarising Elton Consulting’s study of past surveys and polls of public perceptions of councils’ performance, Review Today Pty Ltd 7

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

NSW Councils versus World Sample Review Today Pty Ltd 9

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

Average Size of Local Government Bodies by Population, 2011 Review Today Pty Ltd 13 Source: Review Today using data obtained from Wikipedia

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. Review Today Pty Ltd 14

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

Bigger councils charge higher rates Larger councils in NSW generally charge higher rates than smaller to medium sized councils. Review Today Pty Ltd 16

Council Average Rates versus Population Size, 2010/11 Review Today Pty Ltd 17 Source: Review Today using DLG rates data and ABS population estimates

NSW local government realities Growing financial crisis Huge infrastructure backlog Dysfunctional planning system Review Today Pty Ltd 18

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

Review Today Financial Sustainability Ratios Review Today Pty Ltd 20 Source: Review Today – FiscalStar, 2009 NSW Local Government Financial Sustainability Review, April 2009

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.

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

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 25

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 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 26

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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. Review Today Pty Ltd 29

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.

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 31

Review Today Pty Ltd 32 Source: ANZ Bank Flats, units and apartments now account for over 40% of total residential approvals.

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

Parramatta Road is ripe for reform Review Today Pty Ltd 34

Parramatta Road should be converted from a Motor Strip to a Social Corridor Review Today Pty Ltd 35 Before After

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 36

Making already big councils bigger wont expedite works and approvals Review Today Pty Ltd 37

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 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

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.

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 Phone: Mobile: