It appears that almost any time there’s any sort of speech or statement from sources like the Reserve Bank or the State Government concerning property markets and development, that we see extensive comment and coverage.
This usually results in every word from the RBA for example, being digested and analysed down to the smallest detail.
However, when it comes to local government, our local councils, the interest and scrutiny is far less intense, despite the fact that every council has a big and direct impact on our daily lives and upon many aspects of the property development market.
Impacts can be personal, like getting a DA to extend the family home or much bigger like a DA for a major development while, we cannot discount the impact of services delivery like garbage collection or the upkeep of local parks. In the constant stream of news concerning our towns and cities it struck me as a constructive idea to invest a little more time understanding what’s sometimes described as the grassroots of our democracy – the local council.
Spending $11.4 Billion
Across NSW there are 138 councils (128 local councils and ten county councils), and each provides a range of services many of which directly relate to property, services are influenced by population density, demographics, economy, geographic and climatic characteristics.
These differences influence the financial profile of councils, which in turn impacts almost every resident and property owner. On the 28th February 2019 the NSW Auditor-General published its Report on Local Government for 2018, an ideal way of gaining a deeper awareness about the many varied aspects of councils across the state.
The 90-page report is extensive with a financial focus however, there’s some very interesting insights in the report across this very important sector.
According to the Auditor-Generals Report in 2017–18, councils collectively reported expenditure of $11.4 billion.
With councils spending almost $1-billion a month the top areas of expenditure give an insight to how councils influence the quality of services and indirectly the quality of life in our towns and suburbs and these areas include:
- $2.2 billion (19%) on transport and communications, including sealed and unsealed roads, bridges, footpaths, parking areas and aerodromes
- $2.0 billion (17%) for governance and administration, including corporate and support services, engineering works, council elections, meetings and policy-making committees, members’ fees and expenses, subscriptions, public disclosures and legislative compliance
- $1.9 billion (17%) on the environment, including waste management, sanitation and garbage, street cleaning, drainage and stormwater management, and environmental protection
- $1.8 billion (16%) on recreation and culture, including public libraries, museums, art galleries, community centres, public halls and performing arts venues, sporting grounds and venues, swimming pools, parks, gardens and lakes.
Councils are also often responsible for the delivery of projects funded by State and Federal Governments that tend to peak during election cycles.
Relevant Laws & Regulation
According to the AG, NSW councils need to improve their practices to comply with key laws and regulations. This is an area that has the potential to improve service delivery including the progress of new developments.
A legislative compliance framework assists councils to capture and monitor compliance with key laws and regulations.
The AG audit found that 83 councils do not have a legislative compliance policy and 94 councils do not have a legislative compliance register. The AG notes that this can attract penalties, affect service delivery and cause significant reputational damage, important factors when dealing with public policy including local development policies.
As might be expected NSW councils own and manage a diverse range of assets needed to deliver services to the community. As at 30 June 2018, the combined carrying value of NSW council assets was $140 billion.
Asset rich councils included the City of Sydney $12.19b, Central Coast $7.5b and Northern Beaches $5.1b.
The general composition of assets also give some further insights to the service delivery needs and goals of local councils.
Major assets include roads $37b (27%), land $34b (24%) and water $30b (22%). Other assets that generaly account for less than 10% include capital works in progress, recreational, bridges, footpaths, and buildings.
Rural & Joint Council Organisations
While the NSW Government moved away from a policy of council amalgamations in July 2017, currently across the state some thirteen joint council organisations now operate.
Established in 2017, when the NSW Parliament passed legislation to establish a network of joint (council) organisations, the aim is to help drive better planning, economic development and service delivery in regional NSW. There are 85 councils in regional NSW that together make-up the 13 joint organisations.
Meanwhile, rural councils continue to face challenges in generating ‘own source revenue’, in 2017–18, 35 rural councils did not meet the own source operating revenue benchmark (down from 41 in 2016–17) which, remains a challenge for rural councils.
Compared with metropolitan councils, rural councils have high value infrastructure assets covering large areas, they have fewer ratepayers and limited capacity to raise revenue from alternative sources. The AG notes that rural councils have far less capacity to generate revenue from alternative sources such as parking fees, property development and rental income, which are all familiar and often unpopular and seen as excessive charges for many city dwellers.
Infrastructure & Doing Better
As cities and towns grow, the no. levels of government, and that includes local councils, that can escape problems associated with infrastructure delivery and maintenance.
Councils generally reported insufficient spending to renew and maintain infrastructure assets with 36 councils reporting they do not meet the benchmarks for either building and infrastructure renewal, the infrastructure backlog or the asset maintenance ratios.
These councils have been encouraged by the AG to examine how they manage assets and consider if their investment in maintenance and renewing infrastructure assets is sufficient, including future asset management plans.
A majority of the asset areas controlled by councils directly sway the viability and delivery of new developments and are impacted in some areas by council’s that may not have an appetite for the risk associated with the whole-of-life costs of owning and/or managing the infrastructure assets under their direct control, which are essential to urban related growth.
In many areas this requires additional State and Federal Government funding as loans or grants.
Among the final recommendations made in the AG report were the need to improve governance and internal controls. Another area was asset management planning by councils, understandable against the background of $140b currently held as key assets.
Council Spending by Function
The Auditor-Generals report has at its core financial practices and reporting.
Looking at the definitions from the Local Government Code of Accounting
Practice and Financial Reporting it is notable that under the heading of Housing and Community Amenities, we see key aspects of property development, including street lighting, town planning, other community amenities, housing development; accommodation for families, children, aged persons, disabled persons, migrants and Indigenous.
Further allocated under Mining, Manufacturing and Construction we find among other topics like building control, transport and communication, roads, bridges, footpaths, parking areas and aerodromes.
In the AG’s report the Executive Summary states that unqualified audit opinions were issued for 135 out of 138 council’s 2017–18 financial statements. The audits also notes that three councils were in progress, I think this helps to highlight the complexity and importance of local government, including collaboration with property developments.
The report also shines a spotlight on the complex financial pressures and responsibilities for areas that are essential to how our suburbs and towns function, are planned and grow that, are all principal concerns of the residential development sector and perhaps deserve more attention.