Speeches: 2004
Closing Address
Local government remains an effective and efficient means of delivering high quality services to the people of Australia. And it does so on a human scale - meeting a diverse range of community needs, day in and day out. But while the world marches bravely into the 21st century, local government continues to be dogged by the problems of the past, hindering our ability to fulfil the potential of the future.
Address to International Local Government Asset Management Conference
Councillor Mike Montgomery
President, Australian Local Government Association
13 May 2004: Melbourne
Speaking notes: Errors and omissions excepted
Thank you Chairman.
Local government remains an effective and efficient means of delivering high quality services to the people of Australia. And it does so on a human scale - meeting a diverse range of community needs, day in and day out.
But while the world marches bravely into the 21st century, local government continues to be dogged by the problems of the past, hindering our ability to fulfil the potential of the future.
Local government will not truly thrive in Australia until we have a much more secure financial base that will allow us to properly manage our considerable assets and adequately maintain, upgrade and replace our ageing infrastructure.
Your work over the past two days has - therefore - been important
You have looked at national directions in asset management and information systems, new partnerships between local and state governments and the private sector.
You have examined the importance of public liability insurance issues, such as risk management, and the way AusLink and the renewed Road to Recovery program might operate.
These are important issues for councils operating in a changing financial environment.
I'd like to close this conference by looking at the broader question of why asset management has become a critical issue for local government. But I also want to look at what might be done to help us provide communities with quality infrastructure that we can properly service, maintain and, where appropriate, replace over time.
It all boils down to this - local government faces a growing sustainability gap.
As Andrew Johnston has put it in the recently published work - Financing Local Government in Australia - the gap between what the community and other levels of government demand from councils, together with councils' assets renewal requirements, when compared to the funds that local government has to meet these demands, is growing at - he says - "an alarming rate".
Part of the problem lies with the age of our infrastructure. Much of it dates from the post war period in the late 1940s and 1950s, when state and federal grants enabled councils to construct roads, bridges, swimming pools, community halls and sports grounds.
For example, local government is responsible for 29,000 timber bridges across the country, a third of these more than 50 years old and beyond their useful life. About half of the timber bridges used on heavy vehicle routes are rated as not in good condition.
Local government is now faced with renewal and maintenance of these post-war and other infrastructure assets but simply does not have sufficient financial capacity to do so.
The ability to meet the cost of depreciating assets is severely retarded by our overall financial status.
Despite growing responsibilities, local government has for many years been under-funded, under-resourced and under-valued. As a result, local government:
- has limited ability to raise its own revenue
- is the victim of widespread cost shifting by state and, to a lesser extent, federal governments
- faces rapidly increasing demand for the provision of human services
- faces increasing budgetary pressure as demographic change and an ageing population puts pressure on the single source of local government tax revenue - property rates
With so much demand on scarce council dollars, it is little wonder that maintenance is often the first to suffer.
Federally, we have had some good news.
The Roads to Recovery program is providing some 1.2 billion desperately needed dollars over four years to help councils with the backlog of local road work.
And - after a sustained campaign, we have been successful in securing renewal of the program for a further four years, beginning in July 2005. That's another $1.2 billion for local government.
I might pause here to acknowledge the contribution made by the MAV and individual Victorian councils to this campaign. It was a terrific team effort and your work in this state was very much appreciated by ALGA.
Roads to Recovery has now been renewed. Funds have been locked into the Forward Estimates. And we anticipate that councils will also be able to bid for AusLink regional transport funding, gaining access to at least some of the $810m that has been allocated over a three year period.
We will, however, have to wait until early June to see the full details of the AusLink funding arrangements.
But despite the additional injection of transport funds, the local roads task is far from finished.
The joint review of the Roads to Recovery program was released in May last year by the Deputy Prime Minister, John Anderson, and ALGA. It found that Roads to Recovery had almost halved the rate of decline in the condition of the local road system.
This finding is consistent with the Australian Government's own estimates which show that, for 2003-04, the $300m available under Roads to Recovery funding would almost halve the local road deficit of around $640m a year.
In other words, Roads to Recovery is making a big difference - a very big difference. And for that, we're grateful to the Australian Government for recognising the problem and doing something to help us fix it.
But, at the end of the day, we are still going backwards - and that remains a significant problem for local government and the communities we serve.
Maintaining our roads is a major part of the infrastructure problem. In fact, local roads comprise an asset worth around $75 billion.
When you add local government buildings, plant and equipment and other construction infrastructure, you have an asset worth an estimated $106 billion.
So, what's the overall funding gap facing local government infrastructure?
There have been a number of estimates made over recent years.
In NSW, an analysis of council annual reports by the Department of Local Government showed an annual shortfall of $156m a year.
An independent study in South Australia estimated the shortfall in spending on council infrastructure in that state was $95m a year
Other studies have put the figures much higher. One Victorian study suggested that bridging the infrastructure and renewal gap would require financial assistance grants in this state to be doubled from around $1.5 billion to $3 billion.
The problem is significant and - by all accounts - getting worse.
Where do the solutions lie?
There have been many suggestions for change, some of which have been canvassed here over the past two days. There appears to be five basic options, all of which are canvassed by the Fair Share report.
Better asset management is clearly called for.
We need to remember, however, that local government has dramatically improved the efficiency and effectiveness of its financial management over the past decade.
We can - without doubt - drive our dollar further with better asset management. But we are now talking incremental gains - not the giant leap forward we need to overcome the infrastructure crisis.
Improving the capacity of local government to raise its own revenue is a further option. Some have recommended cutting expenditure on services or encouraging councils to just saying 'no' to new demands for spending on social services. Increased reliance on borrowings has also been suggested.
Some would suggest that the only realistic solution would be to allow councils to (1) borrow appropriately and (2) raise additional revenue to service this debt.
But local government enjoys relatively low debt levels. It is not always appropriate to deepen the debt burden, particularly when local government infrastructure is - in general - not a revenue producing asset.
A further option is greater private sector involvement. Private sector involvement in financing local government infrastructure is limited, with much of it confined to the lease of stand alone facilities.
Several reasons have been advanced for this, including low interest rates making the private option less attractive viz-a-viz a standard bank loan and limited capacity of local government to effectively engage the private sector.
A fourth option involves a whole-of-government approach to infrastructure provision, involving all spheres of government in the maintenance and replacement of assets through a federal, state and local government partnership.
There are, however, legitimate concerns that shared responsibility for infrastructure would come with some loss of control and priority setting.
The final option I want to canvass today is the most compelling - increased federal and state funding for local government. In my view, there is now an overwhelming case for sustained increases in recurrent, untied funding for local government.
ALGA has argued for some time that we need to do away with the concept of Financial Assistance Grants and the paternalism that comes with it.
Instead, we need to provide local government with access to a fair share of national taxation revenue. This will give us access to growth funding that grows as the economy expands.
Some argue that some federal funding should be tied to infrastructure spending. As the Fair Share points out, this would be an unpopular option, as councils are very diverse and have differing priorities and needs. Tying federal funding to infrastructure spending could also provide state governments with an excuse to relieve themselves of responsibility for this task.
On the other side of the coin, the Fair Share makes it clear that - and I quote - "if the federal government provides untied funds to local government it must be assured that local government is doing its best to maintain essential infrastructure".
This gives rise to the recommendation that local government bodies be required to audit the state of their infrastructure and provide status reports to the Commonwealth Grants Commission as one of the inputs into the needs based formula for federal funding to local government.
Further, it recommends that the data collected should be used to adjust financial assistance grants where - and I quote - "councils are found to be negligent in managing infrastructure".
And here I take issue with the report. Clearly, the report should provide incentive for good asset management - not punishment for poorly resourced councils that can't keep up.
ALGA is pursuing reform of federal - local government financial relations through the Australian Government's response to the Fair Share report.
ALGA and state associations will meet with state ministers for local government for a roundtable discussion on the Fair Share report on 10th June.
ALGA will also seek to raise the Fair Share report recommendations at the next meeting of the Council of Australian Governments on 25th June. It is critical that the reform agenda is put on COAG's work program for 2005 - as recommended by the report.
The reform agenda is difficult. It will take time. But the Fair Share report has raised an opportunity for change. We now have to grasp the nettle and go for it.
In doing so, our goals are clear.
- Local government needs a better deal.
- We need access to a fair share of national taxation revenue that grows as the economy grows.
- The infrastructure crisis can be tackled by placing local government on a more secure, overall financial footing.
- And finally, the infrastructure crisis makes the overall case for reform of federal - local government financial relations all the more compelling.
That said, there are many things we can and are doing at the local government level to get the biggest bang for our maintenance buck.
This conference has showcased many innovative and practical initiatives being undertaken by councils and their public and private sector partners.
It has also reinforced the fact that capacity building in asset management is a vital priority for local government.
The challenge is to improve asset management right across local government.
Building both skills and commitment is essential if we are to effectively implement asset management and get good value from our investment in it.
While there is no one 'right' answer or system in asset management, we need to look at all the new developments; evaluate them for our different situations; and disseminate and adopt best practice.
ALGA is working co-operatively with the state and territory associations to trial and publicise relevant data and asset management initiatives and there will be some exciting work emerging over the next year or two.
But don't forget the key underlying message - that we need better asset data and management, if we are to deliver the facilities and services that our local communities need.
If we can combine this with better funding arrangements for local government, we have - I think - a winning formula that will help local government do what it does best - serve the people. But we will be serving not only the present generation, but generations yet to come.
Thank you.
Cr Mike Montgomery
Melbourne
13 May 2004
