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Local Government Infrastructure

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Local Government infrastructure responsibilities
What is Local Government infrastructure?
Valuing Local Government infrastructure
Trends in spending on infrastructure: findings of the Commonwealth Grants Commission inquiry
More funds for local roads: the Roads to Recovery Programme
AusLink: a new national land transport plan
State developments
Road funding responsibilities of each sphere of government
Other infrastructure issues

This chapter discusses some of the challenges facing Local Government in providing and maintaining its infrastructure. The chapter begins with an estimate of the value of Local Government infrastructure. It then examines Federal funding for local roads, the proposed AusLink initiative, recent State infrastructure studies and strategies to improve management of Local Government's infrastructure. It covers Local Government regional road planning arrangements in place in some States. The chapter concludes with an examination of data available on Local Government expenditure on environmental and natural resource management and on flood mitigation.

Local Government infrastructure responsibilities

Local Government plans, develops and maintains key infrastructure for its communities. It provides and maintains infrastructure such as local roads, bridges, footpaths, water and sewerage (in some states), drainage, waste disposal and public buildings. Local Government also has planning responsibilities that affect the provision of infrastructure, whether by government or business. These responsibilities include rezoning of land, subdivision approval, town and environmental planning, development assessment and building regulation.

Through traffic management, Local Government seeks to maximise transport benefits while minimising the environmental impacts of transport infrastructure. Local Government also provides a range of social infrastructure such as recreational and cultural facilities, and in smaller communities, through its leadership, it makes a major contribution to human capital infrastructure.

In recent years a number of studies have highlighted concerns about the condition of Local Government infrastructure and its impact on local communities. These studies include:

  • reports on Local Government infrastructure in Victoria, South Australia, Western Australia and New South Wales which are discussed below
  • presentations to the annual Rural Roads Congress
  • the final report of the Regional Australia Summit Steering Committee (issued in December 2000).

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What is Local Government infrastructure?

Local Government infrastructure comprises the assets that provide people with access to economic and social facilities and services. It includes buildings, other construction infrastructure (including local roads), and plant and equipment.

In general, infrastructure facilities have high capital costs, are time-consuming to plan and build, are durable and have low operating costs, and are often networks. They often have environmental and social benefits that are not fully recovered by user charges.

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Valuing Local Government infrastructure

The Australian Bureau of Statistics estimates that at June 2001, Local Government owned land and fixed assets worth $147 billion. Land was worth about $41 billion. Buildings, other construction infrastructure, and plant and equipment are worth $106 billion (see Table 4.1). Other construction infrastructure, which includes local roads, was worth $90.7 billion, so in 2000-01 local roads were worth something less than $90.7 billion (in 1999-2000, these were less than $87.3 billion). Note this figure is net of depreciation. That is, the infrastructure is valued in its present condition. This means that these figures will differ from those in State studies referred to later in this chapter that use current replacement cost to value infrastructure.

Table 4.1 Value of selected Local Government infrastructure, June 2001 (fixed assets) $million (net of depreciation)

Type of Infrastructure

NSW

Vic

Qld

WA

SA

Tas

NT

Total


8162 Buildings

3 924

3 757

1 980

1 542

1 038

360

85

12 687

8163 Other
construction
infrastructure1

33 720

14 961

25 657

8 072

4 627

2 932

736

90 705

8164 Plant and equipment

1 004

435

838

407

205

74

7

2 970


Total infrastructure

38 648

19 153

28 475

10 021

5 870

3 366

828

106 362

Note: 1 Includes railways, roads, bridges, tunnels, airports, harbours, pipelines, dams and the like.

Source: Australian Bureau of Statistics catalogue no. 5512 disaggregated by Australian Bureau of Statistics.

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Trends in spending on infrastructure: findings of the Commonwealth Grants Commission inquiry

Local Government capacity to fund infrastructure is constrained by its general revenue raising capacity. Currently, Local Government raises about $17 billion in revenue a year. Most revenue comes from rates and user charges but the Federal Government supplements Local Governments' own sources of income with Local Government financial assistance grants (see Chapters 1 and 2).

The Commonwealth Grants Commission review of the operation of the Local Government (Financial Assistance) Act 1995 found that, since the introduction of the original Act in 1974-75, Local Government revenue from all sources has grown at 10.1 per cent a year. Federal Government assistance to Local Government has grown even faster â at an annual average rate of 10.8 per cent - while State assistance has grown at the much slower rate of 6.6 per cent.

The Commission found that Local Government is increasingly providing human services (social welfare type services) at the expense of traditional property-based services (particularly roads). Although road expenditure remains the largest function, the Commission found its importance has declined from about half of total expenditure in the 1960s to a little more than a quarter in the 1990s.

The Commission reports that a number of factors have contributed to downgrading the importance of maintaining local road infrastructure - community pressure to broaden the range of Local Government services, unfunded mandates from other spheres of government, and revenue-raising restrictions (rate pegging, fee capping and rate concessions/exemptions). The findings of the review are being examined as part of the current Inquiry into Local Government and cost shifting (see Chapter 6).

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More funds for local roads: the Roads to Recovery Programme

In November 2000, the Federal Government announced a $1.2 billion boost in its funding for local roads through the Roads to Recovery Programme (see Table 4.2). In May 2001, it provided an extra $8 million for roads in unincorporated areas.

Table 4.2 Roads to Recovery Programme funding

State/Territory

Initial four year
allocation
($m)

Additional amounts
for unincorporated areas
($m)

Total
($m)


NSW

340

3.8

343.8

Vic

250

0.2

250.2

Qld

250

-

250.0

WA

180

-

180.0

SA

100

4.0

104.0

Tas

40

-

40.0

NT

20

-

20.0

ACT

20

-

20.0


Total

1 200

8.0

1 208.0

Source: Department of Transport and Regional Services

The programme began in January 2001 and will expire on 30 June 2005. It aims, in particular, to provide councils with the financial capacity to repair roads that are approaching the end of their life. The grants are paid directly to councils and are additional to the Federal Local Government financial assistance grants mentioned above. Some $850 million of the Roads to Recovery funding will be spent in rural and regional Australia.

In the first two years, $560 million was provided to councils under Roads to Recovery. Of the projects lodged for funding:

  • 46 per cent were for reconstruction, rehabilitation and widening of existing roads
  • 33 per cent were for re-gravelling, sealing and resealing work
  • 11 per cent were for bridges and drainage work.

The Department of Transport and Regional Services and the Australian Local Government Association are working together to review the programme as part of consideration of its possible continuation beyond June 2005.

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AusLink: a new national land transport plan

In November 2002, the Federal Government released a green paper for discussion outlining its new national land transport plan called AusLink. The paper noted that the total freight transport task was likely to almost double by 2020, increasing congestion, greenhouse gasses and other transport costs. Passenger transport was also likely to grow, putting further pressure on infrastructure. Existing land use and transport planning and funding arrangements would not be adequate to meet this challenge.

AusLink aims to develop transport corridors of strategic national importance such as rail and road links between cities and to improve connections to production and distribution centres and major ports and airports. It will develop a rolling five-year multi-modal national plan for the network, based on input from both the public and private sectors. It will fund the projects that best contribute to national objectives on the strategic transport network and incorporate the best solutions embracing, wherever possible, new technology and better management systems.

A new inter-governmental agreement is proposed between the Federal, State and Local Governments to underpin new planning and funding arrangements for the network. Joint public and private sector development of projects will be encouraged to increase the pool of funding. A national advisory body will be established to advise transport ministers on priorities for national infrastructure investment and reforms to support inter-modal integration and infrastructure pricing. New AusLink project evaluation methods will be developed to help improve the quality of decisions and allocation of resources. Over time AusLink will evolve into a broader national transport policy by integrating improvements to infrastructure, systems, regulation, safety, environment and other land transport issues.

Under AusLink, the Federal Government proposes to amalgamate its land transport funding programmes into a single programme. Funding for AusLink, in the proposed initial year of operation of 2004â05 will bring together National Highway System funding, Roads of National Importance Programme and rail funding after outstanding firm project commitments are met. Black Spots may also be funded as part of Auslink if the programme is renewed after 2005-06. Auslink will encourage leveraging of funds from project partners. Current funding commitments for key transport programmes affecting Local Government - the identified local roads component of the financial assistance grants, the $1 208 million in Roads to Recovery Programme grants to 2005 and the current $180 million Black Spot Programme to 2005-06 - will be retained.

AusLink will open up new opportunities for Local Government. First, Local Government will be able to participate in planning the national transport system with Federal and State Governments through a new inter-governmental agreement and by participating in working groups that are refining aspects of AusLink. Secondly, the green paper suggests that councils could consider grouping together to pool, say, 15 per cent to 20 per cent of their local road grants under any future arrangement to help fund priority regional land transport infrastructure. This funding could be used to leverage additional funding from project partners. Regional Road groups established in South Australia, Western Australia and Queensland have already begun to identify their strategic local road links and are well placed to take these proposals forward.

The Government sought comments on the green paper, which is available at www.dotars.gov.au/transport/auslink/index.aspx, by 7 February 2003.

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State developments

Victoria, New South Wales, Western Australia and South Australia have recently undertaken studies into various aspects of Local Government infrastructure. In addition, councils in Queensland, Western Australia and South Australia are working or intend to work on a regional basis to address local road needs. These issues are discussed below.

Victorian Local Government infrastructure study, 1998

In January 2000, Victoria's Government released a report on a stocktake of its Local Government infrastructure undertaken in 1998, called Facing the renewal challenge. The report valued Victoria's local roads, the bridges, footpaths, drains, parks, recreational facilities and public buildings at $23.3 billion in current replacement costs. It put long-term consumption of these assets at $704 million a year and renewal and maintenance at $471 million a year, leaving an annual infrastructure deficit of $233 million a year. For more details of this study, see last year's National Report.

Municipal Association of Victoria benchmarking study, November 2001

In 2001, the Municipal Association of Victoria (MAV) benchmarked infrastructure asset management amongst councils. It found that all 66 councils that participated in its benchmarking study failed to meet best appropriate practice infrastructure asset management and that Victoria's top performing councils were lagging relative to their Australian peers (p. ii of the Municipal asset management review).

The review found 'only 23 per cent of the asset groups listed are reported as having their depreciation fully funded by councils' (p. 38), implying that the gap between asset consumption and renewal was widening.

It found that 'The data collected by municipalities is primarily used for Asset Reporting and Asset Costing purposes. It is rarely used for Life Cycle Cost Analysis or for determining an asset's Fit-for Use or Predicting Service Levels' (p. v). The MAV has since launched a 'step-by-step' asset management improvement programme to establish a common best practice model and reporting framework for Victoria's councils. This programme has 55 participants to date.

Victoria's Auditor General audit of road asset management practices, June 2002

In June 2002, the Auditor General of Victoria released a performance audit report of road asset management practices of nine councils called Management of roads by Local Government. The report found that:

  • Victoria's 78 councils' road infrastructure was worth $14.4 billion at June 2001. Roads represented 51 per cent of total council assets and the funding gap between the actual and required level of spending on infrastructure asset renewal and maintenance had widened significantly since the 1998 Facing the Renewal Challenge report. It is now estimated at between $1.4 billion and $2.75 billion over 5 years (pp. 3-4).
  • Councils were 'unable to determine with any degree of certainty the overall condition of road assets or whether they will reach their optimum useful lives' (p. 4). As the Victoria Grants Commission is not provided with information from councils about the age and useful life of their road assets, it cannot assess the accuracy of assumptions supporting its funding allocation model (p. 7).
  • None of the nine councils examined had high quality Road Asset Management Plans that showed stakeholders the current cost of providing road services and the cost of sustaining that level of service in the longer term (p. 5). Little regard had been given to identifying community needs and expectations about service delivery levels and standards for road assets (p. 6).
  • None of the nine councils had fully developed links between road asset management plans, corporate and business planning and budgetary processes. Forward plans were little more than indexed short-term extrapolations, which did not permit councils to analyse upcoming renewal cycles (p. 6).

Councils were critical of the findings and their views are reproduced in the report.

Victoria's Department of Infrastructure has been assisting Local Government by providing grants to a number of rural councils to help develop asset management plans. It has also provided one-on-one support to a number of pilot councils to establish sound asset management planning, and organised a workshop for councillors on strategic asset management.

New South Wales Local Government transport infrastructure

An analysis of 2001-02 council annual reports by the New South Wales Department of Local Government puts the value of Local Government transport infrastructure in the State at $30.8 billion and the cost to render this infrastructure to a satisfactory condition at $3.7 billion1. The analysis showed councils need to spend $579 million a year on infrastructure maintenance but are spending $423 million a year on maintenance, leaving an annual shortfall of $156 million a year. Thus the department estimates that the average NSW council, with transport assets worth $173 million, faces a $0.9 million shortfall in asset maintenance funding.

1 Personal communication with Mr Farooq Portelli, Principal Finance Officer, New South Wales Department of Local Government.
South Australian Local Government infrastructure study, 2001

The Local Government Metropolitan Chief Executive Officers' Association report, titled A wealth of opportunities, foreshadows a looming Local Government infrastructure funding shortfall in South Australia over the next 20 to 30 years. The study found that South Australian councils have $8 billion in assets, with roads and footpaths worth $4.8 billion. The average annual cost of renewing the assets over the five years to 2004-05 is about 2 per cent of their value or $160 million a year. The report found that councils are under-funding infrastructure maintenance by $105 million a year. Councils invest $55 million a year on asset renewal (7 per cent of council revenue), but they need to spend $160 million a year now (19 per cent of council revenue) to maintain existing infrastructure. For more details on the study see last year's National Report.

South Australian councils set aside 15 per cent of their local road financial assistance grants to fund roads of regional significance. This enables councils and the State Government to work together to improve transport and infrastructure planning on a regional basis and fund strategic local roads.

Western Australian local road planning

Western Australia has well-established local road planning arrangements that enable councils to identify, prioritise and fund their strategic local road network and to monitor the adequacy of their road preservation expenditure.

Western Australia allocates 7 per cent of its local road financial assistance grants to special roads projects (one-third for roads serving Aboriginal communities and two-thirds for major bridge works). The remaining 93 per cent is spent in accordance with road preservation needs determined by the State's Local Government Grant Commission's Asset Preservation Model. The model assesses the average annual cost of maintaining each Local Government's road network and has the facility to equalise road standards through application of minimum standards. The use of standards in the model helps the funding of those Local Governments that have not been able to develop their road systems to the same standard as more affluent Local Governments.

In the mid-1990s the Western Australian Government, with the Western Australian Local Government Association and community groups, developed a series of regional road strategies that defined strategic road networks and developed a master-plan called Roads 2020 for local roads throughout the State. The latest State Road Funds to Local Government Agreement began in 2000-01.

Under the Agreement, one-quarter of the State's road-related revenue (for example, vehicle registration charges and fuel franchise fees) is available to councils for local roads, with a guaranteed minimum allocation of $90 million a year for each of the five years. An advisory committee with State and Local Government representation makes recommendations to the State Transport Minister on how these funds should be spent. Ten regional road groups have been established with a membership of elected Local Government representatives to make recommendations to the advisory committee on the annual local road programme for their region.

Each year, councils provide statistical data to the Western Australian Local Government Association for publication in their Local Government Road Assets and Expenditure Report. The 2000-01 report states that Western Australian local roads had a replacement value of $10.9 billion at 30 June 2001 and a written down value of $7.1 billion (65 per cent of replacement value). The percentage for a well-managed road network would be about 75 per cent (p. 1 of the report).

Local Government expenditure on roads reached $354.9 million in 2000-01. Of this, $123.1 million was spent on maintenance, $108.7 million on renewal of existing roads, $98.4 million on upgrading and $24.7 million on capital expansion. Spending on renewal represents 1 per cent of the replacement value of the local roads or around half the expenditure necessary (pp. 2-3).

In 2000-01, the State Government provided $92.4 million (26 per cent) of the money that councils spent on roads. Since the first agreement on road funding with the State Government, Local Government spending from its own resources has increased 24 per cent from $142.7 million in 1996-97 to $177.1 million in 2000-01 (pp. 1 and 6).

As a result, Western Australian councils have narrowed the gap between road preservation needs and road spending in recent years. The 2000â01 assets and expenditure report states that councils should be spending $293.1 million a year on road preservation, but are spending $231.8 million, leaving a deficit of $61.3 million (p. 2). This compares with a deficit of $74.7 million in 1997-98, $66.7 million in 1998-99 and $59.8 million in 1999-2000 (see previous reports). The Federal Roads to Recovery grants of $180 million over five years (see Table 4.2) should enable councils to further trim the deficit over the next few years.

With Federal funding assistance, one of the regional road groups, the Great Southern Regional Road Group, has gone one step further and is piloting regional transport planning arrangements.

Queensland Local Roads Management and Investment Alliance

A Local Roads Management and Investment Alliance has recently been established by the State Government and the Local Government Association of Queensland. Under the Alliance, 10 to 12 regional road groups will be formed to determine regional priorities. The groups will also guide decision-making for investment and road management of Local Roads of Regional Significance across Queensland. The alliance will be funded through a five-year road funding programme.

Implementation of the alliance is expected to take about two years. It will involve establishment of regional road groups, identification of local roads of regional significance, improved asset management practices, prioritisation processes and funds allocations, and investigation of enhanced joint purchasing arrangements and resource sharing opportunities and joint capability development.

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Road funding responsibilities of each sphere of government

Australia has about 810 000 kilometres of public roads: about 326 000 kilometres are sealed and 484 000 kilometres are unsealed (unformed, formed or gravel); and almost 640 000 kilometres (80 per cent) are local roads (see Table 4.3).

Table 4.3 Local road length by State in 2000-01 (km and %)

State

Road length (km)

Road length (%)


NSW

142 460

22.29

Vic

127 727

19.99

Qld

144 469

22.60

WA

121 565

19.02

SA

74 334

11.63

Tas

14 079

2.20

NT

12 562

1.97

ACT

1 848

0.29


Total

639 044

100.00

Source: State and Territory Local Government grants commissions and the Australian Capital Territory Department of Urban Services

Under the 1991 Premiers' Conference Agreement, the Federal Government funds National Highways, State Governments fund arterial roads, and Local Governments fund the local roads. Together they spend about $7 billion a year on Australian roads (see Table 4.4).

Table 4.4 Funding of roads by sphere of government, 1997-98

 

$ million

% of total


Commonwealth

1 636

23

State

3 379

48

Local

2 000

29


Total

7 014

100

Source: Bureau of Transport Economics 2000, Rural roads: the economic perspective, by Mark Harvey, March, p. 2.

In practice, the limited revenue-raising capacity of councils sees both Federal and State Governments contributing to local road funding. The Bureau of Transport and Regional Economics study Spending on local roads shows that in 1997-98, Local Government spent $2 713 million on local roads (see Table 4.5). The study shows that $1 930 million was from their own funds, $365 million was provided by the Federal Government, $293 million by State Governments and $125 million was provided by the private sector (mainly new estate developer contributions). About 70 per cent of local road spending is on asset preservation.

Table 4.5 Local road funding by sphere of government, 1997-98 ($m)

 

NSW

Vic

Qld

WA

SA

Tas

Total

Total %


Council1

503

353

580

296

131

67

1 930

71

Federal

112

80

72

60

20

21

365

13

State

181

14

40

58

0

0

293

11

Private sector

36

40

38

11

n/a

n/a

125

5


Total

832

487

730

425

151

88

2 713

100

Note: 1 Funding from all sources of council funds including rates and untied grants from other spheres of Government.

Source: Bureau of Transport Economics 2001, Spending on local roads, working paper 44, p.13, Tables 2.3 and 2.4.

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Other infrastructure issues

Local roads are not the only infrastructure for which councils are responsible. Stormwater and waste management and water supply are major issues for councils. This section outlines some of the data available on this infrastructure.

Local Governments' water, sewerage and waste management infrastructure

Local Government is responsible for water supply in Queensland, Tasmania and regional New South Wales. Elsewhere this is a responsibility of the State or of regional utilities. Local Governments are responsible for management of solid waste in every State.

Environmental revenue and expenditure

The Australian Bureau of Statistics (cat. no. 4611.0) has released data on the revenue and expenditure of Local Governments' water and waste management infrastructure. The data shows that in 2000-01, Australian Local Governments received nearly $2.3 billion for environment protection activities (mainly waste-water and solid waste processing activities) and about $1.3 billion for natural resource management (total $3.6 billion). In 2000-01, Local Government spent $2.5 billion on environmental protection measures and a further $1.8 billion on natural resource management (total $4.3 billion).

In terms of cost recovery, revenue from water supply of $1.1 billion exceeded expenditure of $770 million, generating a $330 million surplus. Revenue from waste-water was $1.1 billion, which covered expenses. Revenue from solid waste of $1.1 billion almost covered expenses of $1.2 billion. But revenue from land management of $218 million covered less than a quarter of expenses of $933 million. Land management includes zoning, processing of development applications, management of recreational parks and sporting fields and management of some crown land. Overall, expenditure on environmental measures and natural resource management exceeded revenue by $700 million.

Ratepayers provided 85 per cent of the revenue for environmental protection and 81 per cent of the revenue for natural resource management. Government subsidies and grants for these activities contributed less than 7 per cent of the revenue ($169 million for environment protection and $62 million for natural resource management).

Expenditure figures include almost $1 billion in capital expenditure - $616 million on environment protection and $370 million on natural resource management.

Benefits of flood mitigation

Victoria's Facing the renewal challenge study showed that Local Government has a significant investment in drainage infrastructure, comprising about 15 per cent of its Local Government assets. Average annual asset consumption was just over 1 per cent a year. Maintaining this infrastructure in good condition is important to the community.

A Bureau of Transport and Regional Economics study, Benefits of flood mitigation (Report 106), shows how important flood mitigation measures are. The report finds that 'On average, floods cost the Australian community over $300 million each year' (p. 1). The report shows that flood modification measures such as levees, dams and bitumen sealing of roads, and property modification measures such as zoning, land use planning and building regulation, are successful in reducing the annual cost of floods.

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