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Appendix B : State methods for distributing financial assistance grants 2002-03

The methods each State Local Government Grants Commission employed for allocating grants to councils in 2002-03 are provided under the following sections:

Descriptions of methods are based on information supplied by Local Government Grants Commissions.

The Australian Capital Territory requires no distribution of grant because the Territory Government directly exercises local government functions.

New South Wales

The New South Wales Grants Commission methodology has not changed significantly since last year. The two components of the grants are distributed on the basis of principles developed in consultation with local government and consistent with the National Principles of the Local Government (Financial Assistance) Act 1995.

General purpose component

The general purpose component of the grant attempts to equalise the financial capacity of councils. The Commission uses the direct assessment method. The approach taken considers cost disabilities in the provision of services on the one hand (expenditure allowances) and a theoretical assessment of revenue-raising capacity on the other (revenue allowances).

Expenditure allowances are calculated for each council for a selected range of council services. The allowances attempt to compensate councils for expected above average costs resulting from issues that are beyond their control. Council policy decisions concerning the level of service provided, or if there is a service provided at all, are not considered (effort neutral).

Expenditure allowances are calculated for 21 council services or areas of expenditure. These services are: general administration and governance, aerodromes, services for aged and disabled, building control, public cemeteries, services for children, general community services, cultural amenities, control of dogs and other animals, fire control and emergency services, general health services, library services, noxious plants and pest control, town planning control, recreational services, stormwater drainage and flood mitigation, street and gutter cleaning, street lighting, and maintenance of urban local roads, sealed rural local roads, and unsealed rural local roads.

An additional allowance is calculated for councils outside the Sydney statistical district that recognises their isolation.

The general formula for calculating expenditure allowances is:

No. of units x standard cost x disability factor

where:

  • the number of units is the measure of use for the service for the Council. For most services the number of units is the population. For others it may be the number of properties or the length of roads
  • the standard cost represents the State average cost for each of the 21 selected council services. The calculation is based on a State average of each council's unit cost, excluding extreme values, using selected items from Special Schedule 1 of councils' 2000-01 Statements of Accounts
  • the disability factor is the extent to which it is estimated to cost the council more than the standard to provide the service.

A disability factor is the Commission's estimate of the additional cost, expressed as a percentage, of providing a standard service due to inherent characteristics that are beyond a council's control. For example, if it is estimated that it would cost a council 10 per cent more than the standard for town planning, because of population growth in the area, the disability factor would be 10 per cent. Consistent with the effort neutral principle, the Commission does not compensate councils for cost differences that arise due to policy decisions of council, management performance or accounting differences.

For each service the Commission has identified a number of variables that are considered to be the most significant in influencing a council's expenditure on that particular service. These variables are termed 'disabilities'. A council may have a disability due to inherent factors such as topography, climate, traffic, duplication of services etc. In addition to disabilities identified by the Commission, 'other' disabilities relating to individual councils may be determined from council visits or submissions.

The general approach for calculating a disability factor is to take each disability relating to a service and apply the following formula:

Disability factor = (council measure + standard measure - 1) x 100 x weighting

where:

  • the council measure is the individual council's measure for the disability being assessed (for example, population growth)
  • the standard measure is the State standard (generally the average) measure for the disability being assessed
  • the weighting is meant to reflect the significance of the measure in terms of the expected additional cost. The weightings have generally been determined by establishing a factor for the maximum disability based on a sample of councils or through discussion with appropriate peak organisations.

Negative scores are not generally calculated. That is, if the council score is less than the standard, a factor of zero is substituted. The factors calculated for each disability are then added together to give a total disability factor for the service.

The Commission uses the inclusion approach in the treatment of specific purpose grants for library services and local roads. This means the disability allowance is discounted by the specific purpose grant as a proportion of the standardised expenditure.

The deduction approach is used for services where the level of specific purpose payment assistance is related to council effort. This method deducts specific purpose grant amounts from all councils' expenditure before standard costs are calculated. The Commission considers the deduction approach to be more consistent with the 'effort neutral' requirement specified in the National Principles.

As indicated previously, the Commission also calculates an allowance for additional costs associated with isolation. The isolation allowance is calculated using a regression analysis model based on the additional costs of isolation and distances from Sydney and major regional centres. Only councils outside the Sydney statistical division are included. Details of the formula are shown later in this section. An additional component to the isolation allowance is included which specifically recognises the additional industrial relations obligations of councils in western New South Wales.

A pensioner rebate allowance is calculated which recognises that a council's share of pensioner rebates is an additional cost. Councils with high proportions of ratepayers that qualify for eligible pensioner rebates are considered to be more disadvantaged than those with a lower proportion. Details of the formula used are shown later in this section.

Revenue allowances attempt to compensate councils for their relative lack of revenue-raising capacity. Property values are the basis for assessing revenue-raising capacity because rates, based on property values, are the principal source of councils' income and property values, to some extent, are an indicator of the relative economic wealth of local areas.

The Commission's methodology compares land values per property for the council to a State standard value and multiplies the result by a State standard rate-in-the-dollar. To reduce seasonal and market fluctuations in the property market, the valuations are averaged over three years. In the revenue allowance calculation, councils with low values per property are assessed as being disadvantaged and are brought up to the average (positive allowances), while councils with high values per property are assessed as being advantaged and are brought down to the average (negative allowances). That is, the theoretical revenue-raising capacity of each council is equalised against the State standard. The Commission's approach excludes the rating policies of individual councils (effort neutral).

Separate calculations are made for urban and non-urban properties. Non-rateable properties are excluded from the Commission's calculations because the calculations deal with relativities between councils, based on the theoretical revenue-raising capacity of each rateable property.

In developing the methodology, the Commission was concerned that use of natural weighting would exaggerate the redistributive effect of the average revenue standards. That is, the revenue allowances are substantially more significant than the expenditure allowances. This issue was discussed with the Commonwealth and the approved principles provide that 'revenue allowances may be discounted to achieve equilibrium with the expenditure allowances'.

As a result, both allowances are given equal weight.

The discounting helps overcome the distortion caused to the revenue calculations as a result of the property values in the Sydney metropolitan area.

The objective approach to discounting revenue allowances reduces the extreme positives and negatives calculated, yet maintains the relativities between councils established in the initial calculation.

The Commission does not specifically consider rate pegging, which applies in New South Wales. The calculations are essentially dealing with relativities between councils, and rate pegging affects all councils.

Generally movements in the grants are caused by annual variations in property valuations, standard costs, road and bridge length, disability measures and population.

The Commission, because of the practical and theoretical problems involved, does not consider the requirements of councils for capital expenditure. In order to assess capital expenditure requirements the Commission would have to undertake a survey of the infrastructure needs of each council and then assess the individual projects for which capital assistance is sought. This would undermine council autonomy, because the Commission, rather than the council, would determine which projects were worthwhile. Further, councils that had failed to adequately maintain their assets could be rewarded at the expense of those that did maintain them.

The issue of funding for local water and sewerage undertakings was examined during the process of consultation between the Commission, the Local Government and Shires Associations, and local government generally. The consultation process preceded development of the distribution principles required under the 1986 Commonwealth legislation.

The Associations and local government recommended to the Commission that water and sewerage services should not be included in the financial assistance grants distribution principles. The main reasons given were:

  • water and sewerage services are not services performed by all general purpose councils in New South Wales
  • if water and sewerage services were to be considered the level of funds available for other council services would be significantly diminished
  • including water and sewerage services would result in a reduced and distorted distribution of funds to general purpose councils
  • other sources of funds and subsidies are available to councils by the State government for water and sewerage schemes.

The Commission agreed with the submissions of the Associations and local government. Accordingly, water and sewerage services are excluded from the distribution formula.

The Commission views income from council business activities as a policy decision and, therefore, does not consider it in the grant calculations (effort neutral). Similarly, losses are not considered either.

Debt servicing is related to council policy and is therefore excluded from the Commission's calculations. In the same way, the consequences of poor council decisions of the past are not considered.

Generally the levels of a council's expenditure on a particular service do not affect the grants. The use of a council's expenditure is generally limited to determining a State standard cost for each selected service. The standard costs for these services are then applied to all councils in calculating their grants. What an individual council may actually spend on a service has very little bearing on the standard cost or its grant.

Efficient councils are rewarded by the effort neutral approach of the calculations. To illustrate this, two councils with similar populations, road networks, property values, and disability measures would receive similar grants. The efficient council can use its grant funds to provide better facilities for its ratepayers. The inefficient council needs to use its grant funds to support an inefficient operation and cannot provide additional services to its ratepayers. Therefore, the efficient council will benefit from its efficiency.

Council categories have no bearing on the grants. Categories simply provide a convenient method of grouping councils for analysis.

Local road component

The method of allocating the local road component is based on a simple formula developed by the New South Wales Roads and Traffic Authority. The formula uses councils' proportion of the State's population, local road length and bridge length. See National Principles for details.

Formulae

The formulae used in calculating expenditure and revenue allowances of the general purpose component are as follows:

Expenditure allowances

General

Allowances for the majority of services are calculated on the following general formula:

Ac = Nc x Es x Dc

where: Ac = allowance for the council for the expenditure service

Nc = number of units to be serviced by council

Es = standard expenditure per unit for the service

Dc = disability for the council for service in percentage terms

Road length allowances

In addition to the disability allowances, length allowances are calculated for each road type based on the following formula:

Ac = Nc x Es x Lc - Ls

Nc Ns

where: Ac = allowance for road length allowance

Nc = number of relevant properties for the council

Es = standard cost per kilometre

Lc = council's relevant length of road per relevant property

Nc


Ls = = standard relevant length of road per relevant property

Ns

Isolation allowances

Isolation allowances are calculated for all non-metropolitan councils based on the formula:

Ac = Pc x ([Dsc x K1] + [Dnc x K2] + Ic)

where: Ac = the isolation allowance for each council

Pc = the adjusted population for each council

Dsc = the distance from each council's administrative centre to Sydney

Dnc = the distance from each council's administrative centre to the nearest major regional centre (a population centre of more than 20 000)

Ic = the additional per capita allowance due to industrial award obligations (if applicable)

K1 and K2 are constants derived from regression analysis

Specific purpose payments

Allowances for services are discounted where appropriate to recognise the contribution
of specific purpose grants. The discount factor that generally applies is:

1-
GC

(Nc x Es) + Ac

where: Gc = the specific purpose grant received by the council for the expenditure service

Nc = number of units to be serviced by council

Es = standard expenditure per unit for the service

Ac = allowance for the council for the expenditure service

Revenue allowances

General

The general formula for calculating revenue allowances is:

Ac = Nc x ts x (Ts - Tc)

where: Ac = revenue allowance for the council

Nc = number of properties (assessments)

ts = standard tax rate (rate-in-the-dollar)

Ts = standard value per property

Tc = council's value per property

The standard value per property (Ts) is calculated as follows:

Ts = Sum of rateable values for all councils

Sum of number of properties for all councils

The standard tax rate (ts) is calculated as follows:

ts = Sum of net rates levied for all councils

Sum of rateable values for all councils

Pensioner rebates allowances

The general formula for the allowance to recognise the differential impact of compulsory pensioner rates rebates is:

Ac = Rc x Nc x (Pc - Ps)

where: Ac = the allowance for the council

Rc = the standardised rebate per property for the council

Nc = the number of residential properties

Pc = the proportion of eligible pensioner assessments for the council

Ps = the proportion of eligible pensioner assessments for all councils

The standardised rebate for the council (Rc) is:

Rc = 0.25 x Tc x ts

where: Tc = the average value per residential property in the council

ts = the standard tax rate (rate-in-the-dollar) for residential properties

The maximum value for Rc is set at $125. Tc and ts are calculated as for the revenue allowances except only residential properties are used.

Principles

General Purpose (Equalisation) Component

These principles, consistent with the National Principles of the Local Government (Financial Assistance) Act 1995, are based on an extensive program of consultation with local government before the 1986 legislation was implemented.

The agreed principles are:

  1. General purpose grants to local governing bodies will be allocated as far as practicable on a full equalisation basis as defined in the Local Government (Financial Assistance) Act 1995; that is a basis which attempts to compensate local governing bodies for differences in expenditure required in the performance of their functions and in their capacity to raise revenue.
  2. The assessment of revenue and expenditure allowances of local governing bodies will, as far as is practicable, be independent of the policy or practices of those bodies in raising revenue and the provision of services.
  3. Revenue-raising capacity will primarily be determined on the basis of property values; positive and negative allowances relative to average standards may be calculated.
  4. Revenue allowances may be discounted to achieve equilibrium with expenditure allowances.
  5. Generally for each expenditure function an allowance will be determined using recurrent cost; both positive and negative allowances relative to average standards may be calculated.
  6. Expenditure allowances will be discounted to take account of specific purpose grants.
  7. Additional costs associated with non-resident use of services and facilities will be recognised in determining expenditure allowances.
  8. In the event of council amalgamations, the new council will receive grants for two years as if the councils had remained separate entities and any subsequent change may be phased in at the discretion of the Commission.

Local road component

Financial assistance, which is made available as an identified local road component of local government financial assistance, shall be allocated so as to provide Aboriginal communities equitable treatment in regard to their access and internal local road needs.

1. Urban [metropolitan] area

'Urban area' means an area designated as an 'urban area':

(a) the Sydney Statistical Division
(b) the Newcastle Statistical District
(c) the Wollongong Statistical District

2. Rural [non-metropolitan] area

'Rural area' means an area not designated as an 'urban area'

3. Initial distribution

27.54 per cent to local roads in urban areas

72.46 per cent to local roads in rural areas

4. Local road grant in urban areas

Funds will be allocated:

(a) 5 per cent distributed to individual councils on the basis of bridge length
(b) 95 per cent distributed to councils on the basis of:

(i) 60 per cent distributed on length of roads
(ii) 40 per cent distributed on population

5. Local road grant in rural areas

Funds will be allocated:

(a) 7 per cent distributed to individual councils on the basis of bridge length
(b) 93 per cent distributed to councils on the basis of:

(i) 80 per cent distributed on length of roads
(ii) 20 per cent distributed on population

6. Data

Population shall be based on the most up-to-date Estimated Resident Population figures available from the Australian Bureau of Statistics (ABS).

Road length shall be based on the most up-to-date data available to the Local Government Grants Commission of New South Wales for formed roads, which are councils' financial responsibility.

Bridge length shall be based on the most up-to-date data available to the Local Government Grants Commission of New South Wales for major bridges and culverts 6 metres and over in length, measured along the centre line of the carriageway, which are councils' financial responsibility.

The method of application of the statistics shall be agreed to between representatives of the Local Government Grants Commission of New South Wales and the Local Government and Shires Associations of New South Wales.

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Victoria

The Victoria Grants Commission allocates general purpose and local road grants according to the six national principles formulated under the Commonwealth Local Government (Financial Assistance) Act 1995.

General purpose component

The findings of a major review the Commission undertook of the methodology for allocating the general purpose grants to councils were implemented during 2001-02. A significant element of the revised methodology is a series of cost adjustors which are used to reflect the local characteristics of individual councils and replace the 'disability factors' previously used by the Commission.

In January 2002 a package of information was circulated to all councils outlining the Commission's progress in developing cost adjustors and the proposed application of these in calculating general purpose grants. Councils were invited to comment on the construction and application of the cost adjustors in their submissions to the Commission relating to the 2002-03 grant allocations.

The Commission further refined the proposed methodology early in 2002, taking account of submissions received from councils and individual meetings with a number of councils. This process resulted in further changes to the application of the proposed cost adjustors and helped the Commission assign relative weightings to each cost adjustor.

As was the case with the previous methodology, a council's grant is defined as the 'raw grant', which is calculated by subtracting the council's standardised revenue from its standardised expenditure.

The available general purpose grants pool is then allocated in proportion to each council's raw grant, taking into account the minimum grant provision of the National Principles. As described below, increases and decreases in general purpose grant outcomes have been capped, which also affects the relationship between raw grants and actual grants.

Standardised expenditure

Under the revised general purpose grants methodology, standardised expenditure has been calculated for each council on the basis of nine expenditure functions, rather than the 20 functions taken account of in the previous methodology. Between them, these expenditure functions comprise all council recurrent expenditure, with the exception of works undertaken on behalf of, and funded by, VicRoads and some council business undertakings.

The model is structured so the gross standardised expenditure for each function equals aggregate actual recurrent expenditure by councils, thus ensuring the relative importance of each expenditure functions in the Commission's model reflects the pattern of actual recurrent council expenditure.

Victorian councils' aggregate recurrent expenditure in 2002-03 equalled $3.059 billion. Total gross standardised expenditure therefore also equals $3.059 billion, with each of the nine expenditure functions assuming the same share of both actual recurrent expenditure and standardised expenditure.

For each function, except local roads and bridges, gross standardised expenditure is obtained by multiplying the relevant unit of need (for example, population) by:

  • the average Victorian council expenditure on that function, per unit of need, and
  • a composite cost adjustor which takes account of factors that make service provision costs for individual councils vary around the State average.

Major cost drivers ('units of need')

Four major cost drivers are used in the methodology to calculate the general purpose grants. They are:

  • estimated resident population, as at June 2001
  • an adjusted estimated residential population (with base)
  • number of dwellings
  • population over 60 years of age.

The Commission considers these drivers to be the most significant determinants of a council's expenditure need on a particular function. Three of the four major cost drivers described above apply to five of the eight non-road functions.

For the other three non-road expenditure functions, population is adjusted to assist low population councils by recognising the fixed costs associated with certain functional areas such as governance. For this major cost driver:

  • councils with an actual population of between 7500 and 15 000 are deemed to have
    a population of 15 000
  • councils with an actual population of less than 7500 are deemed to have a population twice their actual population.

The average expenditures per unit for each expenditure function, except local roads and bridges, are shown in Table B.1.

Table B.1 Average expenditures per unit for each expenditure function, except local roads and bridges - Victoria

Expenditure function Major cost driver
Statewide average expenditure per unit

Governance Population (with base)
$24.94
Family and community services Population
$72.64
Aged services Population > 60 years
$364.41
Recreation and culture Population
$129.53
Waste management No. of Dwellings
$152.30
Traffic and street management Population
$68.74
Other infrastructure services Population (with base)
$49.51
Business and economic services Population (with base)
$63.69

Cost adjustors

A number of cost adjustors are used in various combinations against each function. These allow the Commission to take account of the particular characteristics of individual councils which impact on the cost of service provision on a comparable basis. Each cost adjustor has been based around a State weighted average of 1.00 with a ratio of 1:2 between the minimum and maximum values, to ensure the relative importance of each expenditure function in the model is maintained.

The 13 cost adjustors used in calculating the 2002-03 general purpose grants are:

  • aged pensioners
  • population less than 5 years
  • regional significance
  • remoteness
  • English proficiency
  • scale
  • Indigenous population
  • socioeconomic
  • kerbed roads
  • population density
  • population dispersion
  • population growth
  • tourism.

Because some factors represented by cost adjustors impact more on costs than others, different weightings have been used for the cost adjustors applied to each expenditure function.

Net standardised expenditure

Net standardised expenditure has been obtained for each function by subtracting standardised grant support (calculated on an average per unit basis) from gross standardised revenue. This ensures that other grant support is treated on an 'inclusion' basis as required under the national principles.

Mathematically, calculating net standardised expenditure for each expenditure function is as follows:

net standardised expenditure = gross standardised expenditure - standardised grant revenue

Standardised expenditure for the local roads and bridges expenditure function within the general purpose grants model is now based on the grant outcomes for each council under the Commission's new local road grants model, first used to calculate the 2001-02 allocations. This model incorporates a number of cost modifiers (similar to cost adjustors) to take account of different circumstances affecting councils. More detail on the local road grants model is presented in the next section. Net standardised expenditure for this function is calculated by subtracting other grant support (based on actual identified local road grants and Roads to Recovery grants) from gross standardised expenditure.

The total standardised expenditure for each council is the sum of the standardised expenditure calculated for each of the nine expenditure functions.

Standardised revenue

Standardised revenue is calculated for each council by multiplying its total net annual value (averaged over the most recent three years) by the average rate in the dollar across all Victorian councils. The payments in lieu of rates received by some councils for major facilities such as power stations and airports have been added to their standardised revenue to ensure all councils are treated on an equitable basis.

A council's standardised revenue is intended to reflect its capacity to raise rate revenue from its community. Steep increases in valuations in many parts of metropolitan Melbourne and some regional centres have led to significant increases in standardised revenue for a number of councils. The Commission acknowledges that a council's actual capacity to increase rate revenue may not match the increase in standardised revenue based on valuations. Consequently, when calculating the 2002-03 grants, increases in standardised revenue for individual councils have been restricted to 6 per cent.

Minimum grants

The available general purpose grants pool for Victorian councils represents, on average, $51.50 per head of population. The minimum grant National Principle requires that no council may receive a general purpose grant that is less than 30 per cent of the per capita average (or $15.40 for 2002-03). Six councils and the Docklands Authority received a minimum grant in 2002-03.

Capping

The Commission is mindful that large movements in general purpose grants can impact significantly on a council's financial position. In recent years, both increases and decreases in grant outcomes have been capped to provide some stability in grant outcomes.

For the 2002-03 allocations, increases in general purpose grants have been capped at 30 per cent, relative to the estimated entitlement for 2001-02. Six councils were capped at this level. Decreases have been restricted to 6 per cent, affecting 11 councils. For those councils, the estimated entitlement, while lower than for 2001-02, is greater than it would have been had decreases not been limited.

Estimated entitlements 2002-03

Predictably, introduction of the revised methodology for allocating general purpose grants has resulted in significant changes in grant outcomes for a number of councils, compared with their 2001-02 allocation.

A summary of the changes in estimated general purpose grant entitlements from 2001-02 to 2002-03 is tabulated in Table B.2.

Table B.2 Changes in estimated general purpose grant entitlements from 2001-02 to 2002-03 - Victoria

Change in general purpose grant
No. of councils*

Increase of more than 30% #
1
Increase of 30% (capped)
6
Increase of 20.0% to 30.0%
5
Increase of 10.0% to 20.0%
17
Increase of up to 10.0%
30
Decrease of up to 6.0%
9
Decrease of 6.0% (capped)
11

Total
79

Notes:
* Includes Docklands Authority.
# The general purpose grant to the Docklands Authority, which receives a minimum grant, increased by 33 per cent.

With the introduction of the revised methodology, the Commission anticipates that general purpose grant outcomes will now become more stable for most councils in future years and, as this occurs, the requirement to cap grant movements will lessen.

Natural disaster assistance

The Commission provides funds from the general purpose grants pool to councils which have incurred expenditure for restoration work arising from natural disasters. Grants of up to $35 000 per council per eligible disaster are provided to assist with repairs and restoration.

Five grants have been allocated for 2002-03, totalling $115 094, for approved disasters that occurred in 2001-02 (see Table B.3).

Table B.3 Grants for natural disasters - Victoria

Baw Baw Shire Council Storm Damage
$14 492
Macedon Ranges Shire Council Flood Damage
$15 710
Moorabool Shire Council Storm Damage
$31 986
Mount Alexander Shire Council Flood Damage
$17 906
Surf Coast Shire Council Flood Damage
$35 000

Local road component

Following comprehensive review and consultation, the Commission instituted a new funding formula for the 2001-02 allocations which is based on each council's road length (for all surface types) and traffic volumes, using average annual preservation costs for given traffic volume ranges. The new methodology also includes a series of cost modifiers for freight loading, climate, materials, sub-grade conditions and strategic routes and also takes account of the deck area of bridges on local roads.

The new formula has been designed to reflect the relative needs of Victorian councils in relation to local road funding and to more closely address the National Principle relating to allocation of local road funding than did the former methodology.

The Commission is phasing in grant levels based on the new formula over a period of three years due to the significant changes forecast for some councils. In 2001-02, each council's local road grant was based on two-thirds of its 2000-01 grant and one-third of its grant was based fully on the new formula. The 2002-03 estimated entitlements have been set at the midpoint of the 2001-02 grant and grants fully based on the new formula (allowing for data changes) and the 2003-04 grants will be fully based on the new formula.

In April 2001 all councils were provided with an estimate of their local road grant for each of the three transition years.

Traffic volume data

The allocation of local road grants for 2002-03 has been based on traffic volume data collected by all councils during the 12 months to June 2001. Councils were asked to categorise their local road networks according to nine broad traffic volume ranges - four for kerbed roads and five for unkerbed roads.

Victorian councils reported 127 732 kilometres of local roads as at 30 June 2001, a variation of only 5 kilometres over the length reported 12 months earlier.

Councils use a combination of estimation and actual data counts to compile traffic volume data for the Commission. In late 2001, the Commission initiated a three-year program of reviewing the methodology and assumptions councils used to collect this information. The objective of this review is to improve the accuracy and consistency of traffic volume data supplied by councils, thereby ensuring the equitable allocation of local road grants.

Asset preservation costs

Average annual preservation costs for each traffic volume range are used in the allocation model to reflect the cost of local road maintenance and renewal. The initial cost of construction (which is relatively higher for kerbed roads) is not included, as the model attempts to reflect the cost of maintaining existing local road assets. The average annual preservation costs used in the allocation of local road grants for 2002-03 (see Table B.4) were developed by ARRB Transport Research and were published in Table 7.1 of Review of Distribution Arrangements for Local Roads Funding in Victoria: Final Report, which was released in July 1999.

Table B.4 Average annual preservation costs used in allocating local road grants for 2002-03 - Victoria

Road type
Daily traffic volume range
Average annual cost (base case) $ per km

Kerbed
<500
1000
500-1000
2660
1000-5000
4290
>5000
6600
Unkerbed
Natural surface
300
<100
1500
100-500
4800
500-1000
5150
>1000
5970

Cost modifiers

The allocation model uses a set of five cost modifiers to reflect differences in circumstances between councils in relation to:

  • the volume of freight generated in each council area - this cost modifier recognises that local roads in some municipalities carry relatively high volumes of heavy vehicles compared to others, which impacts on the cost of asset preservation
  • climate - this cost modifier recognises that certain climatic conditions have an adverse impact on road durability and increase the costs to affected councils of asset preservation
  • the availability of road-making materials - the cost of maintaining local roads can be affected by the local availability of suitable pavement materials
  • sub-grade conditions - the performance life of road pavements is affected by seasonal swelling and shrinkage of the sub-grade, which accelerates deterioration of the pavement and adds to asset preservation costs
  • strategic routes - this cost modifier recognises that certain local roads must be maintained to a higher standard than would normally be the case because of certain characteristics or functions they perform, for example local roads that are tram or bus routes.

Cost modifiers are applied to the average annual preservation costs for each traffic volume range for each council to reflect the level of need of the council relative to others. Relatively high cost modifiers add to the network cost calculated for each council, and so increase its local road grant outcome.

The Commission will periodically review cost modifiers. However, no changes were made either to the modifiers or to the underlying data used in calculating the local road grants for 2002-03. The cost modifier factors used for each council were therefore the same as those used in calculating the 2001-02 grants.

Grant calculation

The Commission calculates a total network cost for each council's local road network. This represents the relative annual costs faced by the council in maintaining their local road and bridge networks, based on average annual preservation costs and taking account of local conditions, using cost modifiers.

The network cost is calculated using traffic volume data for each council, standard asset preservation costs for each traffic volume range and cost modifiers for freight generation, climate, materials availability, sub-grade conditions and strategic routes. The deck area of bridges on local roads is included in the network cost at a rate of $5 per square metre for concrete bridges and $10 per square metre for timber bridges.

Mathematically, calculating the network cost for a single traffic volume range for a council can be expressed as follows:

length of local roads in category x average annual asset preservation cost for category x overall cost factor*

* Overall cost factor is calculated by multiplying the individual cost factors for freight loading, climate, materials availability, reactive sub-grades and strategic routes.

This calculation is undertaken for each traffic volume range, and an allowance is made for bridge deck area. The actual local road grant is then determined by applying the proportion of each council's calculated network cost to the overall network cost, to the available funds.

As indicated above, grant levels based on the new formula are being phased in over a period of three years. The estimated entitlements for 2002-03 have been set at the midpoint of the 2001-02 grant and grants fully based on the new formula.

Estimated entitlements 2002-03

As expected, the phased introduction of grant levels fully based on the new allocation methodology resulted in significant changes in grant outcomes for a number of councils, compared with the estimated entitlement for 2001-02.

A summary of the changes in local road grants from 2001-02 to 2002-03 is presented in Table B.5.

Table B.5 Changes in local road grants from 2001-02 to 2002-03 - Victoria

Change in local road grant
No. of councils*

Increase of more than 20%
6
Increase of 10.0% to 20.0%
18
Increase of up to 10.0%
24
Decrease of up to 10.0%
10
Decrease of 10.0% to 20.0%
17
Decrease of more than 20%
4

Total
79

Note: * Includes Docklands Authority.

While the variations for many councils were significant compared with the 2001-02 local road grants, these outcomes were generally expected and, for most councils the estimated entitlement approximates the forecast provided in April 2001. As the cost modifiers and average annual preservation costs used in the allocation model have remained unchanged, the differences between the April 2001 forecast and the estimated entitlement for 2002-03 are attributable to changes in the traffic volume data provided by individual councils and a slight underestimation of the total grant pool for 2002-03.

A summary of the variations between the projected grant for 2002-03 (provided to councils in April 2001) and the estimated entitlement for 2002-03 is shown in Table B.6.

Table B.6 Variations between the projected grant for 2002-03 (provided to councils in April 2001) and the estimated entitlement for 2002-03 - Victoria

Estimated local road grant compared to projected grant
No. of councils*

Increase of more than 5%
16
Increase of 2.5% to 5.0%
29
Increase of up to 2.5%
28
Decrease of up to 2.5%
4
Decrease of 2.5% to 5.0%
1
Decrease of more than 5%
1

Total
79

Note: * Includes Docklands Authority.

Proposed changes to the local road grants methodology

During 2002, the Commission awarded contracts to two consultants to conduct separate reviews of important elements of the local road grants model. One contract required a review of the asset preservation costs used in the model as the basis for calculating the total network costs associated with local roads and bridges in Victoria. The second contract sought a review of the freight relativity factors used in the model to derive the freight loading cost modifier. The final report outlining the findings of the review of the freight relativity factors was released in March 2003 and the final report on the review of the asset preservation costs was released in April 2003. Both reports were distributed to all Victorian councils.

In early 2003, the Commission implemented almost all of the recommendations of the two reports in its allocation of the local road grants for 2003-04.

A more detailed discussion of the changes incorporated in the revised methodology for calculating the 2003-04 local road grants will be presented in the next Local Government National Report.

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Queensland

Methods

General purpose component

The principles of fiscal equalisation attempt to provide the resources necessary to enable councils to supply services to an average standard while facing a diverse range of geographic, social and economic circumstances. The relative dependency of councils on the financial assistance varies considerably and this provides the basis for the allocation.

The Queensland Local Government Grants Commission uses a balanced budget approach and takes into account the expenditure needs and the revenue-raising capacity of councils. The Grants Commission therefore determines a notional budget for each local government in Queensland. The notional budget is calculated by assessing the expenditure need and revenue-raising capacity based on a State average for local government activities.

Once a notional budget has been determined for each council, a grant is calculated which ensures each council has an equal ability to fund its assessed expenditure need. This is presented in the equations below:

G = kE - (R + I)

I + R + G = kE

where: k = scaling factor

G = the grant

R = revenue capacity

E = expenditure need

I = other grants treated as revenue

The formula ensures the calculated grant G plus the assessed revenue R and other grants treated as revenue I would fund the same proportion k of expenditure needs E across all councils.

Expenditure need is calculated as the total assessed expenditure on services, roads and the actual expenditure on a range of functions referred to as 'effort positive' functions.

The revenue-raising capacity of each council is calculated as the total of assessed rates, assessed other revenue and effort-positive revenue.

In determining the grant for each council other grant contributions from the Commonwealth and State are taken into account as revenue.

The major inclusion for all councils is the Commonwealth's identified road grant. The Queensland Local Government Grants Commission takes 70 per cent of this grant revenue into account. It is discounted to 70 per cent as the grant revenue can be expended on functions excluded by the Grants Commission in calculating the fiscal equalisation grant, namely water and sewerage. It is estimated that, on average, 30 per cent of council expenditure is on water and sewerage.

The other source of grant revenue taken into account is the State and Commonwealth operating subsidies received by Aboriginal and Torres Strait Island Councils. Sixty-seven per cent of this grant revenue is taken into account. It is discounted as the grant revenue is able to be expended on excluded functions, such as water and sewerage, and other functions, such as police services, which are not supplied by the non-Aboriginal and Torres Strait Island councils.

Table B.7 gives the model used to allocate general purpose grants on an equalisation basis before transitional modifications are applied (see below).

Local road component

In 2002-03 the identified road component was distributed between local governing bodies on the following basis:

  • 62.85 per cent in proportion to road length ($360.25 per kilometre)
  • 37.15 per cent in proportion to population ($8.60 per capita).

Principles

National Principles

The National Principles relating to allocation of general purpose grants payable under section 9 of the Local Government (Financial Assistance) Act 1995 are at Appendix A.

Transitional modification of National Principles

Queensland was given an extension to phase in significant grant distribution effects resulting from implementing the National Principles, in force under section 6 of the Local Government (Financial Assistance) Act 1995.

In this determination:

  • minimum grant councils are local governing bodies that, in the financial year 2001-02, received a minimum general purpose grant allocation calculated under National Principle A3
  • disadvantaged councils are local governing bodies recommended by the Queensland Local Government Grants Commission, in respect of 2002-03, as being disadvantaged
  • remaining councils are those local governing bodies that are not minimum grant councils or disadvantaged councils.

National Principle A1 was modified in 2002-03. The first two payments under Section 9 must be allocated to local governing bodies so that:

  • minimum grant councils receive allocations calculated on the basis that they continue to be treated as minimum grant councils and received a minimum general purpose grant allocation calculated under National Principle A3
  • disadvantaged councils receive allocations calculated by the Queensland Local Government Grants Commission on the basis of a fixed percentage increase nominated by the Commission on the allocations they received in 2001-02
  • remaining councils receive allocations equal to the grant they received in 2001-02.

Calculations of allocations for a particular financial year referred to in this determination do not include adjustments under Section 10 made in respect of allocations for the previous financial year but actually paid in the particular financial year.

The National Principles, as modified by this determination, apply to the State of Queensland.

Formulae

General purpose component

In the equations the following codes are used:

TRP = total number of rateable properties

GVRP = gross value of rural production (averaged over five years)

PI = personal Income of all residents of a local governing body area (1996 Census data adjusted for taxable income)

RRTS = residual retail turnover sales (the difference between the retail sales turnover in a local governing body area and that local governing body's urban personal income multiplied by the average State retail sales per State urban personal income, and adjusted for taxable income)

UCV = unimproved capital value

POP = population

KR = kilometres of total local road

Revenue

Rate-raising capacity

Total rates $ = 25.769 x TRP + 0.01307886 x GVRP + 0.01525395 x PI + 0.00474784 x RRTS + 0.002218 x UCV (local governments)

Total rates $ = 0.00 (Aboriginal and Torres Strait Islander Councils)

Fees

Fees and charges $ = 130.29 x POP

Effort positive charges

Parking fines and fees
Aerodrome
Other
}
$ = effort positive (actual revenue)

Expenditure

Services

Current and capital $ = 928 373 + 328.69 x POP (local governments)

Current and capital $ = 866.33 x POP (Aboriginal and Torres Strait Islander councils)

Roads

Current and capital $ = 3006.06 x KR

Effort positive

Effort positive expenditure includes:

  • aerodromes
  • other transport
  • agricultural and forestry
  • urban storm water drainage
  • parking.

Current and capital $ = effort positive (actual expenditure)

Other expenditure not elsewhere included

Current and capital treated as an overhead and apportioned on a pro rata basis of total assessed expenditure need of other functions.

Inclusions

The Commission treats the following items as inclusions:

  • 70 per cent of the identified road component for the year under review
  • 67 per cent of the Aboriginal and Torres Strait Islander Councils' operating grant received from the Queensland Department of Aboriginal and Torres Strait Islander Policy and Development.

Local road component

In 2002-03 the identified road component was distributed between local governing bodies on the following basis:

  • 62.85 per cent in proportion to road length ($360.25 per kilometre)
  • 37.15 per cent in proportion to population ($8.60 per capita).

Table B.7 Fiscal equalisation formula - Queensland

Grant = x% expenditure - revenue - inclusions

Revenue Grant X% Expenditure

Assessed rates
$23.659 x rateable properties + $0.0120080 x gross value rural production + $0.0140050 x personal income + $0.0043591 x residual retail sales + $0.002036 x unimproved capital value +
The calculated grant Funding rate Assessed non-road services($928 373 + ($328.69 x population)) x disability factor (local governments)
or
($866.33 x population)) x disability factor (Aboriginal Torres Strait Islander councils) +
Assessed charges $130.29 x Population + Assessed roads $3006.06 x km x road disability factor +
Effort positive charges (actual) + Effort positive expenditure (actual) +
70% identified road grant + Special disability factors (actual)
67% ATSI operating grant

Notes: The same rate (x%) is applied to each council except those councils which receive the per capita minimum grant

ATSI = Aboriginal and Torres Strait Islander.

Methodology review

The current Commission was appointed in November 2001 for a period of two years. The Commission decided, at its first meeting in December 2001, to undertake a review of the existing methodology.

As the Commonwealth Grants Commission did not recommend a change to the basic underlying philosophies of the Act, the Queensland Commission decided to proceed with its review, acknowledging the Commonwealth may introduce changes at a later date.

Since the Commission was reviewing the existing methodology, it did not wish to implement the existing methodology further. The Commission therefore determined the distribution of the financial assistance grant for 2002-03 so no council would receive less than it had in 2001-02.

The Commission gave all interested parties, particularly councils, the opportunity to make comments and suggestions about how the distribution of the grant should be determined. Between February 2002 and May 2003 the Commission:

  • released its terms of reference for review of the distribution methodology and information papers
  • conducted regional seminars to explain the existing methodology and the principles the Commission must follow - 73 councils and other parties attended the seminars
  • received submissions and, taking those submissions into account, released a draft report for comment
  • conducted a further series of regional seminars to explain the draft report and the challenges the Commission faces
  • finalised the new methodology, taking into account submissions received on the draft report
  • published the final report on the Commission's web site, and sent printed copies to all local governments in Queensland as well as other interested parties
  • conducted regional seminars throughout the State to explain the new methodology and the issues covered during the review. Further work to be undertaken by the Commission was addressed.

The new methodology will be implemented for calculating the grant from 2003-04 onwards. The Commission intends to continue consulting with local governments and their peak bodies in the future refinement of the new methodology.

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Western Australia

As in previous years, the Commission uses the balanced budget method, for allocating Commonwealth general purpose funding, and an asset preservation model for allocating the identified local road funding component.

General purpose component

The 'balanced budget' approach to horizontal equalisation is based on the formula:

assessed equalisation requirement = assessed revenue capacity - assessed expenditure need

with the 'assessed equalisation requirement' calculated simultaneously for all 142 local governments in Western Australia.

Calculation of 'assessed revenue capacity', based on standardised mathematical formulae, involves assessing the revenue-raising capacity of each local government in five categories:

  • residential and commercial/industrial rates
  • agricultural rates
  • pastoral rates
  • mining rates
  • extraordinary revenue.

'Assessed expenditure need', also based on standardised mathematical formulae, involves assessing each local government's operating expenditures in the provision of core services and facilities under seven 'standard' categories:

  • governance
  • law, order and public safety
  • education, health and welfare
  • community amenities
  • recreation and culture
  • building control
  • transport.

'Assessed equalisation requirement' is the result of subtracting assessed expenditure need from assessed revenue capacity. The Commission used a four-year average of the 'assessed equalisation requirement' (after dropping off the highest and lowest from the last six years of averages) as the basis for determining the grant allocations, to provide a degree of stability to grant outcomes.

The derived 2002-03 final outcome was then subjected to the Minimum Grant National Principle (30 per cent of total general purpose grant component) before the balance was factored back in order that local governments received grants proportional to their calculated allocation within the State's share of the Commonwealth per capita funding pool.

In the 2002-03 determinations, 26 local governments received the minimum grant entitlement (three more than the previous year).

Methodology refinements for 2002-03

Refinements made to the methodologies, as a result of the Commission's ongoing research programs, public hearings visit programs, and consideration of local government submission claims are discussed below.

Units of measurement

The major influence in calculating expenditure 'standards' was population. The Commission used the latest (30 June 2001) ABS estimated resident population data (cat. no. 3234.5). Other key drivers used in the balanced budget approach were a range of 'disability factors', given relative weightings to calculate local governments' allowances for additional costs in the provision of services.

Grant capping

The City of Albany's submission for continued maintenance of its grant level for a fifth year, equivalent to the combined pre-amalgamation levels of the former Town and Shire of Albany, was considered unjustifiable and, therefore, ceased after the fourth year - 2001-02 was the final year of such maintenance.

Maximum reduction

In reviewing the grant allocations, maximum reductions were limited to 15 per cent. The effect of applying this limit was to reduce the impact that would be experienced by four local governments - the Shires of Augusta-Margaret River, Williams, and Yilgarn, and the Town of Bassendean.

Revenue standards

The Grants Commission adopted revenue standards for residential and commercial/industrial rates, agricultural rates, pastoral rates, mining rates and extraordinary revenue, as well as building control charges and recreation and culture charges, consistent with previous years.

Mining rates

The categories for mining councils were reviewed. As a result, the Commission resolved to discontinue using three differentiating categories; all councils came under one assessment. This approach was considered more consistent with the equalisation principle.

Expenditure standards

There were no significant changes in the methods used to calculate the expenditure standards for 2002-03, compared to previous years.

Capital works/depreciation

Since 1995-96, the capital works standard has been progressively phased out by the increasing amount of depreciation included in the other expenditure categories. As the total value of depreciation had reached the point where it was greater than the previous year's capital works assessment, this standard was phased out of the 2002-03 assessments.

Transport

As in previous years, transport expenditure needs were calculated for each local government by adding non-road expenditure items (footpaths, street lighting, laneways and aerodromes) to road preservation needs obtained from the asset preservation model.

The assessments resulted in many large changes in the general purpose grants component for the transport expenditure classification. To cushion these changes, the phase-in arrangement, started in 1996-97, has been continued. The Transport Standard for 2002-03 is made up of 0.1 of the 1995-96 Transport Standard and 0.9 of the calculated 2002-03 assessment.

2003-04 will be the last year of the phase-in arrangement.

Disability factors

Once again, a broad range of disability factors have been applied. A number of factors have been updated to reflect more current information (for example, the heritage factor and the development factor).

The Commonwealth's extended recognition of disaster areas declared as 'exceptional circumstances' has been reflected in the provision of a special allowance to the 21 affected councils, 15 more than the previous year.

The new 'medical services' allowance was introduced to reflect the increasing burden on local government to financially support the retention of doctors.

Calculating standards for 2002-03

The equations used in 2002-03 for calculating the standards for both revenue and expenditure are described in Table B.8.

Table B.8 Equations used to calculate revenue and expenditure standards, 2002-03 - Western Australia

Revenue standards

Agricultural rates:

Standard = [(0.001568 x TVAL98-00) + (1.247 x VGAREA) + (319.67 x Assmt)] x 1.0785

Pastoral rates:

Standard = 0.084749 x Pastoral Valuations 1999-00 to 2000-01

Residential and commercial/industrial rates:

Standard = (125.32 x Assmt) + (0.059695 x Valuations)

Mining rates:

Standard = [(72.47 x Tlease/Mining Assmt890) + (0.0633 x MINVAL890)] x 0.97

Extraordinary revenue:

Standard = Individual Assessments

Recreation and culture charges:

Standard = 31.89 x ADJPOP01

Building control charges:

Standard = 4.38 x VTBLD980


Expenditure standards

Governance:

Standard = (29.73 x Assmt) + (29.84 x ADJPOP01) + 104,125

Law, order and public safety:

Councils fully protected by the Western Australian Fire and Rescue Service
Standard = WAFRS Levy + (2.08 x DWELL2001) + (7.24 x POP01)

City of Perth

Standard = WAFRS Levy + (4.78 x DWELL2001) + (133.48 x POP01)

Metropolitan fringe councils

Standard = WAFRS Levy + (87.69 x Dwellings outside WAFRS) + (7.40 x POP01)

All other councils

Standard = (77.65 x dwellings outside WAFRS) + (14.14 x POP01)

Education, health and welfare:

Standard = (39.67 x POP01) and SPG Factor 0.58

Community amenities:

Standard = (16.05 x ADJPOP00) and SPG Factor 0.99

Recreation and culture:

Standard = [(69.63 x ADJPOP01) + (198.71 x DWELL2001) + 72 989] and SPG Factor 0.95

Building control:

Standard = [(25.50 x SIZE2001) + (3.12 x VTBLD980)] x 1.4

Transport:

Standard = factored back asset preservation model needs - total preservation grants

where: ADJPOP01 = estimated service population derived from population + net additional employment based on ABS Statistics and the Business Register Assmt = number of assessments

BAILS98 = business and industrial locations in 1998

DWELL2001 = estimated stocks of dwellings in Western Australia in June 1997, factored up by the number of dwelling approvals from 1997 to 2000

Dwellings outside WAFRS = number of dwellings not protected by the Western Australian Fire and Rescue Service

Factored back asset preservation model needs = distribution of 93 per cent of local road funding in accordance with road preservation needs determined by the asset preservation model

MINVAL890 = total unimproved mining valuations, three year average, 1998-99 to 2000-01

POP01 = estimated population in 2001

SIZE2001 = [(10.1 * BAILS98) + DWELL2001] / 2

SPF factor = specific purpose grant factor

Tlease/mining assmts890 = total number of mining leases and licences registered or assessments, three year average, 1998-99 to 2000-01

Total preservation grants = road preservation grants, based on apportioned annual costs of maintaining local road network

TVAL98-00 = total average valuation of agricultural areas, three year average, 1998-99 to 2000-01

Valuations = equalised gross rental values, three year average, 1998-99 to 2000-01, or = pastoral valuations, three year average, 1998-99 to 2000-01

VGAREA = total average agricultural land area in hectares, for agricultural valuations, three year average, 1998 to 2000

VTBLD980 = total value of building activity, three year average, 1998-99 to 2000-01

WAFRS Levy = Western Australian Fire and Rescue Service Levy

Local road component

Under the current principles, 7 per cent of Federal funds were allocated for 'special projects' needs (one-third for access roads serving Aboriginal Communities and two-thirds for major bridge works) as in previous years. The remaining 93 per cent was allocated according to the asset preservation model. The amounts involved were:

  • access roads serving Aboriginal communities 2 per cent - $1 574 707
  • bridge works 5 per cent - $3 149 415
  • balance for allocation (asset preservation model) 93 per cent - $63 373 943
  • total local road funding 100 per cent - $68 098 065

Special projects allocation

Access roads serving Aboriginal communities

The Aboriginal Roads Committee, which comprised representatives from the Western Australia Local Government Association, Main Roads WA, Department of Aboriginal Affairs and the Aboriginal and Torres Strait Islander Commission (ATSIC), fulfilled its advisory role with input into the allocation process. The aim of the Committee is to ensure funds are allocated in accordance with the needs of Western Australia's Aboriginal communities.

The Committee established funding criteria based on several factors, namely, the number of Aboriginal people served by a road, the distance of the community from a sealed road, the condition of the road, the proportion of traffic serving Aboriginal communities and the availability of an alternative access. These criteria have successfully provided a rational method of assessing priorities in developing a five-year program.

Bridge works

The funds for bridge works are allocated to only preservation-type projects. A Bridge Committee, formed in 2001, advises the Commission on priorities for allocating funds to identified bridges. Membership of the committee is made up of representatives from Main Roads WA, the Western Australian Local Government Association, and the Western Australia Local Government Grants Commission.

Allocation of the balance

The remaining 93 per cent of funds from the Commonwealth pool were allocated in accordance with road preservation needs determined by the asset preservation model. The model's assessment principles, such as minimum standards and reconstruction standards, were retained.

As in previous years, the model assessed the average annual cost of maintaining each local government's road network. The application of minimum standards helped those local governments who are not able to develop their local road systems to achieve the same standard as that of the more affluent local governments. New asset preservation needs were determined by using updated road data.

Methodology review

The Grants Commission began reviewing its allocation process and methodologies with the release of an Issues Paper in July 2002 for comment. Public forums were held with local governments around the State. A Draft Report was released in December 2002 for further local government input to the review.

The review took into account some of the issues raised by the Commonwealth Grants Commission in its report on the Review of the Operations of the Local Government (Financial Assistance) Act 1995, the Commonwealth Act governing the role, responsibilities and objectives of the Grants Commissions.

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South Australia

General purpose component

The methodology used to assess the general purpose component of the local government financial assistance grants is intended to achieve an allocation of grants to local governing bodies in the State consistent with the National Principles. The overriding principle is one of horizontal fiscal equalisation, which is constrained by a requirement that each local governing body must receive a minimum entitlement per head of population as prescribed in the Commonwealth legislation.

The South Australian Local Government Grants Commission applies a direct assessment approach to the calculations. This involves the separate estimation of a component revenue grant and a component expenditure grant for each council, which are aggregated to determine each council's overall equalisation need. Available funds are distributed in accordance with the relativities established through this process and adjustments are made as necessary to ensure the per capita minimum entitlement is met for each council. For local governing bodies outside the Local Government Act areas (the Outback Areas Community Development Trust and five Aboriginal communities) allocations are made on a per capita basis.

A standard formula is used as a basis for both the revenue and expenditure component grants.

Component revenue grants

Component revenue grants compensate or penalise councils according to whether their capacity to raise revenue from rates is less than or greater than the State average. Councils with below average capacity to raise revenue receive positive component revenue grants and councils with above average capacity receive negative assessments.

The Commission estimates each council's component revenue grant by applying the State average rate in the dollar to the difference between the council's improved capital values per capita and those for the State as a whole, and multiplying this back by the council's population. The State average rate in the dollar is the ratio of total rate revenue to total improved capital values of rateable property. The result shows how much less (or more) rate revenue a council would be able to raise than the average for the State as a whole if it applied the State average rate in the dollar to the capital values of its rateable properties. This calculation is repeated for each of five land use categories - residential, commercial, industrial, rural and other.

To overcome fluctuations in the base data, valuations, rate revenue and population are averaged over three years.

Subsidies

Subsidies that are of the type that most councils receive and are not dependent upon their own special effort, that is, they are effort neutral, are treated by the 'inclusion approach'. That is, subsidies such as those for public buses, library services and roads are included as a revenue function.

Component expenditure grants

Component expenditure grants compensate or penalise councils according to whether the costs of providing a standard range of local government services can be expected to be greater than or less than the average cost for the State as a whole due to factors outside the control of councils. The Commission assesses expenditure needs and a component expenditure grant for each of a range of functions and these are aggregated to give a total component expenditure grant for each council.

The methodology compares each council per capita against the State average. This enables the comparison to be consistent and to compare like with like.

Each function is identified by a main driver or unit of measure. This is divided into the total expenditure on the function for the State as a whole to determine the average or standard cost for the particular function. For example, in the case of expenditure function built-up sealed roads, 'kilometres of built-up sealed roads' is the unit of measure.

Using this example, the length of built-up sealed roads per capita for each council is compared with the State's length of built-up sealed road per capita. The difference, be it positive, negative or zero, is then multiplied by the average cost per kilometre for construction and maintenance of built-up sealed roads for the State as a whole (standard cost). This in turn is multiplied back by the council's population to give the component expenditure grant for the function. As already indicated this grant can be positive, negative or zero.

In addition, it is recognised that there may be other factors beyond a council's control which require it to spend more (or less) per unit of measure than the State average, in this example to reconstruct or maintain a kilometre of road. Accordingly, the methodology allows for a cost relativity index (CRI), to be determined for each expenditure function for each council. Indices are centred around 1.0, and are used to inflate or deflate the component grant for each council. In the case of roads, CRIs measure relative costs of factors such as material haulage, soil type, rainfall and drainage.

To overcome fluctuations in the base data, inputs into the expenditure assessments (with the exception of the newly revised road lengths) are averaged over three years.

Aggregated revenue and expenditure grants

Component grants for all revenue categories and expenditure functions, calculated for each council using the method outlined above, are aggregated to give each council's total raw grant figure. Where the raw grant calculation per head of population for a council is less than the per capita minimum established as set out in the Act, ($15.53 for 2002-03), the grant is adjusted to bring it up to the per capita minimum entitlement. The balance of the allocated amount, less allocation to other local governing bodies outside the incorporated areas, is then apportioned to the remaining councils based on their calculated proportion of the raw grant. Commission determined limits might then be applied to minimise the impact on council's budgetary processes. In calculating the 2002-03 grants, the Commission allowed changes to some councils to be as great as +20 per cent, and some to be greater than -10 per cent. An iterative process is then undertaken until the full allocation is determined.

Identified local road grants

In South Australia, the identified local road grants pool is divided into formula grants (85%) and special local road grants (15%).

The formula component is divided between metropolitan and non-metropolitan councils on the basis of an equal weighting of road length and population.

In the metropolitan area, allocations to individual councils are determined again by an equal weighting of population and road length. In the non-metropolitan area, allocations are made on an equal weighting of population, road length, and area of council.

Distribution of the special local road grants is based on recommendations from the Local Roads Advisory Committee. This Committee is responsible for assessing submissions from regional associations on local road projects of regional significance.

Outback Areas Community Development Trust

The Outback Areas Community Development Trust is prescribed as a local governing body for the purposes of the Grants Commission's recommendations.

The Trust was established in May 1978 under legislation of the South Australian Parliament. It has broad responsibility for community development activities in the outback areas of the State and with particular emphasis on those functions normally undertaken by local councils elsewhere in the State.

Due to the lack of comparable data, the Commission is not able to calculate the grant to the Trust in the same manner as grants to other local governing bodies. Rather, a per capita grant has been established. The 2002-03 per capita grant was $164.39 per capita.

Aboriginal communities

Since 1994-95 the Grants Commission has allocated grants to five Aboriginal communities recognised as local governing authorities for the purposes of the Local Government (Financial Assistance) Act 1995.

The Aboriginal communities are Anangu Pitjantjatjara, Gerard Community Council Inc., Maralinga Tjarutja, Nepabunna Community Council Inc., and Yalata Community Council Inc.

Again due to the unavailability of data, grants for these communities are not calculated in the same way as grants to other local governing bodies. Alan Morton, of Morton Consulting Services, undertook a study, on behalf of the Commission, on the expenditure needs of the communities and their revenue-raising capacities. He compared communities in South Australia with communities in other States and established comparable per capita grants. For 2002-03 the per capita grant varied from $249.65 for Nepabunna to $468.17 for Maralinga Tjarutja.

The Commission plans to review the methodology for allocating grants to Aboriginal communities.

Formulae

The formula for calculating the raw revenue grants can be expressed as:

G = Pc x S x [( Us x CRIs) - ( Uc x CRIc)]

         Ps          Pc      

Similarly, the formula for calculating the raw expenditure grants can be expressed as:

G = Pc x S x [( Uc x CRIc) - ( Us x CRIs)]

         Ps          Pc      

Subscripts of s or c are used to describe whether it applies to the State or a particular council.

G = council's calculated relative need assessment

P = population

U = unit of measure - some units of measure are multiplied by a weight

S = standard, be it cost or revenue =

expenditure or income

U

CRI = Cost Relativity Index (previously known as the disability factor).They are centred around 1.00, that is, CRIs equal 1.00. If more than one CRI exists for any function they are multiplied together to give an overall CRI for that function.

Currently in all calculations, with the exception of stormwater, there are no disability factors applied and consequently, CRIc = 1.0.

The raw grants, calculated for all functions using the above formulae, both on the revenue and expenditure sides, are then totalled to give each council's total raw grant figure. Any council whose raw calculation per head is less than the per capita figure, ($15.53 for 2002-03), then has the per capita figure applied. The balance of the allocated amount is then apportioned to the remaining councils based on their calculated proportion of the raw grant. Commission-determined limits are then applied to minimise the impact on council's budgetary processes. In calculating the 2002-03 grants, the Commission allowed changes to some councils to be as great as +20 per cent, and some to be greater than -10 per cent. An iterative process is then undertaken until the full allocation is determined.

Table B.9 details the approach taken to expenditure functions included in the methodology.

Table B.9 Expenditure functions, standard costs and units of measure - South Australia

Expenditure function Standard cost Units of measure

Subsidised services - public buses Set at 1.00 Derived from the level of State subsidy received by each Council1
Subsidised services - animal and plant control Set at 1.00 Derived from the level of Council contributions to Animal and Plant Control Boards2
Garbage Reported expenditures3 Number of residential properties
Aged care services Reported expenditures3 Population aged 65+ per ABS Census and estimated resident population
Services to families and children Reported expenditures3 Population aged 0-4 years per ABS Census and estimated resident population
Health inspection Reported expenditures3 5 x Supported Residential Facilities, 2 x food premises and 1 x other establishments
Subsidised services - libraries Set at 1.00 Derived from the level of State grant received by each Council4
Sport, recreation and culture - active Reported expenditures3 Population aged 5-24 years per ABS Census and estimated resident population
Sealed roads - built-up Reported expenditures3 Kilometres of built-up sealed road as reported in GIR
Sealed roads - non-built-up Reported expenditures3 Kilometres of non-built-up sealed road as reported in GIR
Unsealed roads - built-up Reported expenditures3 Kilometres of built-up unsealed road as reported in GIR
Unsealed roads - non-built-up Reported expenditures3 Kilometres of non-built-up unsealed road as reported in GIR
Unformed roads Reported expenditures3 Kilometres of unformed road as reported in GIR
Stormwater construction5, 6 Reported expenditures3 Number of urban properties7
Stormwater maintenance5, 6 Reported expenditures3 Number of urban properties7
Emergency services Reported expenditures3 Total number of properties
Planning and building control Reported expenditures3 Number of new developments and additions
Other needs assessments Set at 1.00 Based on Commission determined relative expenditure needs in a number of areas8
Notes:
1 The unit of measure or standardised expense is derived as the product of the council subsidy for each council and the average ratio of council expenditures (net of revenue) to State subsidies, for all councils having subsidised bus services.
2 The unit of measure or standardised expense is taken as each council's contribution to the operation of Animal and Plant Control Boards.
3 Councils expenditures reported on ABS returns.
4 The unit of measure or standardised expense is derived as the product of the council grant for each council and the average ratio of council expenditures (net of revenue) to State grants, for all councils.
5 Includes both construction and maintenance activities.
6 The Commission has also decided, for these functions, to use CRIs based on the results of a previous consultancy by BC Tonkin and Associates.
7 Urban properties = sum [residential properties, commercial properties, industrial properties, exempt residential properties, exempt commercial properties, exempt industrial properties].
8 Comprises Commission-determined relative expenditure needs with respect to non-resident use/tourism, duplication of facilities, isolation/distance, needs of councils with respect to Aboriginal communities, socioeconomic aspects and other special needs of councils.

The Commission is aware there are many factors that may influence a council's expenditure and that it is not always possible to determine objectively the extent to which a council's expenditure is affected by inherent or special factors. Therefore, in determining units of measure and cost relativity indices, the Commission must exercise its judgement based on experience, the evidence submitted to the Commission, and the knowledge gained by the Commission during visits to council areas and as a result of discussions with elected members and staff.

Table B.10 Summary of standards by function - South Australia, 2002-03

Function
Standard in dollars
Unit of measure per capita
Total units of measure
Unit of measure

Expenditure functions   
Subsidised services - public buses
1.00
0.76501
1 139 417
Standardised expense
Subsidised services - animal and plant control
1.00
1.52287
2 268 197
Expenditure from Animal and Plant Control Board
Garbage
89.09
0.39789
592 622
Number of residential properties
Aged care services
44.69
0.13884
206 792
Population aged more than 65
Services to families and children
40.44
0.06690
99 649
Population aged 0-4
Health inspection
237.36
0.01719
25 596
5 x supported residential facilities + 2 x food premises + 1 x other establishments
Subsidised services - libraries
1.00
20.71669
30 855 933
Standardised expense
Sport, recreation and culture
186.39
0.27578
410 747
Population aged 5-24
Sealed roads - built up
10 626.34
0.00656
9 776
Kilometres of sealed built up road
Sealed roads - non-built up
4 596.65
0.00401
5 975
Kilometres of sealed non-built up road
Unsealed roads - built up
889.11
0.00061
910
Kilometres of formed and surfaced, and natural surface formed built up road
Unsealed roads - non-built up
571.99
0.03259
48 537
Kilometres of formed and surfaced, and natural surface formed non built up road
Roads - unformed
78.77
0.00608
9 049
Kilometres of natural surfaced unformed road
Stormwater drainage - construction
19.10
0.43080
641 649
Number of urban, industrial and commercial properties including exempt
Stormwater drainage - maintenance
10.16
0.43080
641 649
Number of urban, industrial and commercial properties including exempt
Emergency services
7.35
0.54473
811 327
Total number of properties
Planning and building control
443.81
0.02894
43 101
Number of new developments and additions

Rates -residential
0.0045
50 555
75 297 202 887
Valuation of residential
   -commerical
0.0071
7 425
11 059 237 509
Valuation of commerical
   -industrial
0.0098
1 302
1 938 895 523
Valuation of industrial
   -rural
0.0039
9 863
14 689 822 499
Valuation of rural
   -other
0.0039
3 262
4 858 510 741
Valuation of other
Subsidies
1.00
20.64413
30 747 855
Total of the subsidies

The information in Table B.10 enables a council to calculate its raw grant for each given function. To do this, the council must calculate its own unit of measure per capita, compare it with the similar figure from the table and then multiply the difference by the standard from the table and its own population. If CRIs are applicable they must be included as a multiplier against the council's unit of measure per capita. (CRIs are only used in the roads and stormwater functions, further CRIs will be developed over time.)

This only allows calculation of the raw grant, not the estimated allocation. Calculating the estimated grant is not possible as per capita minimums need to be applied and the total allocation apportioned to the remaining councils.

Methodology refinement

During 1999-2000, the Commission contracted PPK Environment and Infrastructure Pty Ltd to audit councils' road lengths, by mapping all local roads across the State (primarily from hard copy maps) into a Geographical Information System.

The audit involved extensive council involvement. PPK Environment worked closely with the data councils supplied to the Commission as part of their General Information Return, that is, road maps and summary data on road lengths by type. The consultants liaised with councils to ensure the information they were mapping was accurate.

While the Commission used the outcome of the road length audit in the allocation of the 2000-01 general purpose grants, the Commission believed the data would need further refinements and an ongoing commitment to its maintenance.

As a result, in early 2001 the Commission engaged the services of an engineer on a part-time basis to refine the road length data (following updates supplied by councils), to address other ongoing engineering-related concerns and to authenticate the data used in the calculations.

The revisions to the road length data (as at 30 June 2001) were used in calculating the 2002-03 general purpose grants.

A by-product of the road length audit has been production of detailed maps by council, prepared in a Geographical Information System format, consistently mapped across the State. The Commission was again able to give councils a copy of their map for their own use.

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Tasmania

The National Principles for distributing general purpose (base) grants are outlined in Appendix A.

General purpose component

The Commission's equalisation model is based on the 'balanced budget' approach. That is, each local governing body's grant entitlement is derived from the difference between:

  • the expenditure 'required' to provide a common range of services, given its unique cost conditions (standardised expenditure), and
  • revenue that could be raised by applying a standard or average rate per dollar of assessed annual values to all rateable property in that local governing body (standardised revenue), plus
  • specific purpose payments received that are treated by the 'inclusion' approach.

The difference between standardised expenditure and standardised revenue is the 'standardised deficit'. This becomes the net standardised deficit after adjustment for specific purpose payments and any special allowances. The total net standardised deficit normally exceeds the total of grant funds available. Accordingly, the final step in determining grant entitlements is to proportionately adjust the individual net standardised deficits to account for the shortfall.

Specific purpose payments are treated by either the 'inclusion' or 'deduction' approach. The 'inclusion' approach recognises funds received by councils as contributing to normal expenditure for the purpose of calculating expenditure standards. They are treated as a source of revenue and subsequently deducted from a municipality's standardised deficit. Using the 'deduction' approach, funds are excluded from expenditure and revenue data before determination of expenditure standards. The deduction approach is employed where:

  • a council is effectively acting as an agent of the State or Commonwealth Government and the specific purpose payment is a reimbursement of costs incurred, or
  • grants for a particular service are received by only a relatively small number of councils, and the service is generally provided only where grants are received.

Equalisation therefore occurs on the basis of 'net' expenditures where this particular approach to the treatment of specific purpose payments is adopted.

No matter how sophisticated the Commission's methodology might become, there is always the need for the Commission to exercise broad judgement as it considers the issues which confront it each year as it goes about its task of assessing grants.

A full explanation of the operation of the model is provided in the following paragraphs.

Calculating standardised revenue

A council's revenue capacity, or standardised revenue, is determined by multiplying the rateable assessed annual value of properties in the municipality by the average rate charged across the State. The Commission uses assessed annual value data, adjustment factors and exempt assessed annual value information supplied by the Office of the Valuer-General, and rate and water sales revenue information contained in the ABS local government finance statistics. An adjustment is made to account for the value of properties which are partially exempt from rates, that is, liable for service charges only.

The rateable assessed annual value for each council is determined and then adjusted using the Valuer-General's adjustment factors so all figures are expressed in terms of a common valuation year. Total adjusted rateable assessed annual value for the State is divided by the total rate revenue raised by all councils (which now also includes all revenues derived from the sale of water, including charges levied on a consumption basis) to yield a State average rate in the dollar. Standardised revenue for each council is then the product of its adjusted rateable assessed annual value and the State average rate levied per dollar of assessed annual value. The final standardised revenue for each council used in the base grant assessments is the relevant three-year averaged standardised revenue.

Calculating standardised expenditure

In general, the cost of providing council services varies depending upon the number of residents. Therefore, to determine the standard expenditure 'required' to provide a service, the Commission multiplies the State average expenditure per person by the number of residents in each municipality.

Many councils face a range of unavoidable cost pressures in providing services. This means they cannot provide a service at the standard level of expenditure. The Commission recognises this through application of council-specific disability factors, which represent these unavoidable cost pressures, to standard expenditure to determine the standardised expenditure for each council. This method of estimating standardised expenditure is applied to all expenditure categories except the road category.

The Commission uses a modified version of the Mulholland asset preservation model to assess standardised road expenditure, based on each council's road assets. The fundamental basis of the Mulholland model is that, in statistical terms, a kilometre of road has an expected life, assuming it is appropriately constructed and maintained. At the end of this period, it will require reconstruction followed by a new cycle of maintenance and rehabilitation in order to preserve it at an acceptable standard. The expected life, or durability, of a kilometre of road maintenance work will clearly differ depending upon both the type of activity (sealing, re-grading) and the type of road (urban sealed, urban unsealed, rural sealed, rural unsealed). Similar arguments hold with respect to both road rehabilitation and road reconstruction work.

Performance standards specify, for each road type, the length of road requiring reconstruction, re-grading or re-sealing each year in order to preserve the existing road asset. For example, if the seal on a 9 kilometre stretch of road has an expected life of 30 years, then, on average, 300 metres will need to be sealed each year to maintain the road at the current standard. In this case, the performance standard is approximately 0.03, or 3 per cent. Average costs per kilometre for each road type and activity combination have been derived from published unit price estimates for the same undertakings. For any given council, specific disabilities may increase or decrease the average cost of undertaking a given activity.

The model recognises climate, drainage, material, soil, terrain and traffic disabilities in road rehabilitation and reconstruction; and climate, material, terrain and traffic disabilities in road maintenance. The need for different sub-base depths (reconstruction only) is incorporated within the workings of the model. The model now also recognises a remoteness disability factor, and an urbanisation disability adjustment for all activities. These are intended to capture elements of expenditure disabilities not otherwise accounted for in the model, and apply to a minority of councils only.

The model also makes an allowance for additional bridge-related maintenance, by converting bridge areas to equivalent road lengths (which involves multiplication by 10 to recognise the greater cost per equivalent area) and adding these lengths to the road lengths used in the model.

Hence in assessing 'road' expenditure needs for a given council, performance standards are applied to each category of road (urban sealed, urban unsealed, rural sealed, rural unsealed) to determine the length of road to be maintained, rehabilitated and reconstructed in that year in order to preserve the existing road structure. The relevant disability factors and costs per kilometre are then applied to each of these figures and the whole is summed to yield standardised road expenditure for that council.

An explanation of the types of expenditure that comprise each expenditure function is set out in Table B.11.

Table B.11 Description of expenditure functions - Tasmania

Expenditure function Explanation of expenditure function

General administration Legislative, executive, financial and fiscal affairs relating to general purposes only, that is, not solely related to any one of the purposes listed below.
Health, housing and welfare Nursing homes and other services for the aged, community health services, health inspections; family and child welfare; housing services.
Sanitation and the environment Household and other garbage services, urban storm water drainage, street cleaning, flood mitigation and other protection of the environment.
Planning and community amenities Planning and building services, street lighting, public conveniences, shopping malls, cemeteries and crematoria.
Recreation and culture Public halls and civic centres, swimming pools, parks and playing grounds, sports assistance and promotion; libraries and other cultural services.
Water Provision of water services.
Sewerage Provision of sewerage services.
Roads Reconstruction and maintenance of roads and bridges.
Public safety Fire protection, animal control and other public order and control.
Other Expenditure on items not elsewhere classified. Includes saleyards and markets, tourism and area promotion, aerodrome operations, communications, and natural disaster relief.

Applying council-specific disability factors

Disability factors are used to reflect unavoidable relative cost disadvantages councils face in providing services. A range of factors have been developed to account for differences between councils in the demand for a service as well as variations in the unit cost of supplying that service.

A factor is calculated for each municipality by comparing its demand or supply disadvantage with the State average. The councils that demonstrate the least relative disadvantage for the class of disability concerned are assigned a minimum factor of 1.00. All other councils are compared to those councils on the minimum to determine their relative disability factors.

The Commission has carefully considered the following disability factors and adopted a method to quantify them:

  • scale
  • population dispersion
  • isolation
  • regional responsibility
  • population growth
  • population decline
  • worker influx
  • absentee population
  • unemployment
  • age profile
  • tourism
  • day-trippers
  • climate
  • equivalent tenements.

An outline of the approach the Commission developed to quantify each factor is provided below. The 'climate' disability factor is not specifically dealt with as the Commission continues to use broad judgement in determining this factor.

Scale

The scale disability accounts for the diseconomies of small scale that councils face in providing some services. Diseconomies occur where the cost per person of a certain activity is greater for councils with a small population than for those with larger ones. For example, each council needs a general manager whether the municipal population is 1000 or 100 000. The cost per person of the general manager is therefore much greater for smaller councils than for larger ones.

Different expenditure categories show varying degrees of diseconomy, so three scale categories - high, medium and low - have been developed. Application of these to the different expenditure categories is detailed in Table B.12.

Population dispersion

The dispersion disability relates to the additional costs incurred in servicing a widely scattered population within a municipality. The Commission recognises that associated costs arise from the need to both duplicate services and incur greater travelling and communication costs than would otherwise be the case.

The Commission completed a thorough review of the method of calculating this factor during 2001 and it is now determined according to the number of population centres in each municipality, and the population-weighted distance between those centres and the municipality's administrative centre.

Isolation

This factor recognises the increased costs which arise from geographical isolation. Such costs are associated with attracting staff to remote areas, communicating with relevant bodies, travel and supply of necessary construction and maintenance materials.

This disability factor is calculated according to the distance between a municipality's main centre and the closest major regional population centre, and the distance from Hobart, the main administrative and political focus within the State.

Regional responsibility

The Commission recognises a disability for those authorities (host municipalities) that provide particular services for residents of surrounding municipalities, without there being a counter-balancing use of services in surrounding municipalities by residents of the regional centre, or any offsetting cash contribution for the use of those facilities.

The Commission recognises the fact that certain towns and cities throughout the State act as regional focal points for provision of some services. The expenditure categories which cover these services are general administration, planning and community amenities, and recreation and culture.

The sparsity of local government level data relating to consumption of council services by non-residents requires the Commission to exercise broad judgement in its assessment of regional responsibility. The Commission supplements its judgement with the results of a regression equation that draws upon actual levels of expenditure within each expenditure category to predict the magnitude of the population that is likely to be served by that level of expenditure.

Population growth and population decline

The Commission recognises that a local governing body faces certain expenditure disabilities as a result of not being able to continually change staff numbers and the scale of infrastructure in response to fluctuations in population levels. Such changes typically require planning and implementation horizons of several years or more. As a consequence, councils are often faced with excess or inadequate capacity in certain service areas depending on whether they are faced with rapid population decline or growth. Both circumstances are believed to present councils with added expenditure burdens.

Disability factors are determined by comparing the average annual rate of population growth/decline for a particular municipality over a five-year period, against the average rate of population growth/decline for either growing or declining councils in the State as a whole.

The Commission has determined that it should provide additional assistance to those councils experiencing sustained population decline. Accordingly, commencing with the 2001-02 assessments, the threshold at which the population decline factor is applied to councils has been reduced from an average of 2 per cent per annum over five years, to an average of 1 per cent per annum over the same period. The weight of the disability factor has also been adjusted so as to increase its influence upon the Commission's equalisation model.

The threshold for application of the population growth disability factor remains unchanged at an average rate of growth of 2 per cent per annum over five years.

Worker influx

This disability factor reflects the additional costs imposed on those municipalities that have significant daily net influxes of non-resident workers. It is felt that this effect is likely to have an impact which is in excess of the more general effect of regional responsibility.

Consideration is given for potential worker influx for the major population centres in the State. Municipalities outside these main centres are unlikely to have sufficient commercial or industrial development relative to their surrounding regions to cause any net influx of non-resident workers which impose a significant cost on the municipality.

Determination of this factor involves estimating, from ABS Census data, the number of residents working outside the municipality and the number of non-residents working within the municipality. The difference, or the net worker inflow, is then used to derive a disability factor in relation to actual total population. Worker influx factors are now allocated to Hobart, Glenorchy, Launceston and Burnie. All other municipalities in the study areas had either a negative or zero net influx of non-resident workers.

Absentee population

The Commission makes allowance for the additional population not captured in the Census data but which nevertheless must be serviced. Specific reference is made here to those municipalities that have a significant number of holiday residences.

Calculating this disability factor is based on the proportion of dwellings in each municipality which were unoccupied at the time of the 1996 Census.

For the 2002-03 assessment, the Commission made an adjustment to the absentee population factor in order to recognise the situation faced by the West Coast Council where mine workers live outside the municipality between shifts. It was accepted that the existing unoccupied dwelling statistics do not adequately reflect this phenomenon.

Age profile

The Commission has calculated a disability factor based on the proportions of residents aged 0-5 years, 15-25 and over 65. This disability factor reflects the additional costs associated with having a higher than average proportion of the population in these groups. For example, additional costs may be incurred in the provision of health and welfare services for infants and retirees, or in the provision of sporting facilities for people under 25.

Unemployment

The Commission, using data on income support payments from Centrelink, calculated a disability factor reflecting the level of unemployment within a municipality to capture the costs to councils of having a higher than average proportion of working-age residents unemployed. For example, additional expenditure might be incurred in providing recreation and/or leisure facilities or welfare programs as a result of the need to cater for unemployed residents.

Following consultation with councils during the Commission's 2001 hearings and visits, application of this factor has been extended to the recreation and culture and law, order and public safety expenditure categories.

Tourism

The Commission recognises that councils generally incur additional costs as a result of tourist influx through increased use of council resources and infrastructure. A disability factor that seeks to recognise these costs has been determined on the basis of the equivalent number of tourist beds in all establishments ranging from motels to registered camping grounds in each municipality.

Day-tripper

Significant numbers of day-trippers who make use of council facilities are recognised as increasing council costs. Details of the number of tourist attractions and an index of visitor frequency have been combined with a factor representing the distance from major population centres and the population of those centres, to determine a relative disability. Municipalities close to large population centres receive higher factors.

Equivalent tenements

The use of population to estimate standard water and sewerage expenditure does not recognise expenditures incurred in providing water and sewerage services to non-residential establishments. Therefore, a factor has been developed to recognise the cost of providing these services to commercial properties. This has been done by dividing the total value of serviced commercial properties by the modal residential assessed annual value in each water and sewerage district to determine the number of residential equivalent tenements. From the 2000-01 assessments, a disability factor is recognised for all councils, whereas previously it was only applied to those councils with greater than 1000 equivalent tenements.

Table B.12 Application of disability factors to expenditure standards - Tasmania

Expenditure category Disability factors

General administration Scale (high) Absentee population
Dispersion Population decline
Isolation Population growth
Regional Responsibility tourism
Worker influx
Health, welfare and housing Scale (medium) Absentee population
Dispersion Population decline
Isolation Population growth
Unemployment
Sanitation and the environment Scale (medium) Absentee population
Dispersion Climate
Tourism Day-tripper
Worker influx Population growth
Plannng and community amenities Scale (medium) Absentee population
Dispersion Age profile
Isolation Climate
Regional responsibility Day-tripper
Population growth Population decline
Tourism
Recreation and culture Scale (medium) Absentee population
Dispersion Age profile
Isolation Climate
Regional responsibility Day-tripper
Population growth Population decline
Tourism Unemployment
Water Dispersion Absentee population
Population growth Population decline
Tourism Worker influx
Climate Equivalent tenements
Sewerage Dispersion Absentee population
Population growth Population decline
Tourism Worker influx
Climate Equivalent tenements
Public safety Scale (medium) Age profile
Dispersion Population decline
Isolation Population growth
Unemployment
Other Scale (low)*

* Both Flinders and King Island councils receive the scale (high) factor for expenditure classified as Other.

Local road component

The National Principle governing distribution of road grants (Section 12 payments under the Commonwealth Act) are outlined in Appendix A.

To accord with the National Principle and while ensuring the grant distribution reflects the particular needs of Tasmanian councils, the road grants are distributed as follows:

  • road preservation component: 66.5 per cent of funds, based on the relative road expenditure needs of each council as determined using the Mulholland asset preservation model
  • bridge expenditure component: 28.5 per cent of funds based on relative bridge deck areas (including all concrete and wooden bridges, and box culverts over 3 metres total span)
  • special needs, or 'betterment' component: 5 per cent of funds allocated to councils with an above average proportion of rural unsealed roads, based on rural unsealed road lengths.

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Northern Territory

There were no changes to the Northern Territory Grant Commission's methodology during 2002-03. The Commission's methodology in making its assessments for the year conforms with the requirements of the Local Government (Financial Assistance) Act 1995. Wherever possible, it has followed horizontal equalisation principles as set out in section 6(3) of the Act, and as embodied in the National Principles.

General purpose component

In assessing relative expenditure and revenue needs, the Commission used the 'balanced budget approach'. Using this approach, the Commission assesses the total standardised expenditure needs for each local governing body, and then deducts the assessed revenue-raising capacity to arrive at the standardised deficit. The deficit represents the funding required to enable each local governing body to deliver an average level of services when an average revenue-raising effort is made.

The Commission's methodology calculates standards and applies disability factors and weightings to assess each local governing body's revenue-raising capacity and expenditure needs.

The assessed revenue-raising capacity and assessed expenditure needs are the Commission's measures of each local governing body's ability to function at the average standard.

Calculating standardised expenditure and revenue needs took into account population changes. These cover both increases as well as decreases where they occurred. To smooth the effect of these variations, the Commission adopts a three-year average of its calculated core community populations.

Revenue-raising capacity

As ownership of the land on which many communities are located is vested in Land Trusts established pursuant to the Commonwealth Aboriginal Lands Rights (Northern Territory) Act 1976, it is not feasible to use a land valuation system to assess revenue-raising capacity.

The method of calculating revenue-raising capacity is achieved through use of personal income statistics, obtained from the ABS.

This allows determination of a council's theoretical gross income. In addition, councils, which are recipients of the Northern Territory Operational Subsidy, have 50 per cent of this revenue taken into account. The Commission considers that, given the unique circumstances within the Northern Territory, this approach provides a reasonable indication of a council's revenue-raising capacity.

Expenditure needs and disability factors

The assessment of expenditure needs calculates standards in each category with disability factors applied as appropriate.

The Commission takes into account six expenditure categories. For 2002-03, the total standardised expenditure needs for each local governing body was adjusted by a combination of five disability factors. In arriving at these factors the Commission took into account the factors of distance, isolation, geographic location, dispersion, external access, growth and communications, which would influence costs of service delivery by individual councils.

Population estimates

In making its assessments, the Commission has used population data councils supplied in their annual returns.

In assessing the needs of communities, the Commission took into account local resident population and included a factor for those in outstations dependent on the relative council for local government services.

In addition, the Commission took into account interstate and overseas tourist visitors to communities that have an impact on provision of local government services.

Formula

Revenue component

All councils:

Assessed revenue-raising capacity = Gross income/State income x total local government rate revenue

Assessed revenue = assessed rates + 50% operational subsidy

Where:

Gross income = Community gross income

Community gross income = Population >15 x per capita Income

State income = Total Territory gross income

Operational subsidy = Territory operational subsidy 2001-02

Total local government rate revenue = $110 340 000

Expenditure components

Total local government expenditure of $192 171 000 is apportioned over each expenditure component. A base level ($70 000) of expenditure is applied to all councils.

Amenity

(Community population/Territory population) x Territory amenity expenditure x (isolation works x dispersion x growth) - amenity grants

NT amenity expenditure = $38 434 000

General administration

Community population/Territory population x Territory general administration expenditure x (isolation administration x dispersion x Aboriginality) - administration grants

NT general administration expenditure = $46 121 000

Human services

(Community population/Territory population) x Territory human services expenditure x (isolation administration x Aboriginality x growth) - human services grants

NT human services expenditure = $21 139 000

Library

(Community population/Territory population) x Territory library expenditure x (isolation administration x Aboriginality x growth) - Territory library grants*

NT library expenditure = $7 687 000

Recreation

(Community population/Territory population) x Territory recreation expenditure x (isolation works x growth) - Territory recreation grants

NT recreation expenditure = $40 356 000

Transport#

(Community road factor/Territory road factor) x Territory roads expenditure
Road factor = 10 x kerbed and sealed road +
8 x sealed road + 4 x gravel road + 1 x formed road + 0.4 x unformed road + 2 x cycle paths

NT roads expenditure = $38 434 000

Notes:
* The population figure used for these calculations is the sum of the populations in those centres that are in receipt of library services.
# This category is calculated on weighted road lengths by surface type. The summing of these figures determines a council's road factor.

Local road component

To determine local road grants, the Commission calculates a weighted road length for each council by applying weights to road length for different surface types. These weights are:

  • kerbed and sealed
  • sealed
  • gravel
  • cycle path
  • formed
  • unformed

10.0
8.0
4.0
2.0
1.0
0.4

A council's share of the local road grant is equal to the council's weighted road length as a proportion of the weighted road lengths across all Territory councils. However, all councils receive a local road grant of at least $10 000.

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