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Appendix B : State methods for distributing financial assistance grants 2003-04

The methods each State local government grants commission employed for allocating grants to councils in 2003-04 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 national report 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' 2001-02 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 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:

image

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:

image

where: Ac = allowance for road length allowance
Nc = number of relevant properties for the council
Es = standard cost per kilometre
Lc/Nc = council's relevant length of road per relevant property
Ls/Ns = standard relevant length of road per relevant property

Isolation allowances

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

image

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:

image

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:

image

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:

image

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

image

Pensioner rebates allowances

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

image

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:

image

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':

  1. the Sydney Statistical Division
  2. the Newcastle Statistical District
  3. 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:

  1. 5 per cent distributed to individual councils on the basis of bridge length
  2. 95 per cent distributed to councils onthe basis of:
    1. 60 per cent distributed on lengthof roads
    2. 40 per cent distributed on population

5. Local road grant in rural areas

Funds will be allocated:

  1. 7 per cent distributed to individual councils on the basis of bridge length
  2. 93 per cent distributed to councils on the basis of:
    1. 80 per cent distributed on lengthof roads
    2. 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.

Victoria

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

Methodology for general purpose grants

The Victoria Grants Commission adopted and implemented a revised methodology for allocating general purpose grants from 2002-03.

For each council, a raw grant is obtained 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 outlined below, increases and decreases in general purpose grant outcomes have been capped, which also affects the relationship between raw grants and actual grants.

Specific grants are made to a small number of councils each year in the form of natural disaster assistance. These grants are funded from the general purpose grants pool and so reduce the amount allocated on a formula basis. Details of natural disaster assistance grants allocated for 2003-04 are provided at the end of this section.

Standardised expenditure

Under the Commission's general purpose grants methodology, standardised expenditure has been calculated for each council on the basis of nine expenditure functions. Between them, these expenditure functions include all council recurrent expenditure, with the exception of works undertaken on behalf of, and funded by, VicRoads and some council business undertakings.

The structure of the model ensures that the gross standardised expenditure for each function equals aggregate actual expenditure by councils, thus ensuring the relative importance of each of the nine expenditure functions in the Commission's model matches the pattern of actual council expenditure.

Aggregate recurrent expenditure by Victorian councils in 2001-02 equalled $3.349 billion. Total gross standardised expenditure therefore also equalled $3.349 billion, with each of the nine expenditure functions assuming the same share of both actual expenditure and standardised expenditure.

For each function, with the exception of 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 cost more or less for individual councils than the State average.

Major cost drivers ('units of need')

Several different major cost drivers are used. These are seen by the Commission to be the most significant determinant of a council's expenditure need on a particular function. For three functions, the major cost driver is the council's population. For a fourth, (aged services) it is the population aged over 60 years, and, for a fifth (waste management) it is the number of dwellings in the municipality. For the expenditure functions of other infrastructure services and business and economic services, an adjusted population is used which recognises 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.

For the 2003-04 allocations the Commission adopted a minimum population of 20 000 as the major cost driver used for the Governance expenditure function. This followed an approach from small rural councils and was implemented to recognise the fixed costs associated with this function.

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

Table B.1 Cost drivers and average expenditure per unit - Victoria

Expenditure function

Major cost driver

Average expenditure per unit

Governance

Population (adjusted)

$29.69

Family and Community Services

Population

$81.35

Aged Services

Population > 60 years

$402.03

Recreation and Culture

Population

$141.55

Waste Management

No. of dwellings

$158.25

Traffic and Street Management

Population

$72.19

Other Infrastructure Services

Population (adjusted)

$52.23

Business and Economic Services

Population (adjusted)

$72.59

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 2003-04 general purpose grants were aged pensioners, English proficiency, Indigenous population, kerbed roads, population density, population dispersion, population growth, population less than five years, regional significance, remoteness, scale, socioeconomic, and 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.

In addition to the change to the major cost driver used for the governance function, two other changes were made to the application of cost adjustors for the 2003-04 allocations. These changes were made in response to input received from councils at meetings and through submissions.

For the family and community services expenditure function, the socioeconomic cost adjustor has replaced the population growth cost adjustor. For the traffic and street management function, the weighting applied to the regional significance cost adjustor has been increased and the weighting applied to the tourism cost adjustor has been decreased.

Net standardised expenditure

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

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

net standardised expenditure = gross standardised expenditure - standardised grant revenue

Where:

gross standardised expenditure = unit of need x average state-wide expenditure per unit x cost adjustors

standardised grant revenue = unit of need x average state-wide grant revenue per unit

Standardised expenditure for the local roads and bridges expenditure function within the general purpose grants model is based on the grant outcomes for each council under the Commission's local roads grants model. This model incorporates a number of cost modifiers

(similar to cost adjustors) to take account of different circumstances affecting councils. Net standardised expenditure for this function is calculated by subtracting other grant support (based on actual identified local roads 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 some councils received in lieu of rates 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. Therefore, in calculating the 2003-04 allocations, increases in standardised revenue for individual councils were limited to the State-wide increase of 7 per cent (the corresponding figure for the 2002-03 allocations was 6 per cent).

Raw grants

A raw grant is calculated for each council by subtracting standardised revenue from net standardised expenditure.

The available general purpose grants pool of $258.936 million was then allocated between councils in proportion to their relative raw grants, taking into account the need to provide all councils with a minimum grant and the caps the Commission applies to overall grant movements (see 'Minimum grants' and 'Capping' below).

For councils not subject to the minimum grant or the overall cap, the actual general purpose grant for 2003-04 is equivalent to 18.2 per cent of their calculated raw grant.

Minimum grants

The available general purpose grants pool for Victorian councils represents, on average, $53.10 per head of population. The minimum grant national distribution principle requires that no council may receive a general purpose grant that is less than 30 per cent of the per capita average (or $15.90 for 2003-04).

Without the application of this principle, general purpose grants for 2003-04 for seven councils, together with the Docklands Authority, would have been below the $15.90 per capita level. The minimum grant principle has resulted in the general purpose grants to these councils being increased to that level.

Capping

The Victoria Grants Commission is conscious that large movements in general purpose grants can have a significant impact 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. The same capping parameters that applied to the 2002-03 allocations have been used for the 2003-04 allocations. However, the number of councils receiving a capped outcome has declined from 17 to eight.

For 2003-04, increases in general purpose grants were capped at 30 per cent, relative to the estimated entitlement for 2002-03. This affected two councils. Decreases were limited to 6 per cent, affecting six councils. For those councils, the estimated entitlement, while lower than for 2002-03, is greater than it would have been had decreases not been limited.

Estimated entitlements 2003-04

The 2003-04 general purpose grant outcomes for most councils were more stable for most councils compared with the previous year and fewer councils were subject to caps on their overall grant movements. However, several factors influenced outcomes for individual councils:

  • the use of 2001 Census data in deriving major cost drivers and cost adjustors - significant variation was evident between the June2001 population estimates for councils (extrapolated from the 1996 census) which formed the basis of the 2002-03 allocations and the June 2002 population estimates (derived from the 2001 Census) which formed the basis of the 2003-04 allocations
  • ongoing strong increases in property valuations across many parts of Victoria - as outlined above, the Commission responded to this issue by capping increases in standardised revenue for individual councils at 7 per cent
  • changes made to the local roads allocation model which also impacted on the allocation of general purpose grants
  • several changes to the application of cost adjustors in assessing relative expenditure needs, which were outlined above.

Table B.2 gives a summary of the changes in estimated general purpose grant entitlements from 2002-03 to 2003-04.

Table B.2 Changes in estimated general purpose grant entitlements from 2002-03 to 2003-04 - Victoria

Change in general purpose grant

No. of councils*

Increase of more than 30% (capped)

2

Increase of 20.0% to 30.0%

1

Increase of 10.0% to 20.0%

10

Increase of up to 10.0%

49

Decrease of up to 6.0%

9

Decrease of 6.0% (capped)

6

Total

77

* Analysis does not include the Docklands Authority or the Benalla and Mansfield Councils, formed during the year from de-amalgamating Delatite Shire Council.

Natural disaster assistance

The Commission provides funds from the general purpose grants pool to councils that have incurred expenditure resulting from natural disasters. Grants of up to $35 000 per council per eligible event are provided to help with repairs and restoration work.

Two grants were allocated for 2003-04, totalling $51 880 (see Table B.3).

Table B.3 Grants allocated for natural disaster assistance, 2003-04 - Victoria

Council
Natural disaster
Grant
Baw Baw Shire Council Storm damage
$32 880
Northern Grampians Shire Council Bushfire damage
$19 000

Methodology for local roads funding

The Victoria Grants Commission allocates local roads grants on the basis of a 'network cost' model, which was adopted in 2001-02. This takes account of each council's road length (for all surface types) and traffic volumes, using average annual preservation costs for given traffic volume ranges. The methodology also includes a series of cost modifiers for freight loading, climate, materials, sub-grade conditions and strategic routes and takes account of the deck area of bridges on local roads.

Following introduction of the new methodology in 2001-02, the Commission phased in grant levels based on the new formula over a period of three years due to the significant changes forecast for some councils. The 2003-04 grants were the first to be fully based on the new formula.

Traffic volume data

The allocation of local roads grants for 2003-04 incorporated traffic volume data collected by all councils during the 12 months to June 2002. 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 - and to provide details of their bridge assets.

Victorian councils reported a total of 128 346 kilometres of local roads as at 30 June 2002, an increase of 614 kilometres or 0.48 per cent over the length reported 12 months earlier. Twenty-four councils reported an increase of up to 1 per cent in the length of their local roads, 15 reported increases from 1 per cent to 5 per cent and 4 councils reported increases in road lengths exceeding 5 per cent.

Councils use a combination of estimation and actual data counts to compile traffic volume data for the Commission. In late 2001, the Commission began a three-year program of reviewing the methodology and assumptions councils use to collect this information. The aim of this review is to improve the accuracy and consistency of traffic volume data supplied by councils and thereby ensuring the equitable allocation of local roads 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 average annual preservation costs used in the allocation of local roads grants for 2001-02 and 2002-03 were developed by ARRB Transport Research Ltd and were published in Table 7.1 of the Review of Distribution Arrangements for Local Roads Funding in Victoria: Final Report, which was released in July 1999.

The Commission has indicated that the data on which the local roads methodology is based will be reviewed periodically to maintain its relevance. In late 2002 the Commission began reviewing the asset preservation costs used in the local roads grant allocation model and subsequently adopted new asset preservation costs for the 2003-04 allocations (see Table B.4).

Table B.4 Average annual preservation costs used in allocating local road grants for 2003-04 - Victoria

Road type

Daily traffic volume range

Average annual cost (base case) $/km

Kerbed

< 500

$2700

500 - 1000

$4000

1000 - 5000

$5500

> 5000

$9000

Unkerbed

Natural surface

$300

< 100

$2000

100 - 500

$4000

500 - 1000

$4900

> 1000

$5400

Cost modifiers

The allocation model uses 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- this cost modifier recognises that the cost of maintaining local roads can be affected by the local availability of suitable pavement materials
  • sub-grade conditions - this cost modifier recognises that 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 roads grant outcome.

The Commission will periodically review cost modifiers. A major review was undertaken during the year of the freight cost modifiers used in the local roads allocation methodology to reflect the impact of freight carried on local roads on the relative local roads expenditure needs of individual councils. The Commission subsequently adopted the recommended freight loading factors and they were used in allocating local roads grants for 2003-04.

In addition, a number of changes were made to the climate, materials and sub-grade cost modifiers for individual councils in response to council submissions as part of the 2003-04 allocations.

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 $40 per square metre for concrete bridges and $80 per square metre for timber bridges (these costs were increased from $5 and $10 respectively as part of the wider review of asset preservation costs).

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

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.

The actual local roads grant is then determined by applying the available funds in proportion to each council's calculated network cost. The 2003-04 local roads grant for each council was equivalent to 25.38 per cent of its calculated network cost.

Estimated entitlements 2003-04

As expected, completion of 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 2002-03.

A summary of the changes in local roads grants from 2002-03 to 2003-04 is presented in Table B.5.

Table B.5 Changes in local roads grants, 2003-04 - Victoria

Change in local roads grant

No. of councils*

Increase of more than 20%

6

Increase of 10.0% to 20.0%

18

Increase of up to 10.0%

25

Decrease of up to 10.0%

25

Decrease of 10.0% to 20.0%

3

Decrease of more than 20%

2

Total

77

* Analysis does not include Docklands Authority or Benalla and Mansfield Councils that were formed during the year from the de-amalgamation of Delatite Shire Council.

Queensland

Identified road grant

This component of the financial assistance grant is 'to be allocated as far as practicable on the basis of relative need of each local governing body for roads expenditure and to preserve its road assets'.

In the Commission's judgment, a formula based on road length and population best meets this National Principle in Queensland at the current time. This formula is:

  • 62.85 per cent of the pool is allocated according to road length
  • 37.15 per cent of the pool is allocated according to population.

For 2003-04 local governing bodies in Queensland received $367.78 per kilometre of road and $8.66 per capita as their identified local roads grant.

General purpose component

The Commission complies with National Principles when developing and refining the methodology it uses to recommend the distribution of this component of the financial assistance grant.

Every local governing body in the State is entitled to a minimum grant under the National Principles. This minimum grant is equivalent to 30 per cent of the general purpose pool, distributed on a per capita basis. In 2003-04 this amount was $15.99. The remaining 70 per cent of the general purpose pool is distributed according to relative need, applying the National Principle of Horizontal Fiscal Equalisation.

To determine relative need, the Commission develops averages for revenue raising and expenditure on services to be applied to all local governments within the State. The Commission allocates the grant to these councils in such a way that the assessed revenue plus the grant equals the same percentage of assessed expenditure.

After averages for revenue and expenditure are applied to each local government, the Commission alters the assessment for factors outside a council's control that can affect its ability to rate at capacity or spend at average, in line with the effort neutrality principle. These factors are termed cost adjustors.

Assessing revenue

The Commission has determined that the normal revenue functions of a council are rates, fees and charges, and grants.

For rates, the methodology uses a cent-in-the-dollar for land valuations in residential, commercial/industrial and rural land use general categories, as defined by the Department of Natural Resources and Mines. Residential rates are also adjusted by an index for household income. For 2003-04 a maximum cap of 15 per cent increase in the rating assessment from the prior year was applied. Fees and charges are apportioned on a per capita basis. Garbage revenue is assigned per occupied urban property.

In accordance with the National Principle for other grant support, grants relevant to the expenditure categories considered by the Commission are included as revenue according to the actual amounts councils received rather than a State average.

Table B.6 outlines the revenue categories and units of measure used in assessing revenue.

Table B.6 Outline of revenue assessment - Queensland

Revenue category

Data

Unit of measure

Rates

Unimproved capital valuation

Residential $0.01037

+ household income adjustment

Commercial industrial $0.02236

Rural $0.01501

Garbage

Occupied urban properties

$0.2198 per occupied urban property

Fees and charges

Population

$0.1298 per capita

Other grant support

Actual grants received

Identified road grant 100%

Library grant 100%

Road and drainage grant 50%

Roads to Recovery grant 50%

Aboriginal and Torres Strait Island operating

grants 50%

Minimum grant 100%

Assessing expenditure

Ten expenditure categories are assessed with averages. They are public administration; building control and town planning; community amenities, recreation, culture and libraries; public order and safety; education, health, welfare and housing; urban stormwater; garbage, septic and recycling; roads and bridges; street lighting; and business and industry development.

Services

The Commission considers which cost adjustors are relevant to which service categories.

Table B.7 outlines the expenditure categories, the units of measure and the cost adjustors used in assessing services expenditure.

Table B.7 Outline of expenditure assessment - Queensland

Services expenditure
category
Unit of measure Services cost adjustors
Location Dispersion Demography age Demography
Indigenous
Regional
role
Scale Tourism
garbage
Tourism
amenities
Growth Urban
density
Administration $195 000 per location +
$0.167 per property +
$0.160 per capita
X
X
X
X
X
Public order and safety $0.013 per capita
X
X
X
X
X
X
Education, health
welfare and housing
$0.038 per capita
X
X
X
X
X
X
Garbage/septic/
recycling
$0.052 per urban capita
X
X
X
X
Street lighting $0.013 per urban capita
X
X
X
Community amenities,
recreation, culture and
libraries
$20 000 per location
+
$0.096 per capita
X
X
X
X
X
X
X
Building control and
town planning
$0.035 per residential
property
X
X
X
Business and industry
development
$0.017 per capita
X
X
X
X
Urban stormwater $0.019 per urban capita
X
X
X

Actual expenditure

Additionally, the Commission considers each local governing body's actual expenditure or effort positive expenditure in the categories of environmental protection and other transport.

The Commission does not believe there is a current cost driver relevant to these categories from which an average can be determined.

Roads

The roads assessment model is based on an engineering assessment of the cost to maintain a council's road network, including bridges and hydraulics, in average condition.

Tables B.8 and B.9 provide the standards used in the roads assessment model and the cost adjustors applied. For example, a road with a volume of 150 to 250 vehicles per day is assumed to be a sealed 4/8 road regardless of what is actually on the ground.

The following allowances are given for heavy vehicles:

  • light to medium trucks, 2 axles = 1 vehicle
  • heavy rigid tandem and/or twin steer = 2 vehicles
  • semitrailers = 3 vehicles
  • B doubles = 4 vehicles
  • road trains = 5 vehicles

Provision is also made for barging of plant and material to islands.

Table B.8 Rural roads - Queensland

Standard
Traffic
volume
range
(adjusted
vehicles
per day)
Base
cost
($/km)
Climate
Soil
subgrade
Locality
on-cost
Terrain
Favourable
(Th. 50)
Adverse
(Th. +100)
MR reactive
<1.0 person/ per
sq. km
<0.1 person/ per
sq. km
Und
Hilly
Mntns
Unformed
-
250
-
+25%
-
+5%
+10%
+2%
+5%
-
Formed
<40
500
-
+20%
-
+5%
+10%
+2%
+5%
-
Paved
40150
2300
-
+15%
+10%
+5%
+10%
+2%
+5%
-
Sealed
4/8
150-250
3000
-10%
+15%
+10%
+2.5%
+5%
+2%
+5%
+10%
6/8
250-1000
4000
-7.5%
+10%
+10%
+2,5%
+2.5%
+2%
+5%
+10%
7/10
1000-3000
6350
-7.5%
+10%
+10%
+2.5%
+2.5%
+2%
+5%
+10%
8/12
>3000
8400
-7.5%
+10%
+10%
+2.5%
+2.5%
+2%
+5%
+10%

Table B.9 Urban roads - Queensland

Traffic
volume range
(adjusted
vehicles
per day)
Base
cost
($/km)
Climate
Soil
subgrade
Locality on-cost
Terrain
Favourable
(Th. 50)
Adverse
(Th. +100)
MR reactive
<1.0 person/
per sq. km
<0.1 person/
per sq. km
Und
Hilly
Mntns
<500
4200
-7.5%
+10%
+5%
+2.5%
+2.5%
-
+2%
+5%
500-1000
7800
-7.5%
+10%
+5%
+2.5%
+2.5%
-
2%
+5%
1000-5000
1400
-7.5%
+10%
+10%
+2.5%
+2.5%
-
2%
+5%
5000-10 000
2300
-7.5%
+10%
+10%
+2.5%
+2.5%
-
2%
+5%
>10 000
3600
-7.5%
+10%
+10%
+2.5%
+2.5%
-
2%
+5%

Cost adjustors

Cost adjustors are indices applied to expenditure or revenue categories to account for factors outside a council's control, that impact on its ability to provide services. The cost adjustors applied to the service categories are climate, dispersion, growth, locality, location, regional role, scale, soil sub-grade, tourism, terrain and urban density (see Table B.7).

Averaging

The Commission introduced averaging steps to increase confidence in the results obtained from the new methodology due to concerns about data limitations in the calculation methods for roads and rates.

Regression

The first averaging step applies regression analysis to the results produced by the base methodology. Regression is a statistical tool for developing averages based on more than one variable. The Commission has decided to average the outcomes of the methodology against population and road length.

The result of the regression analysis is averaged with the outcomes from the methodology reducing the impact of very wide variations occurring between councils in Queensland and introducing some comparability between councils based on population and road length.

Old methodology

The result of averaging with the regression is averaged with the methodology previously used. The reason for this averaging is to reduce the anomalies caused by data limitations in the rating and road calculations. As data quality improves, this step will be phased out.

Commission judgments

When the Commission makes a recommendation on the grant, it first considers the distribution calculated by the model to see if the results fit all councils. As can be expected with any mathematical model, it fits well for 90 per cent of councils, but 10 per cent of councils produce anomalous results. It is for these 10 per cent of councils that adjustments may be made based on Commission judgment.

Adjustments for 2003-04

Roads adjustment

Due to concerns about traffic volume data consistency, adjustments were made to the data of some councils. In the time available it was not possible to make adjustments to all relevant councils.

Regional centre adjustment

In the Commission's judgment, more consistent and likely indicative general purpose grants for some regional cities and towns are needed (see Table B. 10).

Table B.10 Indicative general purpose grants for some regional cities and towns - Queensland

Location

Population

$ per capita

Bundaberg

45 000

29

Cairns

119 000

23

Gladstone

27 000

38

Mackay

77 000

23

Maryborough

25 000

41

Toowoomba

91 000

23

Townsville

94 000

23

Minimum adjustment

In Queensland there appears to be three distinct ranges for high population centres:

  • First population range Brisbane and Gold Coast
  • Second population range 116 000 to 170 000
  • Third population range 77 000 to 94 000

It is the Commission's judgment that those cities whose population falls within the second range be entitled to the minimum grant only, along with Brisbane and the Gold Coast. The third population range would be expected to receive slightly higher than the minimum per capita grant.

Aboriginal and Island Councils and Aurukun and Mornington Councils

Given the general level of increased grants to these councils compared to the previous methodology, the Commission has included an adjustment such that the general purpose component for each council does not fall below its previous grant actually received, plus 5 per cent.

The same adjustment was made to the Torres Shire Council as it has similar location, demographic and road length characteristics.

Johnstone Council adjustment

An adjustment was made to Johnstone Shire Council's general purpose grant as, in comparison to other similar councils, the reduction in the grant appeared too great.

Phasing-in

The official phase-in agreed between the Commonwealth and State Governments is a four year straight line phase-in period to all councils except Aboriginal and Torres Strait Island councils, who will move to their new grant entitlement immediately.

Western Australia

The Western Australian Local Government Grants Commission (WALGGC) uses the balanced budget method for allocating general purpose funding, and an asset preservation model for allocating the identified local road funding component.

General purpose grant funding

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

assessed expenditure need - assessed revenue capacity = assessed equalisation requirement

for all 142 local governments in Western Australia, calculated simultaneously.

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

  • residential and commercial/industrial rates
  • agricultural rates
  • pastoral rates
  • mining rates
  • other revenue (formerly extraordinary revenue).

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

  • 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 WALGGC used a four-year average of 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 2003-04 final outcome was then subjected to the Minimum Grant 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 2003-04 determinations, 28 local governments received the minimum grant entitlement (two more than the previous year).

Methodology refinements for 2003-04

Refinements made to the methods, as a result of WALGGC's ongoing research programs, public hearings visit programs, and consideration of local government submission claims, are briefly described below.

Units of measurement

The major influence in calculating expenditure 'standards' was population. The WALGGC used the latest (30 June 2002) Australian Bureau of Statistics' 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.

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 three local governments - the Shires of Augusta-Margaret River, Coolgardie, and Jerramungup.

Revenue standards

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

Mining rates

The Commission has again assessed the mining rate capacity of local governments. The data used for its assessment was the 'mining rates levied' by local governments, whereas 'mining rates collected' has been used in the past.

Expenditure standards

There were no major changes in the methods of calculation of the expenditure standards, compared to previous years.

Special purpose grants

One of the National Principles recognises that some of local governments' expenditure needs are met by special purpose grants. For the 2003-04 allocations, the total assessed expenditure was discounted by the State average percentage representing special purpose grants over total expenditure, rather than the previous years' method of discounting the preliminary assessed expenditure (that is, expenditure before disability factors are applied).

Western Australian Fire and Rescue Service Levy

The Western Australian Fire and Rescue Service (WAFRS) Levy paid by relevant local governments is now not included as part of the preliminary assessed expenditure standard for law, order and public safety. The levy is added to the expenditure assessment as a final step, thus eliminating the compounding of disability factors on what is a fixed cost.

Disability factors

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

Some minor amendments were made to the water supply and population dispersion factors.

In general, these amendments affected only a small number of councils.

The Commonwealth's declaration of 'exceptional circumstances' areas has been reflected in the provision of a special allowance to the 18 councils in currently declared areas (there were 21 last year).

The medical services allowance, introduced to reflect the increasing burden on local government of the requirement to financially support the retention of doctors, has now been extended to 33 councils.

Equations used in calculation of standards

2003-04 Balanced Budget Detailed Calculations

Revenue standards:

Agricultural rates

Standard = [(0.001904 x TVAL901) + (1.36 x VGAREA) + (379.49 x Assmt)] x 1.0049

Pastoral rates

Standard = 0.079148 x Pastoral Valuations 1999/00 - 2001/02

Residential and commercial/industrial rates

Standard = ($129.12 x Assmt) + (0.057305 x Valuations)

Mining rates

Standard = [($189.76 x Tlease/Mining Assmt901) + (0.08 x MINVAL901)] x 0.999

Other revenue (formerly extraordinary revenue)

Standard = individual assessments

Recreation and culture charges

Standard = $34.18 x ADJPOP02

Building control charges

Standard = 4.45 x VTBLD901

Expenditure standards:

Governance

Standard = [($30.77 x Assmnt) + ($30.63 x ADJPOP02)] + $107,149

Law, order and public safety

Standard = Category 1: ($17.73 x DWELL2002) + ($8.54 x POP02) for fully WAFRS protected councils

Category 2: ($138.50 x DWELL2002) + ($123.64 x POP02) for Perth City Council

Category 3: ($186.01 x dwellings outside WAFRS) + ($9.32 x POP02) for metropolitan fringe councils

Category 4: ($86.29 dwellings outside WAFRS) + ($15.51 x POP02) for all other councils

Education, health and welfare

Standard = ($40.41 x POP02) and SPG Factor 0.555

Community amenities

Standard = ($14.85 x ADJPOP02) and SPG Factor 0.954

Recreation and culture

Standard = [($67.49 x ADJPOP02) + ($184.01 x DWELL2002) + $73,323] and SPG Factor 0.952

Building control

Standard = [($73.77 x SIZE2002) + ($1.10 x VTBLD901)] x 1.271

Transport

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

where:

ACLG = Australian Classification of Local Governments (system that categorises local governments across Australia)

Valuations = average total equalised gross rental values of residential and commercial/industrial property, 1999-2000 to 2001-02

Assmt = average number of rateable assessments provided in 1999-2000, 2000-01, and 2001-02 information returns

Tlease/Mining Assmt901 = total number of mining leases and licences registered, or rate assessments for 1999-2000 to 2001-02

MINVAL901 = total average unimproved mining valuations for 1999-2000 to 2001-02

TVAL901 = total average agricultural valuations for 1999-2000 to 2001-02

VGAREA = total average agricultural land area in hectares for agricultural valuations for 1999 to 2001

Assmt = total average number of rate assessments on agricultural properties, including special rural, rated on unimproved value provided 1999-2000, 2000-01, and 2001-02 information returns

Valuations = total average pastoral valuations for 1999-2000 to 2001-02

POP02 = estimated resident population in statistical local areas in Western Australia, at 30 June 2002

ADJPOP02 = estimated service population derived from formula (population + net additional employment) based on ABS statistics, Journey to Work, 2001 Census

DWELL2002 = estimated stocks of dwellings in Western Australia, as at 30 June 1997, factored up percentage population growth

Dwellings outside WAFRS = number of dwellings outside the protection of WAFRS; dwellings protected by bush fire brigades

VTBLD901 = estimated total value of building activity for 1999-2000 to 2001-02 (average)

BAILS98 = estimated number of business locations in Western Australia in 1998 (employing and non-employing single location business entities)

SIZE2002 = formula assessment by WALGGC based on statistics from ABS

Formula = [(DWELL2002/10) +BAILS98)]/2

Rate Assmt = total number of rates assessments for 1999-2000 to 2001-02 (average)

2003-04 local road grant funding
Under the current principles, 7 per cent of the Federal funds were allocated for 'special projects' (one-third for access roads serving Aboriginal communities and two-thirds for major bridge works) as in previous years (see Table B.11). The remaining 93 per cent was distributed according to the Asset Preservation Model.

Table B.11 Local road grant funding, 2003-04 - Western Australia

Purpose

Grant

Access roads serving Aboriginal communities

$ 1 650 757

Bridge works
$ 3 301 515
Balance of 93 per cent for distribution
$65 794 477

Total local road funding

$70 746 749

Access roads serving Aboriginal communities

The Aboriginal Roads Committee, which comprised representatives from the Western Australian Local Government Association, Main Roads WA, the Department of Indigenous Affairs and the Aboriginal and Torres Strait Islander Commission, 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 Special Project funds for bridges are allocated to only preservation-type projects.

A Bridge Committee, formed in 2001, advises the Commission on priorities for allocating funds for bridges. Membership of the committee is made up of representatives of Main Roads WA, the Western Australian Local Government Association, and the Local Government Grants Commission.

Distribution of the balance of 93 per cent

The remaining funds were distributed in accordance with road preservation needs determined by the Asset Preservation Model. The Asset Preservation Model 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 local governments 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 using updated road data. A new review of accurate road costs was undertaken during the year using information provided by 10 Regional Road Groups. The review found that costs currently used were generally of the right order except in some mining and pastoral areas where increases of 10 per cent to 12 per cent were needed. As a result, road grants have increased significantly for councils in these areas.

Due to the effect of new road costs, changes in road statistics and allowances for heavy traffic, 25 councils received an increase of 6 per cent or more and 19 councils received a decrease, mostly less than 2 per cent. The largest decrease was -3.8 per cent.

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 over-riding 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 Commonwealth legislation.

The South Australian Local Government Grants Commission uses 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 incorporated 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 land use category - 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 which are of the type that most councils receive and are not dependent upontheir own special effort are treated by the 'inclusion approach'. That is, subsidies such as those for public bus and 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, for the 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 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, ($15.88 for 2003-04) 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 may then be applied to minimise the impact on council's budgetary processes. In calculating the 2003-04 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.

Methods

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, an equal weighting of population and road length is used to determine allocations to individual councils. 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 Grants Commission recommendations.

The Trust was established in May 1978 under legislation of the South Australian Parliament. It has a broad responsibility for community development activities in the outback areas of the State and with particular emphasis on those functions that are at present 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 2003-04 per capita grant was $151.40.

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 Commonwealth 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 unavailability of data, grants for these communities are not calculated in the same manner as grants to other local governing bodies. The Commission contracted a consultant, Alan Morton, of Morton Consulting Services, to undertake a study on the expenditure needs of the communities and their revenue-raising capacities. Comparisons were made with communities in other States and per capita grants were established. For 2003-04 the per capita grant varied from $269.23 for Nepabunna to $467.28 for Maralinga Tjarutja.

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

Formulae

General financial assistance

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

image

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

image

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

where:

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 roads and stormwater there are no disability factors applied and consequently, CRIc = 1.0.

Table B.12 details the approach taken to expenditure functions included in the new methodology.

Table B.12 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 councila

Subsidised services -
animal and plant control

Set at 1.00

Derived from the level of council contributions
to Animal and Plant Control Boardsb

Garbage

Reported
expendituresc

Number of residential properties

Aged care services

Reported
expendituresc

Population aged 65+ per ABS Census and estimated
resident population

Services to families and children

Reported
expendituresc

Population aged 0-4 yrs per ABS Census and
estimated resident population

Health inspection

Reported
expendituresc

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 councild

Sport, recreation and culture
- active

Reported
expendituresc

Population aged 5-24 years per ABS Census and
estimated resident population

Sealed roads - built-up

Reported
expendituresc

Kilometres of built-up sealed road as reported
in GIR

Sealed roads -
non-built-up

Reported
expendituresc

Kilometres of non-built-up sealed road as reported
in GIR

Unsealed roads - built-up

Reported
expendituresc

Kilometres of built-up unsealed road as reported
in GIR

Unsealed roads - non-built-up

Reported
expendituresc

Kilometres of non-built-up unsealed road as reported
in GIR

Unformed roads

Reported
expendituresc

Kilometres of unformed road as reported in GIR

Stormwater constructione

Reported
expendituresc

Number of urban propertiesg

Stormwater maintenance e,f

Reported
expendituresc

Number of urban propertiesg

Emergency services

Reported
expendituresc

Total number of properties

Planning and building control

Reported
expendituresc

Number of new developments and additions

Other needs assessments

Set at 1.00

Based on Commission determined relative
expenditure needs in a number of areash

Notes:
a The unit of measure or standardised expense is derive d 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.
b The unit of measure or standardised expense is taken as each council's contribution to the operation of Animal and Plant Control Boards.
c Councils expenditures reported on Australian Bureau of Statistics returns.
d 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.
e Includes both construction and maintenance activities.
f The Commission has also decided, for these functions, to use CRIs based on the results of a previous consultancy by BC Tonkin and Associates.
g Urban properties = sum [residential properties, commercial properties, industrial properties, exempt residential properties, exempt commercial properties, exempt industrial properties].
h 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
  • other special needs of councils.

The Commission is aware that there are many factors, which 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.

Calculated standards by function

Table B.13 enables a council to calculate its raw grant for each 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. (Note: currently CRIs are only used in the roads and stormwater functions, further CRIs will be developed over time.)

Table B.13 Summary of standards by function, South Australia

Function

Standard
in dollars

Unit of
measure per
capita

Total units of
measure

Unit of measure

Expenditure functions

Subsidised services
- public buses

1.00

0.99322

1 498 214

Standardised expense

Subsidised services
- animal and plant
control

1.00

1.70928

2 578 350

Expenditure from Animal and
Plant Control Board

Garbage

90.14

0.40191

606 259

Number of residential
properties

Aged care services

44.28

0.14816

223 484

Population aged more than 65

Services to families
and children

63.37

0.05949

89 744

Population aged 0-4

Health inspection

259.03

0.01594

24 048

5 x supported residential
facilities + 2 x food premises
+ 1 x other establishments

Subsidised services
- libraries

1.00

23.99816

36 199 787

Standardised expense

Sport, recreation
and culture

219.99

0.26319

397 012

Population aged 5-24

Sealed roads -
built up

11 605.11

0.00648

9 770

Kilometres of sealed built up
road

Sealed roads -
non-built up

5 176.21

0.00426

6 421

Kilometres of sealed non-built
up road

Unsealed roads -
built up

1 177.94

0.00056

842

Kilometres of formed and
surfaced, and natural surface
formed built up road

Unsealed roads -
non-built up

737.09

0.03192

48 148

Kilometres of formed and
surfaced, and natural surface
formed non built up road

Roads - unformed

62.79

0.00583

8 792

Kilometres of natural surfaced
unformed road

Stormwater drainage
- construction

24.56

0.43500

656 176

Number of urban, industrial
and commercial properties
including exempt

Stormwater drainage
- maintenance

13.54

0.43500

656 176

Number of urban, industrial
and commercial properties
including exempt

Emergency services

2.61

0.55000

829 640

Total number of properties

Planning and
building control

508.17

0.03215

48 489

Number of new developments
and additions

Revenue functions

Rates - residential

0.0036

72 517

107 445 700 284

Valuation of residential

- commercial

0.0069

8 815

13 297 784 814

Valuation of commercial

- industrial

0.0091

1 487

2 243 460 221

Valuation of industrial

- rural

0.0038

11 623

18 213 814 686

Valuation of rural

- other

0.0031

4 214

6 356 608 024

Valuation of other

Subsidies

1.00

21.94186

33 097 993

Total of the subsidies

This process only allows calculation of elements of the raw grant calculation, not the estimated allocation. Calculation of 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 - road length audit - an ongoing commitment

During 1999-2000 the Commission sought assistance from consultants, 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 (GIS).

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

While the Commission used the outcome of the road length audit to allocate the 2000-01 general purpose grants, it believed the data needed refinement and an ongoing commitment to its maintenance.

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

The Engineer, Craig Gilbert, and GIS expert, David Macdonald, (both employees of Tonkin Consulting) were engaged for this purpose. They are committed to working with councils, through the Commission, to update and refine data used in the calculations.

The revisions to the road length data (as at 30 June 2002) were used to calculate the 2003-04 general purpose grants.

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

Tasmania

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 Australian 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 methods become, it always needs to exercise broad judgement as it considers the issues that confront it each year as it assesses grants.

A full explanation of the operation of the model follows.

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 Australian Bureau of Statistics' local government finance statistics. An adjustment is made to account for the value of properties that are partially exempt from rates, that is, liable for service charges only.

The rateable assessed annual value for each council is determined and 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 all councils raised, to yield a State average rate in the dollar. (Total rate revenue now also includes all revenues derived from the sale of water, including charges levied on a consumption basis.) 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 nine-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. 14.

Table B.14 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.
Protection of 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 14 disability factors and adopted a method to quantify them. The disability factors are scale, population dispersion, isolation, regional responsibility, population growth, population decline, worker influx, absentee population, unemployment, age profile, tourism, day-trippers, climate and equivalent tenements.

An outline of the approach the Commission developed to quantify each disability factor is provided below. The 'climate' 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.15.

Table B.15 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

Planning 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) a

Note: a Both Flinders and King Island councils receive the scale (high) factor for expenditure classified as 'Other'.

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

The sparsity of local government data relating to consumption of council services by nonĀ­ 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 and/or decline for a particular municipality over a five-year period, against the average rate of population growth and/or 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, starting 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 on the Commission's equalisation model.

The threshold for applying 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 that 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 that impose a significant cost on the municipality.

Determination of this factor involves estimating, from Australian Bureau of Statistics 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 that 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 to 5 years, 15 to 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 assessment, a disability factor is recognised for all councils, whereas previously it was only applied to those councils with greater than 1000 equivalent tenements.

Local road component

To accord with the National Principles 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 three metres total span)
  • special needs, or 'betterment' component: 5 per cent of funds allocated to councils with an above average prop of rural unsealed roads, based on rural unsealed road lengths.

Northern Territory

There were no changes to the Northern Territory Grants Commission's methodology during 2003-04. The Commission is, however, reviewing its methodology and plans are in hand to introduce a revised methodology during 2004-05. The Commission's methodology, in making its assessments for the year, conforms to 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 distribution principles.

General purpose component

In assessing relative expenditure and revenue needs, the Commission uses 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 needed 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 using personal income statistics, obtained from the Australian Bureau of Statistics. This allows determination of a council's theoretical gross income. In addition, councils that 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 2003-04, 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 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 impact on the provision of local government services.

Formula

Revenue component

All councils:

Assessed revenue-raising capacity = gross income/Territory 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 2002-03

Total local government rate revenue = $110 340 000

Expenditure components

Total local government expenditure of $192 171 000 is apportioned over each expenditure component.

Amenity

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

Northern Territory 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.

A base level for general administration expenditure of $70 000 is applied to all councils.

Northern Territory 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.

Northern Territory human services expenditure = $21 139 000

Libraries

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

where community population is the sum of the populations for those local governing bodies that provide library services.

Northern Territory library expenditure = $7 687 000

Recreation

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

Northern Territory 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.

Northern Territory transport expenditure = $38 434 000

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

10.0

- sealed

8.0

- gravel

4.0

- cycle path

2.0

- formed

1.0

- unformed

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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