Image: Nicki Mannix
Queensland councils have been found to be “poor” planners for their long term financial sustainability, according to a new report from the Queensland Audit Office.
In the report, Forecasting long-term sustainability of local government (Report 2: 2016–17), it was stated that councils’ long-term financial forecasts and asset management plans “lack substance and rigour”.
“Quality forecasts require investment of time and appropriately skilled resources, which some councils either cannot afford or view as unnecessary overhead,” the report said.
“This means they are not well placed to understand the important relationship between future net operating revenues, asset spend and debt, and how these affect their sustainability.”
The report elaborated that the problem is exasperated by many councils not prudently managing long-life assets which provide value for many generations.
“Long-life assets require long-life thinking, but many councils do not use debt strategically to manage their infrastructure funding requirements,” it said.
And the stakes are huge, according to the report, which said that the clear risk is that some councils are approaching a tipping point where their infrastructure assets deteriorate or fail faster than they can afford to replace them, with the potential to jeopardise the growth of their local economies and the health and well-being of their communities.
“It is concerning that many councils cannot reliably conclude whether they are financially sustainable,” the report said.
The report also gave a dire observation that the majority of those charged with governance are “not dealing with this issue as well as they should”.
It recommended that different strategies are required to better understand and minimise the impacts of poor financial sustainability management.
The Local Government Association of Queensland (LGAQ) responded that the auditor’s report is a warning sign for governments, serving as a reminder to state and federal governments about the mounting challenges the local government sector faces due to rising costs and dwindling funding support.
LGAQ Acting President Jenny Hill said the difficult job of managing and maintaining community assets is being made much harder due to reduced funding for infrastructure and increased workforce costs due to more and more regulation.
Ms Hill said the LGAQ accepted the report’s findings and was working with councils on several fronts to improve their asset management capacity and ensure their financial sustainability was on a firm footing.
“With our help, councils are improving their practices around asset management and introducing strategies to ensure better financial outcomes,’’ she said.
“But both the state and federal governments need to acknowledge that reducing grants and subsidies to councils has driven up rates and charges.
She said driving up their costs in other areas like compliance is bound to affect the ability of local governments to maintain a consistent record on financial management.
“Councils need support in maintaining and renewing assets, rather than funding of new capital,” Ms Hill said.
