Forecasting long-term sustainability of local government (Report 2: 2016–17)
Queensland's 77 councils provide vital infrastructure services that help grow local economies. They deliver roads, water, and sewerage services to an estimated 4.8 million people. Many also provide their communities with public open space, cleaning services, and cultural facilities such as museums and libraries. A small number operate childcare centres and other businesses.
These services require councils to manage large numbers of complex, long-lived assets, almost all of which they own and control. Councils forecast they will be collectively responsible for $124 billion of assets by 2025. For councils to retain existing service levels these assets need to be maintained and then replaced at the end of their lives, while new assets need to be acquired to match population growth and increasing demand for services.
The Department of Infrastructure, Local Government and Planning (the department) is responsible for providing support and advice to councils. In 2012, the Local Government Act was amended and the Local Government Regulations were overhauled. At the time, the department asked us about our ability to audit the 10-year financial forecast of councils. We assessed the sector's ability to produce reliable and relevant financial forecasts as poor, and committed to doing a performance audit on this topic after the legislation had been in place for several years.
This audit delivers on that commitment and examines whether councils can demonstrate that they are financially sustainable in the long-term.
We recommend councils improve the quality of their long-term forecasts and financial planning by:
1. maintaining complete and accurate asset condition data and asset management plans (Chapters 2, 3, and 4)
2. implementing a scalable project decision making framework for all infrastructure asset investments (Chapter 2)
3. engaging directly with their communities on future service levels (Chapters 2 and 4)
4. developing financial plans to explain their financial forecasts and how they intend to financially manage the council and its long-life assets (Chapter 2).
We recommend the Department of Infrastructure, Local Government and Planning:
5. allow councils to set their own financial sustainability targets where they can justify that a different target is more appropriate for their long-term sustainability (Chapter 2)
6. strengthen their governance role, including analysing long-term planning documents, to allow the Minister to identify councils in, or becoming, financially stressed (Chapter 3)
7. support councils to strengthen their strategic planning by building their capability and capacity to produce 10-year financial forecasts and asset management plans that can be relied on, and are integrated with their annual budgetary processes. They should be renewed and updated at least every four years (Chapters 2 and 3)
8. require councils to include in their annual budget or annual report statements:
- the long-term financial forecasts for at least three subsequent years after the budget year
- reporting analysis of actual to budget figures (Chapter 2).
9. broaden the number of ratios required to be calculated over 10 years to include the asset renewal funding ratio, once councils have improved their asset condition data (Chapter 4).