A sensible plan for local government reform

The LGA is a strong advocate for policies that achieve better outcomes for councils and the communities they represent. Councils are a partner in government and part of the solution. Working together we can pursue South Australia’s uncapped potential and make our State a better place to work, live and visit.

The local government sector is ready for change and is preparing to build on our history of driving our own reform agenda.

The next chapter of local government reform will concentrate on the many things the sector can achieve through continuous improvement programs that strive to meet an always evolving community standards and understanding of best practice.

There are a number of areas of local government operations that can be strengthened without the need for legislative intervention. A prescriptive, legislated approach to reform can often tie the sector to a ‘one size fits all’ outcome that doesn’t suit the circumstances of every council and community, creates additional red tape, quickly becomes outdated and doesn’t deliver value for money.

There is however a critical role for the state parliament to ensure that the legal framework within which local government operates remains contemporary and empowers councils with the regulatory tools and resources needed to successfully serve communities.

The Local Government Association and member councils look forward to working with all members of state parliament to deliver sensible local government reforms that will benefit South Australian communities.

Any sensible discussion about local government reform must begin with a thorough understanding of the current framework within which councils operate. Almost all aspects of local government are regulated by the Local Government Act 1999 or the numerous other State Acts that reference councils.

A high degree of oversight, transparency and accountability is to be expected as councils are responsible for $22 billion worth of public assets and infrastructure and have a combined annual budget of $2 billion to provide local services and facilities that are part of everyday life. This is an enormous responsibility - and not one that can be taken lightly.

The current local government framework requires each council to have an audit committee, appoint an external auditor and adopt procedures for decisions to be reviewed. It also allows for investigations by the State Ombudsman, Independent Commissioner against Corruption (ICAC) and the Auditor General.

In extreme cases the Minister can exercise powers to dismiss a council and appoint an administrator.

Recommendations from the State Ombudsman, ICAC or the Auditor General are often the catalyst for legislative change. Parliamentary Committees can also undertake inquiries into local government matters and make recommendations for legislative and operational reform.

Ultimately, councils are accountable to the communities they serve. Council elections are held once every four years and approximately 30% of eligible voters participate in the postal voting process, which is consistent with voter turnout for voluntary elections in other states. Once elected, council members must undertake mandatory training and uphold standards of behaviour that are outlined in a Code of Conduct. A Register of Interests, a Gifts Register and an Allowances and Benefits Register must be maintained by each council.

As the sphere of government that is closest to communities, there is a high degree of public interest in local government. Communities are seeking more information about how their council is operating and how their rates dollars are being spent.

The Local Government Act 1999 provides a detailed list of the documents that must be made publicly available by councils. This includes registers and returns, codes, meeting papers and numerous policy and administrative documents.

Every council is required to adopt Strategic Management Plans (SMPs) to outline the council’s objectives for a period of at least four years. SMPs must include a Long Term Financial Plan and Infrastructure and Asset Management Plan, each covering a period of at least 10 years.

The council’s long term objectives are required to be summarised each year in an Annual Business Plan, which must outline the measures that will be used to assess performance against those objectives throughout the financial year. There are a number of factors that must be considered by a council in setting an annual plan, budget and rates structure, including the impact on the community.

Performance against the measures outlined in these plans are publicly reported each year through each council’s Annual Report. The material that must be included and the numerous matters that must be reported on in the Annual Report are prescribed in Schedule 4 of the Local Government Act, and in other Acts under which councils operate.

The community is invited to participate in all annual and long term planning and budgeting processes.

Councils are required to adopt a policy that outlines how the community will be consulted.

Representation reviews are required to be carried out at regularly (usually about every 8 years) to determine if the community would benefit from an alteration to the council’s composition or ward structure.

The Local Government Act 1999 currently sets out sound structures in relation to accountability, transparency and engagement, and provides for independent oversight to ensure that councils are meeting their compliance obligations.

However, that does not mean that things can’t be improved.

After consulting with member councils, the LGA has developed a sector-driven local government reform agenda that is focussed on these principles:

  • Sustainability
  • Efficiency
  • Local decision making
  • Sector consistency
  • Simpler regulation

Ultimately change within local government needs to benefit communities and create public value for South Australia. Quick fixes and populist ‘solutions’ need to be avoided as they will end up costing communities more in the long run. That’s why rate capping and forced amalgamations will not be supported by local government.

However, we welcome the opportunity to work with all parties that want to be a part of a sensible continuous improvement program that will deliver long term benefits to communities.

We are pleased to outline our plan for sensible change.

Sector wide benchmarking program

While there is a considerable amount of information already available to communities about what their council is doing; this information is often spread across multiple documents and platforms, can be difficult to find and is not easy to compare with other councils.

The LGA is working towards developing a more sophisticated performance measurement and reporting framework as a consistent way to promote transparency and accountability. Gathering information about councils and how they are operating is beneficial for a number of reasons, including:
-       determining if councils are performing well, being fiscally responsible and are financially sustainable;
-       assessing the relative efficiency of the sector and the value for money being delivered to communities;
- measuring and evaluating the outcomes that are being achieved and whether the community is satisfied with what councils are delivering; and
-       identifying opportunities for continuous improvement and reform programs to strengthen the sector.

In developing a benchmarking framework, care needs to be taken to reflect that councils are as diverse as the communities they serve. Not all measures will be comparable across all councils and financial information will tell only one side of the story. It is important that this work focusses on a contained suite of meaningful performance measures that build a more complete picture of the financial and governance health of the sector and the public value of the services and programs delivered by councils.

Communities have the right to expect high standards of behaviour from the people they elect to represent them- at all levels of government.

The local government sector has acknowledged that the current Code of Conduct system for council members is not working as it should. Local government is keen to see comprehensive reforms introduced for the Code and the LGA has worked with councils to develop a framework of new ideas to achieve meaningful change.

Local government, like all sectors, should be free of bullying and harassment, and further work needs to be done to ensure there are appropriate measures to deal with any isolated examples of serious behavioural issues.

To strengthen the Code and give communities confidence that complaints will be dealt with effectively, the following elements need to come together in a new framework:
-       Local government should be trusted to set its own expectations in regards to acceptable behaviour that aligns with community expectations.
-       High level matters of misconduct including examples of bullying and harassment should be referred to and dealt with by a body outside of local government. Further work needs to be done to define such a body.
-       The majority of lower-level behavioural issues should be dealt with at the local government level, either by council or a local government appointed panel.
- There need to be adequate sanctions for bad behaviour. This should include financial penalties and expulsion from a meeting.
- Mayors require expanded powers to manage behaviour in their chambers to ensure that meetings are not disrupted. This is not intended to be a measure that would stifle robust and respectful debate.

While local government needs to be responsible for its own behaviour, we can’t deliver effective change on our own. We will need the support of State Parliament to amend legislation and empower councils to quickly and effectively deal with bad behaviour when it arises.

Each council is required to establish an Audit Committee to, among other things, review the financial statements of the council, provide advice on council ‘s Strategic Management Plan and Annual Business Plan and review the adequacy of council’s internal controls and financial management systems.

Since 2007, when an audit committee for each council became required, these committees have become embedded as an important part of local government’s financial and governance performance measurement framework.

Many councils have voluntarily expanded the role of their audit committee beyond what is legally required. Each audit committee must have at least one independent member and it is widely acknowledged within the sector that having more than one independent member, including an independent Chair is best practice.

The way in which many councils have established their audit committees demonstrates that a heavy-handed legislative response is not always required to achieve positive change within local government.

The LGA proposes to use a best practice approach to encourage councils to make the best use of their audit committees. A best practice model would include:
-       Diversifying the skill sets and knowledge of audit committee members;
-       Appointing an independent chair;
- Additional responsibilities such as reviewing draft strategic management plans, rating practices; performance monitoring, the quality of financial management, and the council’s use of public resources; and
-       Empowering the chair to make public statements on the audit committee’s work and findings.

Part of the LGA’s work will be to review the availability and costs of attracting qualified and skilled members to council audit committees, particularly in country areas, and to propose solutions that assist all councils to achieve best practice standards. This might include the option of a regional or ‘shared service’ approach to establishing audit committees in regional areas.

It would need to be acknowledged that there might be barriers in some councils to fulfilling all best practice recommendations, and appropriate exemptions would need to apply.

All councils must appoint an external auditor to review and provide an opinion on the council’s financial statements and a separate opinion on the adequacy of internal controls to provide reasonable assurance that the financial transactions of the council have been conducted properly and in accordance with law.

In some other states, the external auditing of councils falls within the remit of the state’s Auditor General. The LGA has commissioned research and consulted with councils about the option of adopting this model in South Australia. We have found that while it may lead to some greater degree of consistency, the benefits would not outweigh the considerable additional costs to ratepayers.

An alternative approach to achieving greater standardisation would be allowing or requiring the Auditor- General to issue binding interpretations of auditing standards applicable to local government. This would ensure consistency between private sector auditors.

The LGA provides interpretation of accounting standards to the sector through the Model Financial Statements the use of which is mandated in Regulations. However these standards apply to local governments, not to auditors, who have their own professional standards to observe. However in some areas of practice auditors have had varying interpretations of their own standards. Therefore, further work is required by the LGA, in consultation with the SA Local Government Auditors Group and Local Government Financial Management Group to identify opportunities for further improvement, without duplicating existing measures or creating greater uncertainty.

Current legislation requires councils to publicly report broadly on where their revenue comes from.

Each council’s annual financial statements distinguish revenue from:

  • rates;
  • statutory fees and charges;
  • user charges;
  • investments;
  • grants;
  • reimbursements; and
  • “other”.

However, councils are not required to adopt a revenue policy describing what mix, of this suite of revenue options, it proposes to adopt for each of its services and why it has made such choices. Such a policy primarily would focus on to what extent (for any given service) the council believes it would be appropriate for the costs of that service to be borne by users of the service, or spread across the broader community.

Such a policy would create a single point of reference to enable the community to understand how a council proposes to pay for each of its services and infrastructure over a period of time, taking into account rates, grants, fees and charges and commercial activities. This would help communities and stakeholders understand the revenue mix in local government and how constraints on one revenue source create pressure for revenue to be generated in other, often less equitable, ways.

Although such a policy would require revision from time to time, it is important that this must not create yet another compliance obligation for councils, as they are already committing considerable resources to preparing all of the plans, policies and documents required by legislation. Introducing a new revenue policy should be accompanied by a review of existing requirements for other policies and reporting requirements to achieve the principle of simpler regulation.

Adopting a revenue policy will not of itself address the issues that councils face in generating the revenue required to maintain and improve standards of services and infrastructure. Local government is always under pressure to reduce reliance on rating revenue to fund community services and infrastructure. While councils must continuously review expenditure to make sure it is as efficient as possible, the settings on revenue side of the equation also need to be addressed, such as the fact that local government in South Australia historically receive less state government grant funding per capita than local government in other states.

Additional capacity for councils to diversify revenue streams would be assisted by the following actions being undertaken as a priority:

  • Conduct a comprehensive review of local government fees and charges regulated by the state government to establish modern price setting principles which promote efficiency, flexibility and fairness in service delivery;
  • Review the mandatory rate rebates that councils are compelled to provide;
  • Establish service level agreements for the delivery of state services by local government including agreed responsibilities, cost sharing and funding arrangements;
  • Joint advocacy between state and local government for South Australia to receive a fair share of federal government funding;
  • Review levels of state government grant funding provided to local government and ensure that this level is at or above the national average; and
  • Reviewing the legislative settings around council participation in commercial activities, particularly when regional subsidiaries are formed, to ensure they are not unreasonably restricting opportunities for councils and communities.

To build trust, communities require certainty that councils are delivering the right services at the right cost. A best practice program of services reviews with strong community engagement will assist in building community confidence and demonstrating efficiencies.

Councils already undertake regular reviews of key services to ensure they are meeting community needs, being delivered in an efficient manner and not impacting on the long-term financial sustainability of the council. Sometimes difficult and unpopular decisions need to be made about reducing or consolidating services for the sake of greater efficiency and sustainability. It is important that these decisions about the range and level of local services provided remain in the hands of councils and their communities.

While the legislative framework should set our clear expectations regarding continuous improvement and service efficiency, it should not limit the sector to one prescribed approach to, or frequency of service reviews.

It is proposed that the LGA develop a best practice guide to undertaking service reviews. Service reviews should consider service levels, unit costs, community demand, community satisfaction, alternative providers and links to financial sustainability. Standardising the approach to measuring and reporting these factors will assist councils and communities to understand the value of the financial and community value of the services delivered.

A prescriptive approach to undertaking service reviews must be avoided to ensure that efficiency gains are not eroded by additional red tape and compliance costs.

The Local Government (Boundary Adjustment) Amendment Act 2017 was passed by the Parliament in August 2017. While the LGA will not support any push for forced council amalgamations, we supported the passage of this legislation as it will give councils and communities that want to review their boundaries the benefit of a more transparent, rigorous and independent assessment and decision making process.

The new provisions are not scheduled to come into effect until 1 January 2019. However, there is a considerable amount of work required to develop guidelines, procedures and templates to implement these changes.

The state government must commit adequate resources for the Local Government Grants Commission to progress this work, as a priority, in consultation with councils and communities.

The LGA has started looking at opportunities to streamline processes within local government through an industry-wide industrial relations framework which enables a culture of meaningful, open and respectful engagement between employees, management and unions.

Our work to date demonstrates there is an opportunity to align the sector workforce through a modernised industrial relations framework. An aligned workforce will provide individual councils with continued success and simultaneously deliver wellbeing to employees through shared values and commitments; support individual council’s strategic and business plans; secure a multi-skilled and engaged workforce; foster flexibility and continuous improvement in the local government sector; enhance productivity and significantly reduce duplicated costs and effort.

The Local Government Act 1999 requires councils to carry out “representation reviews” as scheduled by the Minister under the regulations (approximately every 8 years). During these reviews councils must consider options relating to:
-       The composition of the council, including the number of council members
-       Whether or not the council should be divided into wards
-       The size and boundary areas of wards, if they exist

A council may also use this process to change its name, change the name of a ward or change the area of the council.

Based on advice from the Electoral Commission of South Australia (ECSA), the LGA understands that some councils have experienced difficulty obtaining the services of appropriately qualified consultants to assist them with the workload. Some councils have had to undertake multiple public consultation processes as a result of community feedback and changing options. Council members also face the challenge of having to make controversial decisions on potential changes to the composition of a council that might affect their own positions.

Most councils required assistance from ECSA to comply with the extensive technical requirements set out in section 12 of the Local Government Act in order to enable them to achieve certification by the deadline date.

Representation reviews are an important feature of local democracy. Given that ECSA has indicated that it is reviewing the efficacy of current processes and its role in supporting councils to undertake representation reviews, the LGA considers that it is timely and appropriate for a broad review to be undertaken.

The LGA is calling on the state government to work with ECSA, the LGA and councils to review the technical and process issues and decision-making structures for representation reviews.

Local government has participated in a lengthy review of the Local Government (Elections) Act 1999, which is yet to result in legislative change being achieved. T

he LGA and councils have made a number of submissions in relation to technical issues that need to be addressed, as well as more substantive policy matters. As a priority, the Local Government Association is calling on the state government to introduce amendments to the Local Government Elections Act that achieve, among other things, the following policy outcomes:

  • Establish a framework which would enable electronic voting to be used for future elections, should a viable and cost effective system become available;
  • Create a ‘level playing field’ for disclosure of information. In other words, where existing council members are required to disclose information publicly, all candidates for election should be required to disclose the same information during the election process;
  • Enable all candidates to have access to electronic copies of the voters roll; and
  • Voters should be made aware of whether or not a candidate for election resides in the area of the council for which he or she is standing. This can be achieved by inclusion of ‘tick box’ to reveal whether or not the candidate resides in the area.

The LGA can supply further details of the raft of more technical matters that also need to be addressed.

A delayed commencement would be required for any reforms that could not feasibly be implemented in time for the council elections in November 2018.

In relation to state elections, the LGA supports and calls for reform that would require council members seeking election to the State Parliament to stand down from their position on council with their allowance suspended throughout the election campaign period.