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The methods each State Local Government grants commission employed for allocating grants to councils in 2001-02 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 Financial Assistance (Local Government)
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 functions. They attempt to compensate councils for expected above-average
costs because of factors 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 functions or areas of expenditure.
These functions are: general administrative services, aerodromes, services for
aged and disabled, building control, public cemeteries, services for children,
general community services, cultural amenities, control of dogs and other animals,
fire control and emergency services, general health services, library services,
noxious plants and pest control, town planning control, recreational services,
stormwater drainage and flood mitigation, street and gutter cleaning, street
lighting, and maintenance of urban local roads, sealed rural local roads, and
unsealed rural local roads.
An additional allowance is calculated for councils outside the Sydney statistical
district that recognises their isolation.
The general formula for the calculation of expenditure allowances is:
No. of units x standard cost x disability factor
where:
The no. of units is the measure of use of the function for the council. For
most functions 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 functions. 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' 1999-2000 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, then 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 function 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 function. 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 function 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
is 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 organisations.
Generally, negative scores are not 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 function.
The Commission uses the inclusion approach in the treatment of specific purpose
grants. This means that the disability allowance is discounted by the specific-purpose
grant as a proportion of the standardised expenditure.
For the functions of services for aged and disabled, and services for children,
the deduction approach is used. This method deducts specific-purpose grant amounts
from all councils' expenditure before standard costs are calculated. This approach
is considered more appropriate for functions where the level of specific-purpose
payment assistance is related to council effort. The deduction approach is,
therefore, more consistent with the 'effort-neutral' requirement specified in
the principles. A deduction approach is used for street lighting because of
differences in accounting practice between councils and county councils in various
parts of the State.
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 capital cities. 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 NSW.
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 eligible pensioner rebates are, therefore, more disadvantaged than those
with a lower proportion. Details of the formula used are shown later in this
section.
The calculation of revenue allowances is a broad-brush 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.
In the Commission's methodology, the calculation of revenue allowances involves
determining each council's theoretical revenue-raising capacity by comparing
land values per property to a State standard and applying 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 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. This is because
the calculations deal with relativities between councils, based on the theoretical
revenue-raising capacity of each rateable property.
In developing the methodology for the 1986 legislation 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. This approach has continued
under the provisions of the 1995 legislation.
The discounting helps to 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.
Rate pegging, which applies in NSW, is not specifically considered by the Commission.
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 the development of the distribution principles required under the 1986
Commonwealth legislation.
The Associations and Local Government recommended to the Commission that water
and sewerage functions should not be included in the financial assistance grants
distribution principles. The main reasons given were:
- Water and sewerage services are not functions performed by all general purpose
councils in NSW.
- If water and sewerage functions were to be considered the level of funds
available for other council functions 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 functions 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.
The grants are generally not affected by the levels of a council's expenditure
on a particular function. The use of a council's expenditure is generally limited
to determining a State standard cost for each selected function. The standard
costs for these functions are then applied to all councils in calculating their
grants. What an individual council may actually spend on a function 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 purposes.
Local roads component
The method of allocation of the local roads 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. Refer to the 'principles' elsewhere in this report for details.
Summary of formulae used in the calculation of expenditure and revenue
allowances of the general purpose component
Expenditure allowances
General
Allowances for the majority of functions are calculated on the following general
formula:
Ac = Nc x Es x Dc
where:
Ac = allowance for the council for the expenditure function
Nc = number of units to be serviced by council
Es = standard expenditure per unit for the function
Dc = disability for the council for function in percentage terms
Road length allowances
In addition to the disability allowances, length allowances are calculated
for each road type based on the following formula:
Ac = Nc x Es x (Lc/Nc) - (Ls/Ns)
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 following formula:
Ac = Pc x ([Dsc x K1] + [Dnc x K2] + Ic)
where:
Ac = the isolation allowance for each council
Pc = the adjusted population for each council
Dsc = the distance from each council's administrative centre to Sydney
Dnc = the distance from each council's administrative centre to the
nearest major regional centre (a population centre of more than 20 000)
Ic = the additional per capita allowance due to industrial award obligations
(if applicable)
K1 and K2 are constants derived from regression analysis
Specific-purpose payments
Allowances for functions are discounted where appropriate to recognise the
contribution of specific-purpose grants. The discount factor that generally
applies is:
where:
Gc = the specific purpose grant received by the council for the expenditure
function
Nc = number of units to be serviced by council
Es = standard expenditure per unit for the function
Ac = allowance for the council for the expenditure function
Revenue allowances
General
The general formula for the calculation of revenue allowances is:
Ac = Nc x ts x (Ts -Tc)
where:
Ac = revenue allowance for the council
Nc = number of properties (assessments)
ts = standard tax rate (rate-in-the-dollar)
Ts = standard value per property
Tc = council's value per property.
The standard value per property (Ts) is calculated as follows:
The standard tax rate (ts) is calculated as follows:
Pensioner rebates allowances
The general formula for the allowance to recognise the differential impact
of compulsory pensioner rates rebates is:
Ac = Rc x Nc x (Pc - Ps)
where:
Ac = the allowance for the council
Rc = the standardised rebate per property for the council
Nc = the number of residential properties
Pc = the proportion of eligible pensioner assessments for the council
Ps = the proportion of eligible pensioner assessments for all councils
The standardised rebate for the council (Rc) is:
Rc = 0.25 x Tc x ts
where:
Tc = the average value per residential property in the council
ts = the standard tax rate (rate-in-the-dollar) for residential properties
The maximum value for Rc is set at $125.
NB: 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 programme of
consultation with Local Government prior to the implementation of the 1986 legislation.
The agreed principles are:
- 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.
- 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.
- Revenue-raising capacity will primarily be determined on the basis of property
values; positive and negative allowances relative to average standards may
be calculated.
- Revenue allowances may be discounted to achieve equilibrium with expenditure
allowances.
- 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.
- Expenditure allowances will be discounted to take account of specific purpose
grants.
- Additional costs associated with non-resident use of services and facilities
will be recognised in determining expenditure allowances.
- 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 roads component
Financial assistance which is made available as an identified local roads 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 roads needs.
- Urban [metropolitan] area
'Urban area' means an area designated as an 'urban area':
(a) the Sydney Statistical Division
(b) the Newcastle Statistical District
(c) the Wollongong Statistical District
- Rural [non-metropolitan] area
'Rural area' means an area not designated as an 'urban area'
- Initial distribution
27.54 per cent to local roads in urban areas
72.46 per cent to local roads in rural areas
- Local roads grant in urban areas
Funds will be allocated:
(a) 5 per cent distributed to individual councils on the basis of bridge length
(b) 95 per cent distributed to councils on the basis of:
- 60 per cent distributed on length of roads
- 40 per cent distributed on populatio
- Local roads grant in rural areas
Funds will be allocated:
- 7 per cent distributed to individual councils on the basis of bridge
length
- 93 per cent distributed to councils on the basis of:
- 80 per cent distributed on length of roads
- 20 per cent distributed on population
- Population shall be based on the most up-to-date Estimated Resident Population
figures available from the Australian Bureau of Statistics.
Road length shall be based on the most up-to-date data available to the Local
Government Grants Commission of NSW 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 NSW for major bridges and culverts six
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 NSW and the Local Government
and Shires Associations of NSW.
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Victoria
The Victoria Grants Commission allocates general purpose and local road grants according to the relevant national principles.
Methodology for general purpose grants
At the time the 2001-02 general purpose grants were allocated, the Victoria Grants Commission had completed its major review of the general purpose grants methodology (the final report being released in May 2001) and was in the process of implementing its findings, with the intention of using the new model to allocate the 2002-03 general purpose grants. Because of the pending introduction of the revised methodology, there were only minor changes to the methodology used to calculate the 2001-02 general purpose grants.
The requirement to comply with the national principles applies regardless of any changes to the methodology used to calculate the general purpose grants. Consequently, to be consistent with the requirement of allocating the grants to councils on the basis of horizontal fiscal equalisation, the Commission sought to equalise the capacity of each Victorian council to provide an average range of services at a standard level.
A council's grant is defined as the 'raw grant', which is the difference between its standardised expenditure and the standardised revenue. Usually, a council's standardised expenditure exceeds its standardised revenue. The 'raw grant' represents the gap between the two amounts and is expressed mathematically as follows:
G = E - R
where:
G is the 'raw grant' for any council
E is the standardised expenditure for the council
R is the standardised revenue for the council
Standardised expenditure (E)
Standardised expenditure is calculated for each Victorian council on the basis of 20 specified expenditure functions: public safety, law and order, family services, health and welfare, aged services, community services, heritage, culture and recreation, local sealed roads, local formed and surfaced roads, local natural surfaced roads, footpaths, kerbs and channels, traffic management, aerodromes, street beautification, sanitation, street cleaning, environment protection and drainage.
For any particular function, the standardised expenditure (E) is calculated as the product of its units of need (u), the standard cost per unit of need (c), a discount factor (d) and its disability factor (D). The following formula displays this mathematically:
E = u x c x d x D
This formula is applied to each of the core set of functions commonly carried out by councils. The derived standardised expenditure for a council on the set of core functions comprises the summation of all the products of the above calculation.
Units of need (u)
Units of need are the prime users or drivers of the service and are also known as major cost drivers. Examples of these are population and number of households serviced.
Standard cost per unit of need (c)
A standard unit cost for each function is the average cost of providing that function in Victoria.
Standard cost (u x c)
The standard cost for any council is the product of the standard unit cost (the same for all councils) and the number of units of need for that council.
Discount factor (d)
A discount factor is included in the formula to discount the total expenditure on a function by the revenue received from grants and certain other sources.
Disability factors (D)
The Commission may assign a disability factor for each function for each council, to compensate the council for factors beyond its control, such as age of infrastructure, socioeconomic profile, population density or isolation.
Further discussion of the calculation of the disability factors occurs in a later section.
Standardised revenue (R)
The standardised revenue for each council is calculated by multiplying its total net annual value (at a common valuation date) by the average (or implied) rate for all Victorian councils. In 2001-02, the implied rate was 7.1 cents, slightly reduced from the previous year's figure of 7.5 cents.
Mathematically, the standardised revenue (R) for each council can be expressed as follows:
R = V x r
where:
V is the valuation base for the council averaged over three years
r is the standard rate for all councils calculated as a three-year average
Minimum grants
The national principles require each council to receive a minimum per capita amount (also termed an 'as-of-right grant') regardless of assessed need. In other words, where a council's standardised expenditure exceeds standardised revenue by only a small amount, or is less than its standardised revenue, it still receives a minimum grant. In 2001-02, a minimum grant of $14.90 per head was received by eight councils, plus the Docklands Authority.
Calculation of disability factors
As mentioned earlier there were no major changes to the methodology used to calculate the 2001-02 grants, pending the implementation of a revised methodology in 2002. However, the disability factor for tourism was broadened to include people staying in caravan parks and camping grounds, as well as hotels, motels and guest houses, using additional information published by the Australian Bureau of Statistics.
Movements in grants
Because the 2001-02 grant outcomes for a number of councils varied significantly from the 2000-01 grants, caps were applied to the highest and lowest grants as a means of minimising these variations and introducing some stability in the grant outcomes. A major contributing factor to these variations was the robust increases in valuations in a number of localities (especially the middle-ring metropolitan councils and some regional centres).
The Commission applied an upper limit cap of 25 per cent (as opposed to 20 per cent in 2000-01) to grant increases, which affected both Mornington Peninsula and Cardinia Shire Councils. A minimum cap or floor of -6 per cent (same as for 2000-01 general purpose grants) affected eight councils.
To take account of the relatively greater reliance that smaller councils place on grant revenue and the need to provide such councils with financial stability, for the third successive year the Commission applied a more generous minimum cap to councils with a population of less than 15 000 as follows:
- For those councils with a population of up to 10 000, the general purpose grant for 2001-02 was no less than the previous year's grant (three councils were affected).
- For councils with a population of between 10 000 and 15 000, any reduction was limited to 2 per cent (two councils were affected).
Natural disaster assistance
The Commission allocates funding from the general purpose grants pool to councils which have incurred expenditure attributable to restoration work arising from natural disasters, on the condition that they submit approved natural disaster documentation from the Department of Treasury and Finance and/or VicRoads to the Commission.
Councils are not eligible for natural disaster relief unless they have contributed a minimum of $10 000 to the repairs/restoration work, and relief is capped at $35 000 per natural disaster for each council in any one year. In 2001-02 only one grant of $35 000 was allocated to Central Goldfields Shire Council to assist with restoration work relating to flood damage.
Proposed changes to general purpose grants methodology
As mentioned earlier, the review of the Commission's general purpose grants methodology was completed during the year. The final report outlining the findings of the review and the results of the consultation with interested parties was released in May 2001 and distributed to all Victorian councils.
The Commission implemented most of the recommendations in its allocation of the general purpose grants for 2002-03 in early 2002.
In the calculation of the 2002-03 general purpose grants a number of changes were made to the model:
- All recurrent expenditure (with the exception of works undertaken for VicRoads) was taken into account in the model.
- The number of expenditure functions assessed was decreased from 20 to nine.
- A revised set of cost adjustors was adopted, replacing the former disability factors, to better reflect the relative needs of councils.
- A move was made away from the use of individual council discount factors in order to take account of other grant support.
A more detailed discussion of the changes incorporated in the new methodology for the calculation of the 2002-03 general purpose grants will appear in the next Local Government National Report.
Local roads funding
Introduction of new model
Indicative estimates of each council's local roads grant for each of the 3 years between 2001-02 and 2003-04, based on a new methodology, were released to all councils by the Commission on 23 April 2001. The introduction of the new model is being implemented over a three-year period, in order to smooth the variations between the grant outcomes under the new model and the previous outcomes under the old model. The first instalment of the new local roads grants was paid to councils on 15 August 2001.
The advantages of the new formula are that it better reflects the relative needs of councils in relation to local roads funding and more closely addresses the national principle pertaining to the distribution of local roads funds than the previous methodology.
The new model has produced a significant increase in local roads grants to most regional and rural councils and a general decline in grant levels to the inner and middle-ring metropolitan councils and several of the major regional centres. The predominant factor influencing this trend is the removal of the artificial constraint in the former model that arbitrarily provided set shares of the available funding to categories of urban and regional councils.
Data sources
As explained in the Review of Distribution Arrangements for Local Roads Funding in Victoria: Final Report, the data inputs for the new model are the average annual preservation costs and road lengths by traffic volume categories and a series of cost modifiers relating to freight loading, climate, materials availability, reactivity of the subgrade and strategic routes.
The new model also takes account of the deck area of bridges on local roads.
Road length and traffic volume data, as well as information relating to strategic routes, are sourced directly from councils. All other data are sourced externally.
The average annual preservation costs for each traffic volume range are used in the allocation model to reflect local road maintenance and renewal costs. The initial cost of construction (which is relatively higher for kerbed roads) is excluded as the model attempts to reflect the cost of maintaining existing local roads assets, as opposed to new ones. The average annual preservation costs used in the allocation of local roads grants for 2001-02 were developed by ARRB Transport Research and were published in Table 7.1 of the Review, which was released in July 1999.
Grant calculation
The formula used to calculate each council's local roads grant derives a 'local road network cost' for each council by multiplying a council's length of road for each traffic volume category by the average asset preservation cost for that category and by an overall factor reflecting the product of the value of each cost factor for each cost modifier. Relatively high cost modifiers add to the network cost calculated for each council and consequently increase its local road grant. Bridge costs are also included in the model at a standard rate of $10 per square metre of timber deck area and $5 per square metre of concrete deck area.
Mathematically, the calculation of the network cost for a single traffic volume range can be expressed as follows:
* 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 grants are then calculated by applying the available funds in proportion to each council's calculated total network cost.
Cost modifiers
As mentioned earlier, the new model uses a series of five cost modifiers to take account of differences in conditions between councils. The data sources for these are described below.
Freight loading
The cost modifier pertaining to freight loading represents a measure of the relative intensity of freight use of local road systems in various municipalities. Its calculation includes measures of freight generation and attraction sourced from the Australian Bureau of Statistics survey of motor vehicle usage, estimations of trip length on local roads in each municipality based on earlier studies and length of local roads.
Climate
Because particular climatic conditions have an adverse effect on road durability and hence increase the annual average preservation costs, a separate cost modifier for climate was included in the model. The primary effect of climate for lightly constructed pavements is through its influence on soil-bearing capacity, an influence that has been shown by studies to be correlated with the Thornthwaite Moisture Index (TMI). This index takes account of the effects of rainfall and evaporation. Whilst the index was originally developed for agricultural purposes, the consultants who conducted the review into the local roads grants methodology thought it to be the best available source of information reflecting the broad influence of climate on local road costs.
Materials availability
Another cost modifier used in the model relates to the local availability of good quality pavement materials. The source of this information was a VicRoads Pavement Material Inventory map showing the locations of the operating hard rock quarries in Victoria as at November 1999.
Reactive subgrade
According to the final report on the review of the local roads grants methodology, the performance life of pavement is affected by seasonal swelling and shrinkage of the sub-grade, an effect which is essentially accelerated environmental deterioration. These conditions mainly affect parts of the western suburbs of Melbourne and western Victoria. Using soil classification maps provided by VicRoads showing expansive soils in Victoria, the area proportions of each municipality with expansive clay subgrades were estimated for use in the model.
Strategic routes
The strategic route cost modifier recognises that certain local roads need to be maintained at a higher standard than would normally be the case because of certain characteristics or functions they perform. For all road categories, local roads that are tram or bus routes, including school bus routes, are considered to be strategic routes. Also, unkerbed local roads that carry less than 100 vehicles a day, but carry at least 10 trucks, or carry less than 100 but more than 50 vehicles per day and are in steep terrain or irrigated areas, are considered strategic routes requiring higher levels of expenditure.
It is intended to review these cost modifiers periodically.
Transition process
As the implementation of the new methodology has resulted in significant changes in the level of local roads funding for a number of Victorian councils, the Commission recommended the adoption of a three-year transition period to phase in the new grant outcomes. The local roads grant for each council for 2001-02 was the council's grant for 2000-01 plus one-third of the difference between the council's actual allocation for 2000-01 based on the Commission's previous formula and a grant outcome based totally on the new formula. The new formula will be applied fully in 2003-04.
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Queensland
Methods
Fiscal equalisation component
The principles of fiscal equalisation attempt to provide the resources necessary
to enable councils to supply services to an average standard while facing a
diverse range of geographic, social and economic circumstances. The relative
dependency of councils on the financial assistance varies considerably and this
provides the basis for the allocation.
The Queensland Local Government Grants Commission uses a balanced budget approach.
The Commission takes into account the expenditure needs and the revenue-raising
capacity of councils. It therefore determines a notional budget for each Local
Government in Queensland. The notional budget is calculated by assessing the
expenditure need and revenue capacity based on a State average for Local Government
activities.
Once a notional budget has been determined for each council, a grant is calculated
which ensures each council has an equal ability to fund its assessed expenditure
need. This is presented in the equations below with k representing the scaling
factor, G the grant, R the revenue capacity, E the expenditure
need and I other grants treated as revenue.
G = kE - (R + I)
I + R + G = kE
where:
k = scaling factor
G = the grant
R = revenue capacity
E = expenditure need
I = other grants treated as revenue
The formula ensures that the calculated grant G plus the assessed revenue
R and other grants treated as revenue I would fund the same proportion
k of expenditure needs E across all councils.
Expenditure need is calculated as the total assessed expenditure on services,
roads and the actual expenditure on a range of functions referred to as 'effort-positive'
functions.
The revenue-raising capacity of each council is calculated as the total of
assessed rates, assessed other revenue and effort-positive revenue.
In determining the grant for each council other grant contributions from the
Commonwealth and State are taken into account as revenue.
The major inclusion for all councils is the Commonwealth's Identified Road
Grant. The Queensland Local Government Grants Commission takes 70 per cent of
this grant revenue into account. It is discounted to 70 per cent as the grant
revenue can be expended on functions excluded by the Grants Commission in calculating
the Fiscal Equalisation Grant, namely water and sewerage. It is estimated that,
on average, 30 per cent of council expenditure is on water and sewerage.
The other source of grant revenue taken into account is the State and Commonwealth
operating subsidies received by Aboriginal and Torres Strait Island councils.
Sixty-seven per cent of this grant revenue is taken into account. It is discounted
as the grant revenue is able to be expended on excluded functions, such as water
and sewerage, and other functions, such as police services, which are not supplied
by the non-Aboriginal and Island councils.
Identified road component
In 2001-02 the identified road component was distributed between local governing
bodies on the following basis:
- 62.85 per cent in proportion to road length ($341.80 per kilometre)
- 37.15 per cent in proportion to population ($8.25 per capita).
Principles
National principles
The national principles relating to allocation of general purpose grants payable
under section 9 of the Local Government (Financial Assistance) Act 1995
are at Appendix A.
Transitional modification of national principles
Modification principle
Queensland was given an extension to phase in significant grant distribution
effects resulting from implementing the national principles, in force under
section 6 of the Local Government (Financial Assistance) Act 1995.
The phase-in arrangements are to accord with the agreement the Commonwealth
and Queensland Ministers for Local Government entered into. The relevant phase-in
conditions of that agreement are detailed below.
- No allocation of general purpose grants to a local governing body by the
State of Queensland is to be made such that the increase in the payment is
in excess of 7 per cent of the allocation of general purpose grants made to
that Local Government body in financial year 2000-01 unless:
- the Local Government Grants Commission for Queensland determines that
there are special circumstances applying to that local governing body
for an increase in excess of 7 per cent, or
- to comply with national principle A3 (Minimum Grant), an increase in
excess of 7 per cent is required.
- No allocation of general purpose grants to a local governing body by the
State of Queensland is to be made such that it is less than the allocation
of general purpose grants to that local governing body by the State of Queensland
in financial year 2000-01.
- No allocation of general purpose grants and local roads grants to a local
governing body by the State of Queensland is to be made such that the total
of those grants is less than 95 per cent of the total of the general purpose
and local roads grants allocated to that Local Government body by the State
of Queensland in financial year 2000-01.
- Calculations of allocations for a particular financial year referred to
in this determination include, where appropriate, adjustments under sections
10 and 13 made in respect of allocations for the previous financial year but
actually paid in the particular year.
- The national principles, save as modified by this determination, apply to
the State of Queensland.
Formulae
Fiscal equalisation component
In the equations below the following codes are used:
TRP = Total number of rateable properties
GVRP = Gross value of rural production (averaged over five years)
PI = Personal income of all residents of a local governing body area
(1996 Census data adjusted for taxable income)
RRTS = Residual retail turnover sales (the difference between the retail
sales turnover in a local governing body area and that local governing body's
urban personal income multiplied by the average state retail sales per state
urban personal income, and adjusted for taxable income)
UCV = Unimproved capital value
POP = Population
KR = Kilometres of total local road
Revenue
Rate raising capacity
Fees
Fees and charges $ = 133.13 POP
Effort-positive charges
Expenditure
Services
Current and capital $ = 983 804 + 348.31 POP (Local Governments)
Current and capital $ = 918.06 POP (Aboriginal and Torres Strait Islander councils)
Roads
Current and capital $ = 3 166.76 KR
Effort-positive
Includes:
- aerodromes
- other transport
- agricultural and forestry
- urban storm water drainage
- parking
Current and capital $ = Effort-positive (actual expenditure)
Other expenditure not elsewhere included
Current and capital treated as an overhead and apportioned on a pro rata basis
of total assessed expenditure need of other functions.
Inclusions
The Commission treats the following items as inclusions.
- 70 per cent of the year under reviews Identified Road Component
- 67 per cent of the Aboriginal and Torres Strait Islander councils' operating
grant received from the Queensland Department of Aboriginal and Torres Strait
Islander Policy and Development.
Identified road component
In 2001-02 the identified road component was distributed between local governing
bodies on the following basis:
- 62.85 per cent in proportion to road length ($341.80 per kilometre)
- 37.15 per cent in proportion to population ($8.25 per capita).
Changes to methodology from previous year
With the current review of the Local Government (Financial Assistance) Act
1995, which could introduce basic changes to grants methodologies, the Commission
again decided that two changes in grant outcomes within a year or so were undesirable.
In making its recommendations the Commission:
- retained the current regression equations rather than changing to new ones
- continued the partly phased in road network factors for another year
- introduced a 'no fall' floor, and a 7 per cent maximum rise to the equalisation
pool (except for Boonah Shire Council which was capped at 10 per cent because
of boundary changes).
Table B.1 Fiscal equalisation formula - Queensland
Note x% - Same rate applied to each council except those councils which receive
the per capita minimum grant
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Western Australia
The Western Australian Local Government Grants Commission (WALGGC) uses the
balanced budget method, as in previous years, for allocating Commonwealth 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 revenue capacity - Assessed expenditure need = Assessed equalisation
requirement
for all 142 Local Governments in WA, calculated simultaneously.
Calculation of assessed revenue capacity, based on standardised mathematical
formulae, involved assessing the revenue-raising capacity of each Local Government
in five categories:
- Residential and commercial/industrial rates
- Agricultural rates
- Pastoral rates
- Mining rates
- Extraordinary revenue.
Assessed expenditure need, also based on standardised mathematical formulae,
involved assessing each Local Government's operating expenditures in the provision
of core services and facilities under eight 'standard' categories:
- Governance
- Law, order and public safety
- Education, health and welfare
- Community amenities
- Recreation and culture
- Building control
- Capital works
- Transport.
Assessed equalisation requirement (AER) is the result of subtracting
assessed expenditure need from assessed revenue capacity. The WALGGC used a
three-year average of AER as the basis for determining the grant allocations,
to provide a degree of stability to grant outcomes.
The derived 2001-02 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 to approximately 78 cents in the dollar 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 2001-02 determinations, 23 Local Governments received the minimum grant
entitlement (one fewer than previous year).
Refinements made to the methods, as a result of WALGGC's ongoing research programmes,
public hearings visit programmes, and consideration of Local Government submission
claims are briefly described below.
Units of measurement
The major influence in the calculation of expenditure 'standards' was population.
The WALGGC used the latest (30 June 2000) Australian Bureau of Statistics' estimated
resident population data (cat. no. 3234.5). Sixty-seven Local Governments showed
a decline in population on the previous year. Other key drivers used in the
balanced budget approach were a range of disability factors, given relative
weightings to calculate Local Governments' allowances for additional costs in
the provision of services.
Grant capping
The City of Albany's submission for the continued maintenance of its grant
level, equivalent to the combined pre-amalgamation levels of the former Town
and Shire of Albany, was considered justifiable and therefore maintained for
the fourth year. However, the City was advised that 2001-02 was the final year
of such maintenance.
Seven agricultural shires were in the area declared by the Commonwealth government
as 'exceptional circumstances' due to a succession of bad seasons. Submissions
were received from a number of affected shires seeking consideration of their
circumstances. The WALGGC included an 'exceptional circumstances' allowance
in the governance assessment. In the final grant allocation, it was apparent
that a number of the affected shires would have received grant reductions. The
WALGGC resolved to hold these shires' grants at the 2000-01 level. (The funds
required to bring these grants up to the 2000-01 level were subtracted from
Local Governments receiving increases greater than 10 per cent.)
Maximum reduction
Maximum reduction to grant allocations was limited to 15 per cent. This method
was adopted to ameliorate the impact of the more severe reductions that would
have otherwise been experienced by four Local Governments (Towns of Bassendean
and Kwinana, and Shires of Busselton and Augusta-Margaret River).
Revenue standards
The council categories for the mining rates assessment method were reviewed.
As a result, a number of high mining valuation councils were moved to Category
1 and a similar number of low mining valuation councils were moved to Category
2.
Expenditure standards
There were no significant changes in the methods of assessments and calculations.
All expenditure standards, except Law Order and Public Safety and Transport,
were assessed 'net of disabilities' preliminarily, in order that state total
assessed expenditures were broadly equivalent to actual average expenditures.
A few Local Governments' submissions have argued for consideration of other
dwelling and property statistics in the calculation of standards. For the 2001-02
determinations, additional indicators were used for the recreation and culture
and governance standards.
Disability factors
Generally, factors were reviewed and retained; some resulted in minor updates.
A significant change in method was the introduction of three new factors: recognition
of Australia's largest off-road vehicle area that saw the introduction of an
additional allowance for the Shire of Gingin; an 'extraordinary planning' factor
to recognise the responsibilities and workloads of councils affected by significant
growth; and an allowance for maintenance costs of jetties and boat ramps.
The reviews saw the 'tourism' factor discontinued (following a poor rate of
response from Local Governments to the WALGGC's discussion paper on this issue),
and a rationalisation of environmental issues on salinity/landcare and coastal
management to a single environment allowance (incorporating information from
the Department of Conservation and Land Management). A separate Environment
Assessment factor was retained and updated.
Table B.2 Revenue and Expenditure Standards - WA
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