20 Local government

As a place-based layer of government, local governments around the world are diverse.^[1] They operate within and respond to unique regulatory contexts and circumstances, and mould the socio-economic development of the places they govern. Within Australia, the legislative foundations of local governments and their characteristics, governance, funding and reform agendas differ across jurisdictions. While this diversity makes it difficult to develop a shared understanding, a range of common challenges shape local governance.

This chapter reviews some of the contemporary challenges facing Australian local governments. It begins with a discussion of the legislative foundations and selected characteristics of local governments across Australia, their governance and funding, and recent reform agendas. Next, public service delivery is considered, and the emergence of place shaping as a concept guiding local governments in the delivery of public services is examined. The chapter then discusses a range of challenges for local governments in meeting rising community expectations of public services and an expanded service-delivery task. Frameworks and methods for measuring local government service-delivery performance are then presented. Finally, the chapter concludes with a brief discussion applying the concept of public value to the evolving service-delivery task of Australian local governments.

Local government and Australia’s system of government

Australia is a federation with three levels of government: Commonwealth (national), state and territory (regional) and local governments. Australia’s system of local government is mostly established through the separate constitutions of each state and territory. There are, in effect, seven different systems across the country. Indeed, local governments are often referred to as ‘creatures of state governments’.^[2]

Unlike other countries, local governments are not recognised in Australia’s national Constitution. A 1988 referendum to change this was defeated, and campaigns for another referendum have not been successful.^[3] However, local governments are still represented at Australia’s chief intergovernmental forum, the Council of Australian Governments.^[4]

Their legislative foundations mean local governments occupy a somewhat tenuous position in the federation. Many of their powers and responsibilities are subordinate to state and national governments, and there is often significant overlap between their responsibilities and those of state governments. These foundations also place a range of constraints on local government service delivery. For instance, the validity of higher levels of government funding local government service-delivery activities has been challenged in the High Court.

Number, size and type of local governments

Australia’s earliest local governments were established in Perth in 1838, Adelaide in 1840 and Sydney in 1842. These were incorporated to provide town improvement services, such as street lighting, for early colonial capitals. Other local governments started as collectives of ratepayers formed to provide services to their properties.^[5] Over the next 70 years, the number of local governments grew to over 1,000. Today, there is just over half that number, although this often changes as local governments are impacted by ongoing structural reform.^[6]

Like Australia’s states and territories, the 537 local governments across the country vary substantially in population size, land area and economic dominance. The largest by population is Brisbane, with over 1.2 million residents, while the smallest, in rural Western Australia (WA), has just a few thousand residents. The largest by land area is East Pilbara in WA, which covers 380,000 square-kilometres, while the smallest is Peppermint Grove, which covers just 1.5 square-kilometres at the centre of Perth.^[7] Australia’s local governments employ almost 200,000 people; around 100 of these councils are the largest or second largest employer in their local area.^[8]

Local governments across Australia are typically referred to as ‘councils’, ‘cities’ or ‘municipalities’ in urban areas, and ‘shires’ or ‘towns’ in rural and remote areas. ‘County councils’ are incorporations of two or more local governments established to deliver services, such as water, across rural areas.^[9] The entire Australian land mass is not covered by local government areas. Some remote ‘unincorporated’ areas are administered by state and territory governments. The Australian Capital Territory – the seat of Australia’s national government – does not have a formal system of local government, and local services are delivered by the territory government.

Most capital city councils have their own legislation that provides expanded powers for these local governments.^[10] For example, the City of Brisbane Act 2010 (Qld) allows the lord mayor to prepare a budget for approval by the elected council and allows councillors to be assigned a portfolio such as transport or community services. In contrast, in non-capital city councils, the general manager or chief executive officer prepares the budget for approval by council. The City of Sydney Act 1988 (NSW) establishes voting rights for central business district businesses, whereas businesses in non-capital councils do not have voting rights.^[11]

Functions and governance

The functions of Australia’s local governments have expanded in the postwar era to include a more diverse and complex range of economic, social and environmental services, such as child care and youth services, libraries and aquatic centres, economic development, environmental management and community health.^[12] Local councils are governed by elected councillors, who form the official governing body, and an operational executive, led by a general manager or CEO, responsible for day-to-day functions such as corporate governance and finance, community services, assets and engineering, and planning and environment. Councils have a high degree of flexibility in the organisational structures they choose to adopt. Whilst these executive portfolio areas are fairly common, they can differ between councils.

The responsibilities of councillors and mayors differ across the states and territories, depending on the legislation establishing the local government system in each jurisdiction. Generally, councillors act as formal decision makers and approve strategic plans, policies and budgets prepared by the executive. They are also responsible for appointing and overseeing the performance of the general manager/CEO in accordance with an employment contract.^[13] The mayor is typically a ceremonial figure, although there are differences here too. For example, mayors in Queensland are mostly directly elected and have wide powers to prepare major policies and budgets. In contrast, many metropolitan mayors in New South Wales (NSW) are indirectly elected and share responsibility for major policies and budgets with councillors and general managers.^[14]

Funding

Australia has a high level of vertical fiscal imbalance compared to other countries.^[15] This means the level of government that collects revenue to fund services is often not the level responsible for delivering them.^[16] In Australia, the national government collects the most revenue from taxation (over 70 per cent) but is responsible for less than half (about 40 per cent) of all public sector expenditure on service delivery.ABS 2018.

To remedy this situation, Australia uses a complex system of intergovernmental transfers to reallocate national revenues to and between state, territory and local governments.^[17] A formula of horizontal fiscal equalisation is then used to ensure that, at least theoretically, all governments have the financial means to provide similar levels of service to their communities.^[18]

Local government is the most evenly matched level of government in Australia in terms of the tax revenue it collects and the amount it spends on services. However, local governments are increasingly handed ‘unfunded mandates’ as higher levels of government transfer responsibility for service delivery to them without transferring revenue or providing new revenue powers to fund these services.^[19] Nationally, local governments collect about 3 per cent of all tax revenues and are responsible for about 6 per cent of total public sector expenditure on service delivery.^[20] Of the $17 billion in revenue they collect annually, property rates account for about 40 per cent.^[21] Australia’s local governments hold around $400 billion in assets and infrastructure.^[22] Housing and community amenities (24 per cent), transport and communication (22.5 per cent) and general public services (17.2 per cent) are the main expenditure items, although the amount local councils spend on each function varies depending on the different responsibilities of councils in each state and territory.

Because property rates are their main revenue source and state governments use different methods to calculate the land values on which property rates are based, local government revenues vary substantially across Australia. For example, South Australian local governments collect 60 per cent of their revenue from rates, compared with around 15 per cent for the Northern Territory.^[23] Other major revenue sources include fees and charges (such as parking fines and fees for lodging development applications), rental income from properties and grants from other levels of government.

Capital city councils that include central business districts also often have higher land values, which means they collect more from rates than other councils and can deliver more advanced services.^[24] For example, Brisbane City Council operates one of Australia’s largest bus fleets, whereas state governments operate buses in other jurisdictions.^[25] While own-source revenue (such as rates) comprises up to 85 per cent of a local government’s revenue,^[26] this is less in rural areas where rateable land values are often lower.

Local governments also receive annual and one-off grants from higher levels of government. These grants typically make up a larger share of revenue for rural local governments.^[27] A range of criteria are used to determine the grant amounts, and the formula is often the subject of conflict. Annual grants are classed as general purpose and can be used for whatever activities a council desires, while one-off grants are typically for specific purposes and can only be spent on activities defined by national or state and territory governments.

In recent decades, the amount of revenue Australia’s local governments can raise from property rates has been capped by some state governments. This increasingly common practice has been a subject of conflict between local and state governments, and some local governments have been granted special exemptions.^[28]

Reform

Reforms to Australia’s local government systems in recent decades have focused largely on structural and governance issues, such as altering administrative boundaries, amending codes of conduct and land use planning decision making.^[29] For example, in the 1990s, the Victorian government dismissed all local governments in order to redraw boundaries and drastically reduce the number of local councils. Voter discontent with the swiftness of these reforms became a major state election issue, and the government was promptly voted out of office.^[30] Similarly, in 2008, the Queensland government halved the number of local governments; several of the amalgamated councils have since demerged. In 2015, the NSW government sought to reduce the number of local governments, but the reform process was incomplete, halted due to voter discontent, a change of state political leadership and court challenges by local governments facing mergers.

The driving force behind these moves to structural reform has been largely ideological, the notion being that smaller local governments are inefficient. There is no Australian evidence to support this claim.^[31] The most recent reforms in NSW and the pressure for reform in Tasmania have primarily been driven by the property sector, which has argued that different planning rules in different local government areas create additional red tape and inefficiency in the development processes.^[32] Larger local governments can promote strengthened strategic leadership capacity,^[33] but this is difficult to measure or realise at times.

With the exception of introducing rate capping in some jurisdictions, state governments have generally shied away from reforms that deliver a fairer share of revenue to local governments. A national review of the federation that considered the distribution of revenue and expenses between levels of government also failed to include any proposals that would rebalance tax revenues to match the increased service-delivery responsibilities of local governments.^[34] The continual focus of state governments on structural reform while ignoring the financial basis of local government is a source of ongoing conflict in the Australian federation.^[35]

Service delivery

One of the major advantages of local government is that ‘it allows public services to be adjusted to suit local needs and preferences’.^[36] Ideally, local governments are established so that ratepayers who pay for local services can decide on what services they receive.

Local government and service delivery

Australia’s local governments have evolved beyond a narrow emphasis on ‘services to property’ to promote the social, economic, environmental and cultural wellbeing of the communities they govern. This has been a response to citizens’ rising expectations of public services and the devolution of service-delivery tasks from higher levels of government to local governments.^[37] At the same time, local government services have become subject to increased regulatory requirements from other levels of government, particularly in core areas such as asset management, land use planning and community planning. The costs of providing and maintaining services have also increased faster than revenue.

The net effect has been that local governments now provide a wider range and higher standard of services, such as sporting, cultural and community care facilities, under increasing regulatory and financial constraints. These issues have all contributed to the vastly increased complexity of local service delivery.^[38] Recently, attempts have been made to make sense of this expanded and more complex service-delivery task for contemporary local governments (see Table 1)

The justification for local government has been questioned on the basis that, in a globalising world, it is not possible to constitute a spatial community. Indeed, commentators have pointed to vast differences between the colonial life that existed when local government systems were established, and have argued that ‘advances in modern communications made community governments based on the village or suburb an outmoded entity’.^[41] Further, because many public services are now delivered and funded directly or indirectly by other tiers of government as well as private and non-government sectors, local government is often not the only service-delivery agent in a particular area.

Other factors to consider when examining the evolving nature of local government service delivery include:

• ‘Core’ local government functions: although these differ across jurisdictions, there is an expectation local governments should provide core services to a minimum standard before other tasks are considered. Examples of core services include building approval and certification, waste collection and management, and cultural and recreation services, such as libraries.
• Services delivered in competition with other providers: for a range of reasons, local governments choose to deliver services in competition with other providers. Examples include child care, golf courses, caravan parks and commercial car parks. These can also provide new revenue sources or generate additional revenue.
• ‘Market gap’ services: particularly in rural areas, local governments often face pressure to provide services that are economically unviable for the private sector due to small population numbers, and there are no alternative providers. Examples include medical clinics, aged care services and programs, airports, saleyards, abattoirs and cemeteries.^[42]

Local government and place shaping

Place shaping is a concept that illustrates the evolving role of local governments in the context of citizens’ increased expectations of public services and an expanded service-delivery task. Place shaping helps identify the special characteristics of local places, such as neighbourhoods, so that action can be taken on economic, social and environmental fronts to enhance the quality of these places and the life of their people.^[43] It involves the creative use of power to promote the wellbeing of a community, and may include building and shaping local identity, regulating harmful and disruptive behaviours, and helping to resolve disagreements.^[44]

The introduction of place-based community planning across Australia, such as the Integrated Planning and Reporting framework in NSW, can be viewed as an effort to help local governments reconcile competing service-delivery demands.^[45] Through place-based processes, local governments take a ‘whole of council – whole of community’ view and perform a stronger role by engaging communities more deliberatively in decisions about services, models of delivery and the inevitable trade-offs required between community expectations and regulatory and funding constraints. These processes not only shape what gets delivered but also educate communities about the increasingly complex service-delivery task facing local governments. Place-based processes appear to be changing community perceptions of local government. For example, respondents to one survey identified place-based planning for the future as one of the most important functions of local governments in Australia.^[46] This represents a clear departure from historical perceptions of local governments as providers of services to property.

Major challenges

In addition to the problems of a growing service-delivery task and stagnant revenue bases, major challenges facing contemporary Australian local governments include rising maintenance costs for ageing assets; shifting community needs and expectations about the role of local government in responding to economic, social and environmental problems; reluctance to change existing service-delivery models; and increasingly fragmented, multi-sector, multi-level service-delivery governance frameworks.^[47]

Local government assets

Most local government assets are long lived and not traded in markets. Even though these assets are crucial to the economic and social vitality and everyday functioning of communities, there is a ‘massive backlog of new projects and maintenance and upgrade projects’.^[48] A 2006 national study estimated the Australia-wide cost of restoring local government infrastructure was between $12 billion and $15.3 billion.^[49] Comrie suggests that since asset lifespans are difficult to predict, there may be ‘some uncertainty as to the reliability of local government expenses’.^[50] Indeed, there is evidence that the total operating expenses of Australia’s local governments exceed their revenue and that the sector is in a net negative financial position.^[51] This has led to observation by some that local government faces worsening financial sustainability and the emergence of a massive infrastructure backlog.^[52]

Other factors that have raised interest in the financial capacity of local governments to manage assets over recent decades include:

• an increased range of responsibilities and expenditure without growing revenues as property rates are volatile and fluctuate with land valuations
• additional service needs in urban and coastal areas that are experiencing rapid population growth, and financial challenges for rural local governments that are experiencing population and revenue decline
• concern that local government assets are ageing and renewal expenditure is not occurring at the rate necessary to maintain existing service levels, let alone meet citizens’ rising expectations.^[53]

Changing expectations: adapting to a changing climate

Addressing the impacts of a changing climate requires action by all three levels of government as well as partnerships with organisations and institutions outside of government. In light of the recognised exposure of public assets and the community to climate change risk, local governments face a rapidly expanding service-delivery task, including:

• developing climate adaptation policy and planning for local government areas and, where possible, for regions
• sustainable design and land use planning, including new standards for construction and effective regulation
• contributing to the development of more resilient communities that can work together to reduce their vulnerability to climate change and recover more quickly from adverse events
• developing new models for water reuse and recycling and municipal solid waste management
• protecting natural resources and increasing the resilience of local ecosystems
• incorporating public participation at all levels of climate change adaptation.^[54]

However, a key challenge for Australian local governments is that they lack the legal power and financial resources to fulfil this mandate effectively. With a strong reliance on rates and user fees and charges, they do not have access to the new revenue streams needed to carry out many of these tasks.^[55] Another core local government service, land use planning, is also affected; it is difficult to predict how climate change impacts will manifest on a local scale, and there is ‘a lack of scientific information at a scale relevant to inform local planning’.^[56] Therefore, effectively adapting to and mitigating climate change may appear beyond the existing capacities of local government, particularly in rural and remote Australia.^[57]

However, a number of useful models are emerging to assist local governments to address service-delivery challenges arising from climate change. Recently, international networks, such as the C40 and Resilient Cities networks, have formed to build local capacity and drive action by facilitating knowledge exchange. Moloney and Fünfgeld also describe the Climate Change Alliances that have emerged in Victoria as good examples of local governments demonstrating their capacity to respond to climate change in the absence of clear direction and support from state and national governments.^[58] Serrao-Neumann et al. also discuss three Australian local government-led public participation initiatives and note that it is important that local governments work to ensure responsibility for climate change adaptation is shared between the public and private sectors, and communities.^[59]

Reluctance to change service-delivery models

Local governments design services to meet local needs. However, sometimes there can be a reluctance to change service-delivery models. The dominance of different functions performed by local governments across Australia’s states and territories also influences their capacity to alter service delivery models. For instance, social services are often amenable to delivery by non-government providers, while major infrastructure is increasingly provided through public–private partnership (PPP) models. The way services have been delivered in the past is a strong predictor of how they will be delivered in the future. There is often considerable reluctance to change how things are done due to ‘the uncertainty and management structure costs incurred with a switch of models’.^[60]

Lamothe, Lamothe and Feiock suggest that ‘in complex and uncertain situations organizational inertia and incrementalism may limit local public officials’ ability to depart radically from past arrangements’.^[61] This could lead risk-averse managers to prefer the maintenance of existing service-delivery models over potentially superior, but uncertain, alternatives.

Other factors that may contribute to resistance to change in service delivery include:

• concern about the costs associated with change, e.g. the fear that costs of finding new vendors could outweigh costs involved in managing existing contracts
• governance structures and skills, e.g. the structures and skills needed to manage in-house service production can be quite different from those needed to contract outside vendors
• specific jurisdictional characteristics, such as management capacity (e.g. for evaluation), management structures (especially the relationship between politicians and administrators) and the competitiveness of the market.^[62]

Therefore, when analysing local government service-delivery models, it is wise to consider the history of services in a locality and the path dependency of service-delivery models, alongside the attitudes of public officials.

Fragmented governance: working in partnership

Partnerships between government and the non-government sector are not new; they stretch back to the local governments of the colonial era.^[63] However, the notion of working in partnership has received growing criticism over the last couple of decades following widespread outsourcing of service delivery to private and non-government organisations. While persuasive arguments can be identified both ‘for and against the private provision of public infrastructure in contemporary local government’,^[64] concerns have been raised about whether the emphasis on partnership privileges partners over the wider community.^[65]

Local governments have pursued three common responses to privatisation:

• Hollowing out: declines in revenues and reductions in intergovernmental transfers have forced local governments to ‘hollow out’ their services by reducing service levels, outsourcing core service obligations through PPPs and increasing user fees.
• Riding the wave: some local governments use privatisation as a two-edged sword, harnessing the market towards public ends. As services are contracted out, local governments create markets for public services by allowing competitive bidding to drive down service costs while maintaining quality for ratepayers.
• Pushing back: often encouraged by citizen action, some local governments have pushed back against pressures to cut or privatise services. This has led to initiatives such as establishing multi-sector coalitions of citizens, non-profit organisations and government to drive service delivery, particularly in the areas of housing and economic development.^[66]

Flinders has analysed local government PPPs in the UK, and suggests they ‘raise a host of political issues and tensions that have largely been overlooked’. These include:

• Balancing efficiency and flexibility: PPP projects adopt a ‘buy now, pay later’ approach, creating issues for the policy flexibility of future local governments, which are constrained by the need to service payments for contracts entered into by previous governments.
• Failure to address core risks: PPPs do not solve the problems of capital-intensive service delivery as they focus more on costs and do little to address underlying revenue issues. Therefore, the risk of revenues not matching expenses stays with government.
• Complex, delegated governance: when service delivery is contracted out, it can confuse the public as to who is responsible. There can also be confusion within government when authority for decision making and managing expenditure is devolved to non-elected PPPs.^[67]

Improving outcomes for local communities

A core tenet of place shaping is a strong focus on improving economic, environmental and social wellbeing. New ways of managing the performance of local governments in delivering these outcomes have also been introduced as part of place-based planning processes.^[68] The core logic of performance management is that organisations and managers are given targets derived from objectives, such as promoting community wellbeing, and ‘instruments of authority or incentive’ are used to encourage staff to achieve or exceed these targets.^[69]

However, while performance management systems need to connect to penalties and incentives to ensure targets affect behaviour, they must also be designed in a way that does not crowd out public interest motivations by promoting ‘gaming and cheating behaviours’.^[70] This requires constant care and attention, including establishing clear links between measures, penalties and incentives as well as regular adjustments to ensure targets reflect community wellbeing.^[71]

Aligning local government performance and community expectations

Citizen expectations of performance influence their satisfaction with and choice of services as well as their political voice, including who they will vote for. Expectations can be defined as ‘judgements of what individuals or groups think will or should happen under particular circumstances’.^[72] These include expectations that decision-making processes will attempt to maximise expected utility, and citizen views of reasonable or desirable levels of service performance. Community expectations and judgements of local government service delivery are influenced by factors such as:

• whether there are other agencies available to provide a service, or whether council is the only option
• the demographics of the community
• the geography of the area
• the community’s willingness to pay higher rates to get more services from the local council
• the presence of a strong local business lobby
• proximity to major towns (in the case of smaller settlements) where services can more easily be accessed.^[73]

According to James, the provision of performance information by local governments affects citizen expectations of and satisfaction with local government performance: ‘Information is valuable because it helps them exercise choice as users of services through knowledge of what they expect to receive’.^[74] Community satisfaction surveys are one way Australian local governments determine citizens’ expectations and assess performance. Typically, these surveys ask ratepayers to indicate how important each service is to them, their satisfaction with what has been delivered and what they feel needs improving.^[75]

Community satisfaction surveys have become powerful tools to examine and communicate citizens’ expectations in terms of service delivery and the community’s judgement about performance. They help local governments to identify gaps between expectations and performance and highlight areas where performance improvement is needed. Increasingly, the findings of these surveys form the basis of local government annual reports and are being fed into major whole-of-organisation service delivery review processes.^[76]

Conclusions: a public value approach to local government

Australia’s local governments are increasingly important to the proper function of economies, communities and environments across the country. This is is reflected in the growing diversity of their legal foundations, characteristics, governing arrangements and funding. While recent reform agendas have focused more on structural and monetary outcomes, the introduction of community strategic planning, with place shaping and performance management as guiding principles, is an exciting development that reflects the evolved role of local governments in contemporary Australia society.

As local governments assume a greater role in society, beyond services to property, they must strive to meet rising community expectations in increasingly constrained and layered service-delivery contexts. This requires new frameworks to guide their activities. Discussion of ‘public value’ has been widespread in public policy since Mark Moore developed the conceptual framework for it in 1995.^[77] There is strong support for public value as a guiding principle for contemporary local governments because it is seen as enhancing service-delivery outcomes.^[78] For instance, Stoker suggests a public value style is well suited to fragmented governance systems in the sense that ‘it bases its practice in the systems of dialogue and exchange that characterize networked governance’.^[79] The public value framework requires public sector managers to:

• aim to create something that is substantively valuable – that is, to constitute public value
• be legitimate and politically sustainable, in the sense that they attract enough ongoing support and resources from the authorising environment
• be operationally and administratively feasible, drawing on available organisational and external capabilities.^[80]

In contrast to the private sector, which can focus solely on monetary outcomes and creating value for private shareholders, public value emphasises a much broader range of activities valued by the public. The concept requires public managers to search for and identify economic, social and environmental goals valued by citizens, such as climate change adaptation. This necessitates constant engagement with communities and stakeholders, as well as greater recognition of the legitimacy of a wider range of stakeholders in realising these goals. For instance, procurement processes that adopt a public value orientation require an open-minded approach to identifying the best supplier for a service, regardless of whether they are public, private and/or non-government providers. This means that local governments must remain constantly attuned to public preferences and integrate these into their service-delivery activities.^[81]

Public value requires commitment to new goals and ways of working that are more demanding than those that existed when local governments were established in the colonial era. As the role of Australian local governments has expanded to include services to people, they have begun moving down the public value pathway, using place-based planning and working with communities and stakeholders to identify broader goals and ways of achieving them. However, a more ambitious reform agenda is required to build the regulatory, financial, human and technical capabilities that contemporary local governments need to deliver on this commitment. This is the major challenge facing modern Australian local government.

References

About the authors

Professor Roberta Ryan is the director of the Institute of Public Policy and Governance and the Centre for Local Government at the University of Technology Sydney. An applied policy expert, Roberta works closely with local governments around Australia and internationally. She publishes in the fields of community engagement and local democracy, local governance, city planning and public sector evaluation. She is an advocate for the role of local government as the key enabler of places that reflect the aspirations of local communities.

Alex Lawrie is a senior researcher at the Centre for Local Government and Institute for Public Policy and Governance at the University of Technology Sydney. Alex specialises in urban policy and has worked with many local governments on economic, environmental and social policy and service-delivery issues. He holds a Bachelor of City Planning (First Class Honours) and Master of Urban Policy and Strategy (Excellence) and is completing an International Doctor of Philosophy (Built Environment) between the University of Technology Sydney and Technical University Berlin investigating national urban policy since the Global Financial Crisis.