NSW local government professionals have called for the rate pegging system to be reviewed, saying it isn’t working despite reforms and is restricting the ability of councils to meet the growing demands and expectations of their communities.

Instead, LG Professionals Australia (NSW) wants to see better use of the existing NSW Local Government Integrated Planning and Reporting (IPR) Framework.

LGPro NSW lays out its case in a submission to a NSW standing committee which is currently inquiring into the ability of local government to fund infrastructure and services.

The submission says the financial sustainability of NSW councils is a significant issue, made worse by rising costs, state and federal government cost shifting, a decline in FAGs in real terms and increased mandated expenses.

It says the rate peg model, which sets maximum amounts councils can leverage via rates and was recently reviewed to make it more equitable by IPART, is leading to challenges in delivering essential services, maintaining infrastructure, and implementing community programs.

The submission says rate pegging also constrains resources available for recruitment and has the potential to limit opportunities for career advancement via  staff reductions or freezes, while the process of applying to IPART for a special variation is ‘costly and controversial’.

The current approach is not working, and an alternative approach is required that recognises the unique challenges of local governments.

Local Government Professionals NSW

“The peg methodology is inflexible for both councils and the community,” it says.

“It has a narrow scope, worsens financial sustainability issues, and does not allow for rate changes to match cost changes for individual councils,” the submission says.

The methodology also overlooks the effects of extreme weather events, and other sustainability issues.

“LG Professionals, NSW considers the rate peg to be restrictive for councils to achieve their community’s goals and can worsen the financial viability of councils as it directly prevents the council’s ability to change their rates based on costs,” CEO Vicki Mayo told Government News.

“The current rate peg methodology does not reflect the revenue required by each council to financially sustain the delivery of services to the community and we would support for further review of the methodology.”

Alternative approach needed

LGPro says that a better approach would be to utilise the existing IP&R, which provides  a framework for strategic planning, financial management, and accountability.

“IPR is an effective tool for communicating to the community about any effects on financial sustainability, including the present costs of providing vital services and their funding sources,” Ms Mayo said.

It is firm view of LG Professionals, NSW that the existing NSW Local Government Integrated Planning and Reporting Framework is the key to financial sustainability in NSW Councils.

Local Government Professionals Australia, NSW.

Councils strive to keep rates as affordable as possible, while also providing the services and infrastructure that our communities need and want, LGPro says.

“We cannot achieve this with a mandated rate peg system that seems to be unable to support the delivery of regional services and infrastructure in a changing and fast-paced economic environment.”

Councils facing operating deficits

Total operating income for all councils in 2021-22 was $13.7 billion or $17.4 billion including capital grants and contributions, according to a submission from the NSW Office of Local Government.

Fifty-five councils reported a net operating deficit before capital in 2021-22, with 73 councils reporting a net operating surplus. Operating deficit amounts for individual councils ranged from $274,000 to $27.2 million.

On average, 34 per cent of costs went on staff and 36 per cent on materials and contracts.

The committee will hold its first public hearing on May 17.

A federal lower house inquiry into the sustainability of the local government sector was also set to hear evidence from the Department of Infrastructure, Transport, Regional Development, Communications and the Arts on May 16.