Methodology Review

The South Australian Local Government Grants Commission (the Commission) regularly reviews the methodology it uses to determine its recommendations for the distribution of Commonwealth Financial Assistance Grants (FA Grants) to local governing authorities in South Australia.

Reviewing the methodology ensures that, in making its recommendations to the State and Commonwealth Ministers for distribution of FA Grants, the Commission considers factors which affect councils’ capacity to provide an average level of service, as they develop.

The Commission conducts major methodology reviews from time to time and regularly reviews specific areas of its methodology based on an annual work plan. Areas of the methodology for review may be based on issues raised by Councils during visits or from submissions, or by the Commission itself during its deliberations and reviews are prioritised and scheduled for review by the Commission based on its available resources and other priorities.

Reviews can be undertaken internally or by the appointment of consultants or subject matter experts. The Commission is also committed to engaging with the local government sector during its reviews and will attempt, where possible, to seek the views of local government representatives and subject matter experts to assist with its review process.

The Historical development of the Commission’s methodology and major changes in methodology can be viewed by reviewing previous SA Local Government Grants Commission Annual Reports up to the 2022-23 Annual Report by viewing the Commission’s web page https://www.dit.sa.gov.au/local-government/grants-commission/publications#annual or by contacting the Commission at grants.commission@sa.gov.au

Major Methodology Reviews

The Commission has undertaken major reviews of its methodology in 1997-98, 2005-06 and 2011-12.

1996-97 Major Review

During 1996-97, the Commission completed the first stage of a major review of its general-purpose grant methodology. The methodology was introduced in line with the grant allocations for 1997-98. Changes were phased in over a seven-year period, concluding in 2004-05.

This comprehensive review of the general-purpose grant methodology highlighted the need to focus further work on a range of factors associated with roads, in particular the differences between councils in the cost of reconstruction and maintenance of roads and accurately reflecting councils’ road lengths.

During 1999-00, the Commission sought the assistance of consultants in undertaking an audit of councils’ road length data. This enabled the Commission to map all councils’ road network data into a Geographical Information System (GIS) format. This consistently mapped framework provided a firm foundation for future work.

The consultants worked closely with the data councils supplied to the Commission as part of their General Information Return i.e., road maps and summary data on road lengths by type. The consultants liaised with councils to ensure that the information the consultants were mapping was accurate.

While the Commission used the outcome of the road length audit in the allocation of the 2000-01 general purpose grants, the Commission believed that the data would need further refinements and an ongoing commitment to its maintenance.

Early in 2001, the Commission engaged the services of an Engineer on a part time basis to refine the road length data (following updates supplied to the Commission by councils) and address other ongoing engineering related concerns and to authenticate the data used in the calculation process.

The Commission’s GIS has been updated by councils annually since it was developed. The Commission contracts out the maintenance of its GIS and current road length data is provided in the Commission’s Annual Reports (see https://www.dit.sa.gov.au/local-government/grants-commission/publications#annual).

2005-06 Major Review

2005-06 saw the Commission embark on a project to review the expenditure assessments used in the current methodology. Tony Ward of Millburn Consulting Pty Ltd worked with the Commission to review two related aspects of the expenditure assessment.

Part one of the project involved the examination and documentation of the method of depreciation used by local government in South Australia and the benefit, or otherwise, of its inclusion into the Commission’s calculations.

Part two of the project required an examination of the range of expenditure functions included in the Commission’s assessments at the time and the potential to either include additional expenditure functions or expand the existing functions to include an additional range of expenditure data.

A Reference Group comprising representatives from rural and metropolitan councils, the Local Government Association and Department of Treasury and Finance was formed to assist with the process. Two workshops were conducted which involved council consultation and participation.

Work undertaken in 2006-07 saw the Commission incorporate the results from the methodology review. The inclusion of depreciation in place of capital expenditure and an expansion of the range of expenditure functions were incorporated in the assessment for the 2007-08 grant calculations.

In 2007-08, staff continued to research and develop drivers for those expenditure functions where suitable drivers were not found. As a result, the expanded expenditure functions were included in the 2008-09 grant calculations.

The Commission also undertook a review of the cost relativity indices (previously known as disability factors) for the stormwater maintenance expenditure function. The object of the review was to enhance and update the cost relativity indices (CRI’s) and review the cost driver to provide a more objective and accurate assessment of the relative advantage/disadvantage experienced by each local governing authority in the State in relation to maintaining stormwater. Rod Ellis and Drew Jacobi of Tonkin Consulting worked with the Commission to review the CRI’s.

As part of the review, a reference group with representatives from councils and the Department of Transport, Energy and Infrastructure was established to assist with the development of the updated CRI’s.

2011-12 Major Review

During 2011-12, the Commission consulted with the Commonwealth Grants Commission to identify areas of the methodology that it might focus on for its full review. Terms of Reference were developed, and the Commission received the approval of the Minister for State/Local Government Relations to go to open tender to engage a suitable consultant to conduct the review.

During 2012-13, KPMG were appointed to conduct the methodology review. In accordance with Terms of Reference established by the Commission, KPMG reviewed all elements of methodology used by the Commission to calculate the general-purpose grants as well as grants provided to the 5 Aboriginal Communities and the Outback Communities Authority.

KPMG consulted widely during this process, engaging with stakeholders that included local governing authorities, the Local Government Association of South Australia and State and Australian Government agencies. KPMG presented its final reports and provided over 20 recommendations to the Commission for its consideration in June 2013.

During 2014-15, the Commission reviewed the recommendations made by KPMG and Commission staff tested recommendations made for changes to elements of the existing methodology. For 2015-16, the Commission committed to a number of the recommendations, including maintaining the existing assessment process; increasing the amount of council expenditure included in the assessment process; and re-introducing the libraries expenditure function and library subsidies in the assessment process.

The review was completed in June 2014 and final reports were presented to the Commission in July 2013 (see links below) for the Commission’s consideration. KPMG’s recommendations included a simplification of the methodology, aggregating several existing expenditure assessments and looking at alternative approaches to the incorporation of the ABS Socio Economic Index for Areas (SEIFA) in the revenue assessments.

During 2014-15, After the recommendations and tested, the Commission implemented some changes to its methodology including maintaining the existing assessment process; increasing the amount of council expenditure included in the assessment process; and re-introducing the libraries expenditure function and library subsidies in the assessment process.

During 2015-16, the Commission undertook further work on recommendations made by KPMG, reviewing its “Other Needs Assessment” (otherwise known as Function 50). The KPMG Review recommended that the Function 50 assessment be phased out and that elements of this assessment be incorporated into other parts of the assessment process. The Commission’s Function 50 expenditure assessment is designed to assess need for expenditure on a range of council services which are difficult to measure (i.e., data is not readily available) and include services such as non-resident use of council facilities, isolation, unemployment, coastal protection, environmental services, and cultural and tourism services.

Changes included removing the allowance provided to the City of Adelaide recognising its Capital City status, removing the Duplicated Facilities allowance, developing a new expenditure assessment for the Environment and Coastal Protection allowances based on population, expanding the Sport and Recreation expenditure assessment to include net expenditure from the cultural and tourism allowance in Function 50 and expanding the Isolation Allowance by a multiple of four.

Ongoing Refinement of the Methodology

1999 – Cost Relativity Indices (CRI’s) for Roads Expenditure Assessments

Work commenced in 1999 into the factors influencing councils’ road reconstruction and maintenance costs and this was continued in 2003-04. The Cost Relativity Indices (CRI’s) established in 1999, considered four of the five factors the Commission believed were influencing councils’ road reconstruction and maintenance costs.

These five factors were soil, rainfall, drainage, materials haulage, and traffic volume. As a result of the 1999 review, the methodology used for calculating councils’ CRI’s was refined, however there has been insufficient data to reliably incorporate the influence of traffic volumes in the CRI’s. The Commission continues to believe that traffic volume (particularly heavy vehicle traffic) has a significant impact on the deterioration of the local road network and will continue to explore the use of traffic volume data in the future.

2002-03 – Socio Economic Index for Areas (SEIFA)

A project was commenced in October 2002 to review the indicator used in the methodology to reflect councils’ capacity to raise revenue from its community. At the time, the Commission used property values as the sole indicator. The objective of this project was to develop an alternative indicator or an index, which could be used in conjunction with property values, and which would provide, as far as possible, an objective reflection of the capacity of individual councils to raise revenue from their communities.

Following further research, the circulation of a summary of findings paper and a consultation workshop, the review concluded in early 2004, with the Socio-Economic Index for Areas (SEIFA) used in the calculations from the 2004-05 grant recommendations.

2009-10 – Impacts of Drought on Property Valuations and Growth in Local Government

During 2009-10, the Commission examined the effects of drought and economic conditions on property valuations and responded to calls from a number of councils experiencing growth by commencing an investigation into the effects of growth in local government.

An analysis of the effects of decreasing property valuations, revealed that no significant impact had been felt by councils in the region and that the Commission’s current methodology adequately accounted for changes in councils’ capacity to raise revenue if property valuations decreased.

In terms of growth within Local Government, the Commission consulted with a number of councils to gain an understanding of the impacts of growth, undertook an analysis of the use of growth within the methodologies of Grants Commissions in other jurisdictions and identified a number of options for modifying the Commission’s current methodology to take into account the effects of growth.

In 2010-11, the Commission continued its work on the issue of growth within Local Government, engaging the services of Emeritus Professor Cliff Walsh to continue the work of the previous year and make a final recommendation to the Commission.

Professor Walsh undertook an in-depth investigation into the effects of growth, including the analysis of council financial data provided by the Commission, the Commission’s existing methodology and population forecasts provided by the (then) Department of Planning and Local Government.

A workshop was held with Councils to identify those areas of Council operations most effected by growth and further liaison took place with the South Australian Department of Treasury and Finance, the Department of Planning and Local Government and the Commonwealth Grants Commission.

Professor Walsh’s report can be found here Property Valuations and Growth in Local Government (PDF, 438 KB)

2010-11 – Airports and Airstrips, Library Services, Sport & Recreation Expenditure Function and Traffic Volumes

In 2010-11, the Commission undertook an analysis of the costs of airports and airstrips to Local Government, a review of the Library Services and Sport and Recreation Expenditure Functions and undertook further analysis on the issue of traffic volumes.

Data provided by councils on expenditure for airports and airstrips (at the time) indicated that the sector made an overall profit from this activity, i.e., the standard cost across the State was negative. The Commission resolved to monitor this cost pressure into the future.

In terms of traffic volumes, the Executive Officer reviewed previous work undertaken in 2002-03, surveyed councils to understand the availability of current datasets and also liaised with engineering firm Tonkin Consulting in an attempt to develop a cost relativity index to account for traffic volumes on local roads. The findings of this work identified a continued lack of consistent and regular traffic volume data from all councils as well as differing road hierarchy information across councils.

A review of the Library Services expenditure function raised significant concerns over the consistency of data on the number of library visitors provided to the Commission. The Commission resolved that this function and its associated Revenue Assessment (library subsides) would be removed from the methodology for the 2011-12 round of grants and continue to be excluded until further investigation was completed.

A review of the Sport and Recreation Expenditure Function following feedback received at council visits resulted in a change to the Unit of Measure (or cost driver) for this function. The Unit of Measure was updated from the proportion of the council’s population aged between 5 and 49 years to the proportion of council’s population aged between 5 and 64 years for 2011-12.

2015-16 – Review of Valuations Data and Unit of Measure for Waste Management Assessment

The Commission included changes to the methodology for 2015-16 as a result of its own ongoing review processes and the introduction of the new South Australian Integrated Land Information System (SAILIS). These changes included expanding the Unit of Measure for the Waste Management expenditure function to include rural and commercial (shop) properties and reviewing its land valuation data from DPTI to reflect the implementation of SAILIS and valuation data more closely matched to local government.

2016-17 – Cultural and Tourism & Environment and Coastal Protection Expenditure Assessments and the Isolation Allowance in Function 50

The Commission incorporated a more direct method of recognising expenditure need in relation to cultural and tourism, environment, and coastal protection expenditure. It also reviewed the allowance for isolation, providing increased recognition for rural councils with higher costs of providing services.

2019-20 – Airports & Airstrips (revisited), the Jetties & Wharves Expenditure Assessments and the Footpaths and Other Associated Road Ancillaries Expenditure Function

During 2019-20, the Commission reviewed the methodology to assess the impacts of airports and authorised landing areas as well as a review of the jetties and wharves expenditure assessment. The Commission also undertook an initial review of its existing expenditure assessment for footpaths and other associated road ancillaries (Function 20c).

The Commission received feedback from councils during visits that airports and airstrips were having a significant impact on service provision. Previous investigations by the Commission found that, on average, councils profited from airports and airstrips. The Commission re-visited this issue during 2019-20, collecting data on the number of councils with airports and airstrips and analysing operating costs, determined that there were many councils that were impacted. As a result, the Commission added a new expenditure function for 2020-21 that specifically recognises the impact of airports and airstrips.

In relation to jetties and wharves, an analysis of expenditure data from the Supplementary Return identified that the unit of measure for this function (the number of jetties and wharves) did not capture the breadth of reported expenditures. A specific data collection as part of the 2018-19 General Information Return identified marinas and boat ramps as contributing factors in this function and for 2020-21, the Commission expanded the unit of measure to include the number marinas and boat ramps with jetties and wharves.

The final element of the 2019-20 methodology review program saw the Commission undertake an initial review of the unit of measure for Function 20c – footpaths and other associated road ancillaries. The current unit of measure used by the Commission for this function is the kilometres of sealed road in a built-up area. The Commission collected a single years’ data on kerbing and guttering from local government as part of the General Information Return for analysis and has continued to collect this data for a number of years for further analysis.

Recent Methodology Reviews

2020-21 – Local Roads Data/GIS, Non-Resident Ratepayers, Non-Resident Use (Function 50)

During 2020-21, the Commission’s methodology review program focussed on its roads GIS, the impacts of non-resident ratepayers on the assessment of relative need for the General-Purpose Grants and non-resident use of council services.

In relation to its roads GIS, the Commission engaged Tonkin to review the current data collection and process for updating local road data, the accuracy of current data and options for the future collection and management of local road data. During 2020-21, Tonkin completed a sample audit of a council’s GIS to review current differences between the Commission’s Data and the Councils and establish a process for further review. The Commission acknowledges the assistance of the Wakefield Regional Council during this process.

Following a number of submissions made by councils, the Commission engaged the services of the Emeritus Professor Cliff Walsh to review the impact of non-resident ratepayers on the Commission’s assessment of General-Purpose Grants. This issue has been raised by councils that experience high proportions of ratepayers who are not resident for ABS Census purposes and not being recognised in the Commission’s assessment.

It is with regret that this work was not able to be completed during 2020-21, due to the unexpected passing of Professor Walsh. The Commission acknowledge the significant contribution made by Professor Cliff Walsh to its work over many years, including the major methodology review of the late 90’s, where Cliff’s contribution formed the basis of the Commission’s current approach to the assessment of relative need. Professor Walsh will be sadly missed. Further work on this issue will be undertaken in 2021-22.

The Commission also worked with its Staff to review its methodology around non-resident use of council facilities – from either tourism or residents of neighbouring councils. The Commission has, for some time, sought to apply a greater level of certainty to its assessment of non-resident use (where it applies an arbitrary allowance to its judgement of the level of non-resident use for each council).

It is widely acknowledged that insufficient data exists to provide assessment of relative need for non-resident use and the Commission concluded that the existing assessment process was capturing revenue and expenditure in relation to non-resident use. As a result, the allowance provided in the Commission’s “Other Needs Assessment” (Function 50) was removed for the 2021-22 FA Grant Recommendations.

2021-22 – Local Roads Data/GIS and Non-Resident Ratepayers

The Commission continued its work with Tonkin to review the future management of its local road data collection and GIS. Tonkin undertook a review of the options available to the Commission to manage its GIS, consulted with a range of local government and state government stakeholders and provided a report with options for the Commission to consider. The Commission will further develop its approach to its local roads GIS.

Work also continued on the review of the impact of “non-resident ratepayers” on the Commission’s methodology. The Commission engaged the services of Ms Michele Bennetts to investigate the impact of non-resident ratepayers on the assessment of relative need, liaise with affected councils and report back to the Commission.

2022-23 – Local Roads Data/GIS, Submission from Wakefield Regional Council on the Identified Local Road Grants, and Investigation into the impacts of Non-Resident Ratepayers

In 2022-23, the Commission completed its early investigations with Tonkin Consulting to review the future management of its local road data collection and GIS and considered its options further. The Commission will further develop its approach to its local roads GIS during 2023-24, with a view to ensuring the continuing supply of regular and accurate local road data, providing road lengths and types of roads for its assessment of councils’ relative need.

The Commission received a Submission to SA LGGC on ILRG - June 2022 Wakefield Regional Council.pdf (PDF, 417 KB) regarding the allocation of the Identified Local Road Grants. The Council has requested that the Commission review its allocation formula and the Commission is undertaking work on this issue.

Work also continued a review of the impact of “non-resident ratepayers” on the Commission’s methodology during 2022-23. Ms Bennetts provided a draft report during the second half of the year and the Commission requested further consideration of a range of matters. This work will continue into 2023-24.