270 – Local government and Financial Sustainability Strategies

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2850 words (30 minutes reading time) by Colin Weatherby

Councils across Australia have recently started developing financial sustainability strategies. This sounds like a good idea, but is it?  Are the goals in these strategies realistic and achievable? Do they seriously address fundamental issues affecting sustainability or are they just another distraction? The latest fad?

To kick this post off, let’s look at 3 councils, Logan Council in Queensland, Central Coast Council in New South Wales, and Yarra City Council in Victoria.

It is along post but worth the effort!

Financial sustainability and corporate planning

Given the parlous condition of council finances and the existential threat from rate capping in NSW and Victoria, it is interesting to see where the financial sustainability strategy fits into organisational planning for councils. I would have thought it would be the top priority.

Logan Council claims to have contextualised their financial sustainability strategy in their organisational planning, as shown in the diagram below. Can you find it?

City of Logan financial planning strategy 219-2028

The Logan Financial Sustainability Strategy 2019 -2028 does say that the ‘Financial Sustainability Strategy and Long Term Financial Forecast are an integral part of Council’s planning framework’, but it is not possible to see this in the planning diagram above.

This highlights one of the challenges with any new ways of thinking in local government – they tend not to fit in with the old ways of thinking very well and councils tend not to ‘give up and replace’ anything. It’s like my mother, who still has all the old vegetable peelers in the drawer alongside the very latest purchase. I always seem to grab one of the old blunt ones.

Central Coast says that the strategy sets the ‘criteria that the Council needs to meet to achieve and maintain a financially sustainable position over the next 10 years’ and that it is to be read in conjunction with the Council’s Long-Term Financial Plan. This approach seems to make sense but those of us with experience of a new strategy being rolled out alongside all of the existing strategies, especially if it counts on existing resources being re-purposed, know that it is unlikely to be effective.

Yarra City Council in Victoria released the first local government Financial Sustainability Strategy for the state in December 2023.   It says they have an ‘integrated approach to planning, monitoring and performance reporting’, which is shown below, and that the ‘Financial Sustainability Strategy underpins all elements within the Framework’. I assume that means somehow the objectives and actions from the strategy will be incorporated into existing plans and strategies. Again, experience cautions that this approach is seldom effective because the review dates for those plans and strategies are unlikely to align with the implementation of the new strategy.

Yarra City Council, Financial Sustainability Strategy, 2023-2033

Governance: How will these strategies be governed and how will success be measured?

As someone who worries that councils tend to over-reach on many things, I looked at how implementation of these strategies will be governed and how success will be measured.

Logan says their Financial Sustainability strategy implementation will be ‘led by the Director, Organisational Services and the Finance Manager‘, with ‘partnerships with key stakeholders such as Strategic Projects, Economic Development & Strategy, and the infrastructure provider branches‘. Accountability for delivery of the strategy is within the organisation and the responsibility of the CEO, which presumably will be governed through their regular performance management process and may or may not be reported publicly.

The Central Coast Financial Sustainability Strategy 2023, in comparison, outlines a detailed implementation, monitoring and reporting process that will be ‘championed by the elected Council and implemented by Council’s management.’. The strategy will be ‘driven through the annual Operational Plan process and integrated with all short and long-term decision making of Council.’ Where applicable, ‘this will be directly linked to the service optimisation program being undertaken by Council’. The strategy will be reviewed annually and reported on through the Annual report. Accountability for delivery is firmly with the elected representatives and reported publicly.

Yarra City Council, Financial Sustainability Strategy, 2023-2033 has a purpose-built governance process for the strategy, with a Project Control Group (PCG) to be formed under the Executive Leadership Team (ELT) that is ‘responsible for practical implementation of the strategy.’ The ELT has ultimate responsibility with the General Manager of Corporate Services and Transformation chairing the PCG. Cross-functional teams will support the PCG. There are over 30 actions in the strategy, with many to be done in the first 3 years. Accountability again resides within the organisation and the responsibility of the CEO, which presumably will be governed through their regular performance management process and may or may not be reported publicly.

Are the three different approaches above viable?

For something as fundamental as financial sustainability, it is interesting that of the three different approaches, none places financial sustainability in place of, or above, any existing plans and strategies. At best it sits alongside. The governance processes located within the organisation and under the CEO make the strategy subordinate to any plans or strategies adopted by the Council and reported publicly for the Council to be judged by the community.

The addition of financial sustainability strategies to the existing corporate planning processes, suggests that financial sustainability is a temporary problem that needs to be addressed alongside ‘normal’ planning. Herein lies part of the problem.

What are the goals of these strategies?

Each of the strategies has either goals or stated outcomes listed. In total, the three strategies have 20 goals or outcomes, which can be summarised as:

  • Making operational surpluses and/or creating cash reserves.
  • Investing in assets responsibly – now and for the future.
  • Optimising revenue and recovering true costs.
  • Managing or reducing debt.
  • Providing the ‘right’ level of services efficiently.
  • Achieving financial targets.

These are a mix of first and second order objectives if financial sustainability is the ultimate objective.

The set of actions listed in each strategy to achieve these goals reminds me of Richard Rumelt’s (the author of Good Strategy/Bad Strategy) advice regarding bad strategy, which he says:

•            Has a lack of a clear and cohesive central idea or concept.

•            Fails to address the most important problems or opportunities.

•            Confuses goals and intentions.

•            Has a lack of coherence or alignment between different parts.

•            Relies on hope, as opposed to a realistic assessment of resources and capabilities. 

Keep this in mind as you read on.

Yarra City Council

Let’s unpack Yarra’s strategy and how they say it will be operationalised.  They have identified two primary levers for change:

This is a sensible understanding of the challenge and how it can be addressed. If you want to ‘ensure that future investment decisions are based on need‘ you need asset management and service planning based on a clear understanding of demand. It is interesting that investment now needs to be underpinned by evidence of need and informed by planning.

It is hard to see how strategic and systemic levers differ (isn’t it all systemic?) because a ‘new-way-of-working‘ that matters must be focused on knowledge of community needs for services and expectations regarding service delivery. Separating cost control and efficiency measures from community needs risks the old problem of incremental improvements being made to services that should be fundamentally changed (i.e. wrong things being done righter).

The impact of improvements to accounting and financial management is secondary and are not significant opportunities for improvement compared to fundamentally re-thinking the services being provided by the council. After all, it is why the council exists.

Yarra is committed to doing this through six ‘strategic levers’ – 3 that deal with financial management and 3 that deal with assets and ways-of-working. Let’s have a look at the 3 levers from their strategy that deal with assets and ways-of-working in more detail; strategic levers 5.3, 5.4, and 5.5.

5.3 Strategic Lever 3: Well planned assets

This relates to custodianship of the council’s $2b in assets and coping with escalating costs to operate, maintain and renew assets. There are 6 actions for completion in the next 3 years:

  1. Addressing service lives.
  2. Condition assessments.
  3. Modelling.
  4. Whole of life asset planning.
  5. Developing a new 10-year capital works program.
  6. Linking the asset plans to the financial plan.

Action number 6 relates to developing a new community infrastructure plan linked to service planning and developer contributions.

It is the last action that can make all the difference, depending on how it is done. This is where the next ‘strategic lever‘ comes in.

5.4 Strategic Lever 4: Review the service landscape

The strategy acknowledges that service delivery varies between councils across Victoria, and says Yarra is committed to determining the ‘precise mix of service‘ between community expectations and Council discretion through ‘community engagement and service demand.’  The significance of this lever within the strategy is recognised:

“Redefining the service mix, service level and service delivery options through a comprehensive service planning and review program will be central to Council’s financial sustainability over the next 10 years.”

Yarra City Council, Financial Sustainability Strategy, 2023-2033

They also say that they need to establish a new service planning and review framework – presumably they have one already that is considered inadequate and/or it has been ineffective. That seems to be a common problem at Victorian councils – they have all been busy reviewing services without it having any effect. This is another situation where nothing has been given up to be replaced.

Yarra says their new service planning and review framework ‘will ensure Council makes service-delivery decisions based on community need with a full understanding of the role of Council and the full cost of each service’.  Perhaps this is the big change?

A new ‘business transformation department‘ is being established to ‘lead the service review process and identify service and operational efficiencies and improvements, and to contribute to service cost control and prudent financial management of internal operations’.

They will lead 4 service reviews per annum, which can either be ‘strategic reviews’ including community engagement, or ‘management reviews’ carried out without community engagement.

This program is expected to improve financial capacity within 3 years. There are 3 actions for completion within the 3 years to ‘establish the principles of the service planning and review framework’, implement the new service planning and review program, and develop a new workforce plan.

My question is – Aren’t the people currently managing services capable of improving them?

This approach suggests that the people currently managing services at Yarra are not capable of improving them – it must be done by a new department that is presumably more knowledgeable about community demands and the best way to respond to them than the people actually doing the work. Is it a capability that doesn’t exist, or don’t they trust them not to simply reinforce the status quo?

The perceived need to take decision making on improvement of services from the hands of the people delivering services suggests that this is where the real sustainability problem lies. The council doesn’t have a focus on customer and service improvement, and they are trying to inject it with a new department. Is anyone prepared to take a bet on whether getting people in to tell the workers how to do their jobs will work?

Yarra City Council, Financial Sustainability Strategy, 2023-2033

This large text, green and bold statement leaps out at the end of the implementation section related to Service Planning Principles: Deliberative Engagement. It suggests to me that the author didn’t want any readers to miss it. In early 2024, Yarra held a series of community engagement workshops to establish these principles, where the following themes emerged regarding service planning and reviews:

  • Financial sustainability and appropriate resource allocation
  • Social justice and community benefit
  • Governance and evidence-based decisions
  • Maintaining influence of quality and social benefit
  • Get creative and think holistically

A set of 16 principles were adopted by the Council on 9 April 2024. Most of them make sense and reflect community views about council services. I went looking for the principles that will be used for the hard-core analysis and came up with this set:

  • Prioritise financial sustainability and appropriate resource allocation to enable us to respond to changing community needs, now and into the future.
  • Prioritise service delivery models where it can maintain control of quality and influence the community benefits and outcomes.
  • Prioritise social benefits, especially those that address the needs of vulnerable and diverse people, within financial means.
  • Use a comparative benefit analysis to measure value for money and the positive impact of service reform for the community.

Having 3 principles to set priorities (financial sustainability, quality control, and social benefits) could be tricky. The comparative benefit analysis method selected will be influential. Few councils seriously use any cost benefit analysis in decision making and even less use it later to measure their success and determine whether or not they had a positive impact. I am pretty sure this will also be new territory for Yarra.

Overall, it is hard to argue with the principles adopted, except to point out that with 16 principles there is every likelihood that not only the prioritisation principles will conflict and prevent action.

5.5 Strategic Lever 5: Invest in transformation

This is a digital transformation program (yes, new IT systems) that the council says will ‘focus on leveraging data and enhancing analytics capabilities to ensure evidence-based service and asset planning and decision making’.

There are 6 actions, the standout being procuring and implementing an Enterprise Resource Planning (ERP) suite. Before you ask, an ERP in this context is a type of business management IT software that an organisation uses to manage business activities. The ERP is scheduled for years 3 to 5, along with improving applications that sit outside the new ERP, developing a new data hub, and implementing a new data strategy. In years 1 to 3 cyber security will be improved and the current digital transformation program continues.

It is good that services will be understood and planned for in the first three years before an ERP is acquired. It will allow the council to talk to the community to determine how it wants services delivered before they buy an ERP system to support that way of delivering services…

As I was writing this another thought crossed my mind – local government ERP systems have standard configuration that is based on the way other councils deliver services today. If Yarra wants to work out new ways of delivering services in the future, they are going to need an ERP configured around their specific requirements. Anyone from IT who has read this far is probably shaking their head now. It doesn’t work that way unless you have a lot of time and money.

Councils need to learn how the ERP works and then adapt its business processes to suit the ERP – it makes every council behave the same. It is important to understand how your preferred ERP works as you review and redesign your services and infrastructure to make sure that is feasible and affordable for them to work together. I like the thinking, but it raises another question mark over the ‘doability’ of the strategy.

Conclusion

This is a brave strategy (yes, I have watched ‘Yes, Minister’) that has at its heart a commitment to understand and improve the services the community needs and expects, and that the council exists to provide.

That understanding will drive more sustainable commitments of resources to the community infrastructure necessary for those services to be delivered, now and in the future. This is a big step forward for councils in Victoria and it underpins financial sustainability.

My concern is that until services are reviewed and planned differently, only housekeeping can be done to tidy up financial decision making on the pathway to sustainability – service improvement is the key to sustainability. The way services have previously been improved clearly hasn’t worked and a new way needs to be developed.

This new way of improving services is obviously expected to be resource intensive and slow, hence there is only a commitment to review 4 services a year in a 3-year program. This begs the question, does Yarra really only deliver 12 services? Is that the way the community sees council services?

This suggests that there has already been some thinking by senior management that they expect the Council to endorse before there is engagement with the community.  

The decision to separate service improvement in a new department goes further and indicates a lack of trust in service managers and their teams to tackle hard decisions – the very people who have the best knowledge of community needs and expectations. This is also why the service improvement program will be slow.

It is great to see innovative thinking about how to meet the greatest challenge facing councils in Victoria but it is being limited by conventional council management thinking.

269 – Unrestricted cash: are councils hopeless or helpless (or both)?

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630 words (7 minutes reading time) by Lancing Farrell

Professor Joseph Drew has posted another of his valuable and prescient videos for local government leaders. His analysis of the financial sustainability of councils in NSW heralds a warning across Australia for councils experiencing rapid increases in expenditure that are not being matched by revenue increases – especially those subject to a rate capping regime. NSW councils are running out of cash to fund operations. The FinPro/Municipal Association of Victoria report in 2022 showed that all Victorian councils except those in metropolitan areas are experiencing underlying deficits and the problem is getting worse.

Professor Drew’s warnings should really be a headline on the agenda papers for every council meeting!

I think part of the challenge for councils in acting on his warnings and advice is the prevalent sense that there is nothing that can be done – councils are at the mercy of forces greater than any they could hope to overcome. In discussions with Professor Drew I have likened it to a movie where a meteorite is expected to hit Earth and no one thinks it can be stopped or deflected.  Half the population are resigned to their fate and having a party, and the other half are sitting in the dark with their fingers crossed hoping it will miss.

Maybe a better explanation is that hopelessness is the feeling that nothing can be done by anyone to make the situation better. People may accept that a threat is real, but that threat looms so large that they feel the situation is hopeless. Helplessness is the feeling that they have no power to improve the situation. I think councils have a strong sense of both.

Well, for those with greater confidence that something can be done (and should be done to protect community interests), here is a list based on the initial advice Professor Drew provides (he is prepared to offer more detailed and specific advice to councils that ask):

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268 – Local government history – repeating, rhyming or informing?

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900 words (10 minutes reading time) by Colin Weatherby

Image

I believe that it is important to understand how we have gotten to where we are today if we are proposing to make changes, simply so that we can benefit from past learnings and avoid repeating mistakes at the expense of the community. I like to see evidence backing a proposal that commits significant community resources to doing something.  Call me old fashioned (and people sometimes do) but I figure it is what a careful professional does.

Having always worked with public infrastructure, I know decisions made today have ramifications for another 50 to 100 years. No one builds a road or plants a tree thinking only about the next 5 years. I have cursed short cuts made decades ago by my predecessors when I have been required to sort out difficult problems. My approach is typically characterised by colleagues as time wasting in their haste to get on with trying out the latest management fad and, potentially, just doing wrong things righter.

This post is an attempt to unpick what has happened in Victorian local government to get us to where we are, and understand what it means for what councils should do next. My concern is that councils faced with the failure of existing approaches, as evidenced by the imposition of the rate cap (effectively a taxpayer revolt!), will then double down in doing the things that leaders know how to do. If it is not history repeating, it will at least be rhyming as Mark Twain observed. Better still, it is neither and it becomes informing.

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267 – Professor Joseph Drew – Analysis of Financial Results

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880 words (10 minutes reading time) by Lancing Farrell

The mean and median of the data set for all NSW councils

Professor Joseph Drew has posted another enlightening video on his YouTube channel. His analysis of 15 years of council data in NSW shows worrying increases in expenditure on staff, materials and depreciation. In fact, ‘worrying’ is an understatement. The situation is becoming catastrophic. Yet, no one seems overly worried in the Premier State.

Professor Drew has committed to producing the same data for Victoria. Maybe there will be more of a response from the Garden State. As every gardener knows, you have to observe what is happening and make timely interventions for a garden to succeed.

One of the challenges Professor Drew’s video has highlighted for me is the relatively low level of executive financial literacy and knowledge of statistics and data. This might explain the lack of response to the data from local government. Professor Drew goes to great lengths to explain the importance of measures of central tendency and the difference between the available measures. In particular, he is looking at the mean and standard deviations of the data set, and the median .

Are you digging out an old text book or searching on Google yet?

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266 – System governance or Smartie sorting?

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400 words (5 minutes reading time) by Tim Whistler

Saying that system governance is the key to paradigm change is stating the obvious. Any way of thinking about change requires existing power structures to be understood and for the people controlling those power structures to be given incentives to start thinking and behaving differently. We see it happening every day.

A friend who works as a consultant to various councils was explaining her work to me recently. She was dumbing it down for me and used the analogy of cake decoration. She said her role is the equivalent of helping community to sort out Smarties to pick colours to decorate the council cake. Everyone knows people have favourite Smartie colours, and there will be the ‘right’ colours for the cake. Without knowing exactly who will be eating the cake it can be tricky, and a lot of effort goes into talking to the community about the colour of the Smarties.

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264 – ‘What on earth is a paradigm shift?’ – Centre for Public Impact

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400 words (5 minutes reading time) by Colin Weatherby

I have been experimenting with Microsoft’s ‘everyday AI companion’, called Copilot. I asked it to analyse the podcast ‘What on earth is a paradigm shift?’ by the Centre for Public Impact.  I am not trying to second guess the great work by Lancing Farrell, simply to show how some new technology works!

This is what it came back with:

The podcast ‘What on earth is a paradigm shift?’ by the Centre for Public Impact (CPI), is a  conversation between Adrian Brown and Professor Toby Lowe, who are both part of the CPI team. They discuss the concept of paradigms and how they apply to public service and systems change.

Here is a brief summary of the podcast:

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263 – System governance is the key to shifting the local government paradigm

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850 words (9 minutes reading time) by Lancing Farrell

The need for a new paradigm in local government in Victoria has been mentioned in a few posts recently (see 241 – Rate capping – the final words (from our future), 253 – Minds Change: My Journey to Transform Local Government Performance, and 261 – Reinventing Local Government). Model collapse, as described by Carole Parkinson and Tim Whistler, signals the end of an existing paradigm. This raises critical questions about the current paradigm in local government and the need for change. A recent podcast in the Reimagining Government series by the Centre for Public Impact, ‘What on earth is a paradigm shift?’, discusses paradigms and provides insights and practical tips for those wanting to bring about transformative change.

Defining Paradigms

The podcast features host Adrian Brown and Professor Toby Lowe from the Centre for Public Impact, Henk-Jan Dekker from the International Centre for Environmental Research and Development, and Jessica Studdert from think tank ‘New Local’. Drawing on the work of Thomas Kuhn and Margaret Masterman, a paradigm was defined as a ‘grand explanatory narrative for how a part of the world works’.  It operates on metaphysical, sociological, and exemplar levels, shaping perceptions of what exists and what should be valued. Understanding how paradigms work is crucial for those seeking systemic change in local government.

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262 – The other side of the ledger: A cautionary tale for growing councils

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1200 words (13 minutes reading time) by Colin Weatherby

A research article in the Australian Journal of Public Administration, titled ‘The other side of the local government ledger — The association between revenue growth and population growth,’ raises a crucial red flag for all councils currently grappling with population growth. The study, by Professor Joseph Drew and his colleagues, sheds light on the relationship between population growth and local government revenue. Professor Drew has made a video explaining the findings of the paper.

In local government, you hear a lot of talk about the rate cap, a limitation on property taxation imposed by the State government on councils, and the impact it is having on councils’ ability to fund services. I have posted previously on what I think councils should be doing in response to the spending gap arising from the rate cap. Most discussion in the sector has focused on the impact on expenditure.

Professor Joseph Drew and his colleagues are suggesting it is equally important, perhaps more important, to understand the impact on unit revenue. Unit revenue, representing the per capita revenue generated by a council, becomes pivotal when service demand stems from individuals residing in the municipality rather than the properties they occupy. The potential mismatch between service consumption drivers and revenue generators poses a substantial financial sustainability risk.

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261 – Reinventing Local Government

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600 words (7 minutes reading time) by Lancing Farrell

I recently acquired a ‘new’ copy of the 1992 book ‘Reinventing Government – How the Entrepreneurial Spirit is Transforming the Public Sector‘ by David Osborne and Ted Gaebler, a work that wielded significant influence globally in its time.

The impact of Osborne and Gaebler on world leaders can be discerned through the timing of policy changes, public declarations, and the alignment of advocated principles with the reform initiatives undertaken by these leaders. Some explicitly referenced the book in speeches, policy documents, or interviews, revealing its profound effect on their perspectives. In other instances, reforms closely mirroring the book’s principles suggest a potential influence. The book’s impact must be viewed within the broader context of prevailing ideas and reforms during that period.

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