Introduction
Each State of Australia has a Grants Commission that uses a complex formula to distribute about $2.3 billion of Commonwealth Financial Assistance Grants (FAGS) annually to local councils across the nation. The formulas used by individual Grants Commissions are based on a set of nationally-agreed and highly complex principles. This complexity has resulted in some common misunderstandings about how the grants are distributed and the extent to which each council is able to secure a larger grant.
General Purpose Component
There are two major components to the financial assistance grants: general purpose grants and local roads grants. In relation to the general purpose grants, one of the popular misconceptions about the formula is that the amount an individual council receives depends on the figures it uses in its annual return to the Grants Commission. This in turn creates a false perception that councils can be ‘creative’ in their annual returns in order to achieve a better outcome. In actual fact, apart from one or two minor functions (such as street lighting), the information submitted in annual returns has a negligible impact on a Council’s individual grant. The information collected in annual returns is primarily used to calculate the average cost across the sector of a particular local government function. Therefore, it is in councils’ best interests to complete annual returns as accurately and as efficiently as possible and not waste time in trying to allocate expenditure across functions in ways that they think will achieve a better result.
The general purpose formula uses a number of cost drivers to allocate funds for a particular function. For example, one of the drivers is the number of elderly people in each municipality. A council’s share of the available funds for that function is directly related to the number of senior citizens it has. This information is not provided by councils, but by the Australian Bureau of Statistics. Each of the Grants Commissions uses a wide variety of information from independent sources to establish each council’s allocation.
The Grants Commissions also use ‘disability factors’ that can improve or worsen an individual council’s grant. For example, the number of non-English speaking citizens in a a particular municipality is taken into account.
Local Roads and Bridges Component
The amount that each council receives in local road funding is directly related to the information on road lengths and number of bridges that councils submit in their annual returns. Therefore it is essential that the data provided is accurate.
What Makes a Good Submission?
A thorough understanding of how the formula applies to each council is critical when it comes to making a submission for a larger grant. The keys to preparing a good submission are:
- Focus your efforts on increasing your council’s share of the existing pool of funds and not on making the pie bigger for everyone. The State Grants Commissions can only distribute what they have received from the Commonwealth. It is perfectly reasonable and, in fact, necessary for councils to lobby for an increase in the total pool, but this should be done in a separate campaign with the support of State Governments and peak bodies.
- Understand that every improvement in your grant will result in a lower grant for other councils. When considering submissions, the Grants Commissions assess the impact on all other councils in the State as a whole to identify any perverse or negative outcomes. If significant changes are made to the formula, a transition period is normally used to soften any negative impacts.
- Ask your Grants Commission for the independent data that was used to assess your council’s needs in relation to each expenditure driver. Analyse this data carefully, and look for possible errors or discrepancies in the data that are causing your council disadvantage.
- Form an opinion as to whether the data used by the Grants Commission comes from the most reliable and accurate source. Are there additional sources of reliable information that paint a more accurate picture of your council’s profile? If so, argue for a change in the way the data is collected. Note that any changes that are made to the formula as a result of new sources of information will benefit all councils with a similar profile.
- Assess whether the various disadvantage factors and the weightings applied to them are negatively affecting your council’s grant, then consider arguing a case for a change. Note that any changes made to the disadvantage factors and their weightings will affect all councils to some extent.
- Assess whether the expenditure drivers used by the Grants Commission to apply the national principles can be improved to your council’s advantage, then argue a case for change. Note that any changes made to the expenditure drivers will affect all other councils for good or for bad.
- In relation to minimum grants: any submission to abolish minimum grants should be made to the Commonwealth Grants Commission rather than the State Grants Commissions. The State Grants Commissions are bound to apply the national principles including the minimum grant. Any submissions to abolish the minimum grant should be made by groupings of regional and rural councils because they are the ones that will benefit at the expense of metropolitan councils. Each of the State’s local government peak bodies find it difficult to argue a case for the abolition of minimum grants because these bodies are representative of all councils in their State and need to be mindful of the impact on their metropolitan members.
- Consider whether a submission would have more impact if made by a grouping of similar councils. Dot points 4 to 7 above lend themselves to joint submissions with other similar-profile councils. Joint submissions are not only more powerful – they are more cost effective as the time and cost involved in preparing a submission can be shared.
Dean Miller has many years of experience in reviewing individual councils’ grant outcomes and making successful submissions to the Victoria Grants Commission. Please contact Dean if you require support or advice in this area.
Miller Consult 