Queensland Methodology

1

• Queensland Methodology
• Kay McLachlan
• Executive Officer
• Queensland Local Government Grants Commission

2

• Three Sections to the Presentation
• Commonwealth National Principles and the
  Queensland Methodology
• Cost Adjustors
• Future challenges for the Commission

3

• New Methodology for 2003-04 Grant
• Four year straight line phase in agreed with the
  Commonwealth
• Further research and refinements
• Not set in stone (eg data collection,
  validation and refinements)

4

• Financial Assistance Grant
• Two components of the Financial Assistance
  Grant
• Identified Road Component
• 86M in 2003-04
• Fiscal Equalisation Component (General Purpose)
  
• 198M in 2003-04

5

• Commonwealths National Principles
• Horizontal Fiscal Equalisation
• Effort Neutrality
• Minimum Grant
• Other Grant Support
• Aboriginal Peoples and Torres Strait Islanders
• Identified Road Component

6

• Commonwealths National Principles
• Identified Road Component
• The Identified Road Component of the financial
  assistance grants should be allocated to
  local governing bodies as far as practicable on
  the basis of the relative needs of each local
  governing body for roads expenditure and to
  preserve its road assets.
• In assessing roads needs relevant
  considerations include length, type and usage of
  roads in each local governing area.

7

• Identified Road Component
• Currently distributed on the basis of-
• 62.85 in proportion to road length
• 37.15 in proportion to population

8
Horizontal Fiscal Equalisation

• Section 6 (3) of the Commonwealths Local
  Government (Financial Assistance) Act 1995 states
  the allocation of funds for local government
  purposes on a full horizontal equalisation basis
  is a reference to an allocation of funds that

Ensures that each local governing body in a State
is able to function, by reasonable effort, at a
standard not lower than the average standard of
other local governing bodies in the State and
Takes account of differences in the expenditure
required to be incurred by local governing
bodies in the performance of their functions and
in their capacity to raise revenue.
9

• Commissions Role
• To determine the State average and rank councils
  with this average

Councils
Average
10

• Commonwealths National Principles
• Effort Neutrality
• An effort or policy neutral approach will be
  used in assessing expenditure requirements and
  revenue raising capacity of each local governing
  body. This means as far as practicable, policies
  of individual local governing bodies in terms of
  expenditure and revenue effort will not affect
  the grant determination.

11

• Commonwealths National Principles
• Minimum Grant
• The minimum general purpose grant allocation for
  a local governing body will not be less than the
  amount to which the local governing body would be
  entitled if 30 of the total amount of general
  purpose grants were allocated among local
  governing bodies on a per capita basis.

12

• Fiscal Equalisation
• (General Purpose) Component
• The Commission makes an assessment of what each
  council would raise in revenue and expend if the
  council operated at the average level of all
  councils in the State.
• BASIC FORMULA
• Average Expenditure - Average Tax Grant

13

• General Purpose Component Allocation
• There are six stages to the process of allocating
  the
• general purpose component
• Determine State Averages
• Assess council revenue and expenditure
• Apply Cost Adjustors
• Determine Relative Need
• Allocate Funds
• Average Allocation

14

• Obtain totals in each category for State
• Determine cost driver for each category
• Determine a unit amount

Total cost of garbage for Qld is Driver is
population Unit amount of garbage is
per capita
15

• Obtain cost driver data for each council ie
  population
• Apply unit amount to each council

Unit amount of garbage is per capita
population is x Assessed garbage is
16

• Identify cost adjustors for category
• Apply cost adjustors to expenditure and
  revenue assessments

Assessed garbage expenditure Cost
adjustor for demography x Adjusted garbage
expenditure is
17

• Cost adjustors all gt 1
• Reduce adjusted expenditure to State total

State assessed expenditure State actual
expenditure Reduction required Reduced
assessed expenditure for council
18

• Local Roads
• State Average is Traffic Volume Ranges ( per km)
• For example
• Sealed Surface (150-250 AADT) 3,000 per km
• Adjusted for
• Climate
• Soil Subgrade
• Locality and
• Terrain.

19
Local Roads What is an Average
Standard? Condition of road is not
considered Road priorities are not
considered Actual road surface is not considered
- ie paved or gravel Maintenance standard only
not upgrade
20

• Calculate
• Revenue and expenditure assessment
• Roads assessment
• Add in effort positive
• Net result of either surplus or deficit
• Surplus councils get Minimum Grant
• Deficit councils get minimum and equalisation
  grant

21

• Total shortfall across councils is 400M
• Total grant funds 200M
• Apportion funds or scale back
• Assessed revenue plus grant equals same
  portion of assessed expenditure

22
Scaling
23

• Each council entitlement
• Averaged against population and road length
• Goal to have more consistency across
  councils

24

• Revenue
• Categories are
• Rates
• Garbage Charges
• Other Fees and Charges
• Other Included Grants
• Standard Budget Result

25

• Rate Raising Capacity
• Two Components
• Minimum Rate
• cents in for UCV in three categories
• Residential
• Commercial/Industrial
• Rural
• Result is adjusted by councils SEIFA index

26
Aboriginal and Island Councils Rate Raising
Capacity
Because Aboriginal and Island Councils do not
have rateable land, the Commission assumes a nil
rate raising capacity for these councils. As a
proxy for rates the Commission includes a portion
of their Operating Grants.
27

• Garbage
• A per urban property assessment
• Urban properties are the sum of residential,
  commercial and industrial properties less vacant
  properties
• Other Fees and Charges
• A per capita assessment

28

• Commonwealth National Principles
• Other Grant Support
• Other relevant grant support provided to local
  governing bodies to meet any of the expenditure
  needs assessed should be taken into account using
  an inclusion approach.

29

• Other Grant Support
• 50 of Aboriginal and Island Council
  Operating Grant (in lieu of rates)
• 100 of Identified Road Grant
• 100 of Library Book Subsidy
• 50 of Road and Drainage Grant
• 50 of Roads to Recovery

30

• Expenditure Categories
• Services (non-roads expenditure)
• Administration
• Garbage
• Community Amenities, Recreation and Sport
• Public Order and Safety
• Education, Health, Welfare and Housing
• Street Lighting
• Urban Stormwater
• Roads
• Environmental Protection and Transport

RECURRENT AND DEPRECIATION NO CAPITAL USED
31

• Administration
• Economy of scale constant (195,000)
• Amount per sq km area (5)
• 75 per capita
• 25 per property
• Cost Adjustors
• Scale
• Location
• Dispersion
• Growth
• Regional Role

32

• Public Order and Safety
• Per capita
• Cost Adjustors
• Location
• Scale
• Demography
• Regional Role
• Dispersion
• Urban Density

33

• Education, Health, Welfare and Housing
• Per capita
• Cost Adjustors
• Scale
• Location
• Dispersion
• Demography
• Regional Role

34

• Garbage
• Per urban population
• Cost Adjustors
• Location Tourism
• Dispersion Scale
• Street Lighting
• Per urban population
• Cost Adjustors
• Location Urban Density
• Scale

35

• Community Amenities, Recreation, Culture
• and Libraries
• Economy of Scale constant 20,000
• Per capita
• Cost Adjustors
• Scale
• Location
• Dispersion
• Demography age only
• Regional Role
• Tourism
• Urban Density

36

• Building Control-Town Planning
• Per residential property
• Cost Adjustors
• Location
• Scale
• Growth

37

• Business and Industry Development
• Per capita
• Cost Adjustors
• Location
• Regional
• Scale
• Growth

38

• Urban Stormwater
• Per urban population
• Cost Adjustors
• Scale
• Location
• Urban Density
• Environment and Transport
• Not an average
• Actual expenditure
• Too diversified

39

• Roads and Bridges - Developed Model
• Roads
• Set amount per km of road dependent on Rural
  or Urban and
• Traffic volume (AADT) with
• Cost Adjustors
• Terrain etc
• Bridges and Culverts
• Set amount per area of bridge
• Set amount per culvert

40

• Standard Budget Result
• Recommended in the CGC review
• State total Revenue and Expenditure are to
  balance
• Net expenditure result so budget term is a
  revenue item
• Allocated on per capita basis
• 2 total revenues

41

• Cost Adjustors
• Scale size of council?
• Location where is council?
• Dispersion number of towns?
• Demography who lives there?
• Regional Role who council provides for?
• Tourism who else goes there?
• Growth is council growing / shrinking?
• Urban Density use of facilities?

42

• Scale
• Recognises that larger communities gain from
  economies of scale
• Two parts
• 1. Constant
• 195,000 for administration
• 20,000 for recreation
• 5 per km2
• 2. Adjustment to population
• Up to 50 for smallest community on a sliding
  scale

43
Location Different costs due to location in
State

• Construction Cost Index (based on annual
  Rawlinsons Handbook)
• 75 to Depreciation
• 50 for general recurrent costs

Index of 140 is 30 for depreciation 20 for
recurrent costs
44

• Dispersion
• Additional costs due to number of smaller
  townships rather than one large township
• Component of population density
• 0.5 given for every additional township with
  population over 50 residents

45

• Commonwealths National Principles
• Aboriginal Peoples and Torres Strait Islanders
  Financial assistance shall be allocated to
  councils in a way that recognises the needs of
  Aboriginal peoples and Torres Strait Islanders
  within their boundaries.
• Demography
• Additional costs due to makeup of community
• additional ½ person weighting for gt65 or lt19
  years
• additional ½ person weighting for Indigenous
  persons

46

• Regional Role
• Regional centres face higher costs due to use
  of services and facilities by non residents
• Determined by employment characteristics in
• Retail Trade
• Cultural and Recreational Services

47

• Tourism
• Additional costs for garbage and community
  amenities for tourists
• Garbage ½ person
• Amenities 1/5 person
• Includes tourists from surveys and day trippers
• Growth
• Above average or negative population growth
• Difference from state average if positive
• Total if negative

48

• Urban Density
• Increased costs in providing services in
  densely populated areas
• Increase wear and tear of facilities
• Increase costs in security
• Thresholds
• 20,000 population
• 90 residential properties
• Difference multiplied by three

49

• Further Research for 2003-04
• Rate raising
• Cost Adjustors
• Road Assessment Model
• Averaging steps
• Water and Sewerage

50

• Rate Raising
• UCV not good indicator of capacity to pay
• Rural and Commercial
• Is Income correct adjustor
• Review
• Commissions first priority
• Completed for use in 2004-05 allocation

51

• Cost Adjustors
• Scale reduction of constant
• Location only use construction cost?
• Regional role other workforce data
• Tourism Research into smaller establishments

52

• Road Assessment Model
• Concerns over accuracy of traffic volume data
• Weighting given to non passenger vehicles
• Review
• Commission is evaluating appropriate
  verification process
• Some councils maybe contacted in the near
  future to discuss their information

53

• Averaging Steps
• Concerns over inclusion of previous
  methodology
• Why a regression?
• Review
• Need for improvement to rates formula and
  traffic volume data
• Final averaging with old methodology will be
  phased out
• Regression brings councils with similar cost
  drivers closer together more comparable.

54

• Water and Sewerage
• Only function excluded in Qld methodology
• DOTARS strongly supports the inclusion of this
  function
• Review
• Commission will be considering its inclusion
  in the future
• Difficulties with determining averages and
  cost adjustors that can be applied consistently
  throughout the State