Financial sustainability continues to deteriorate
Councils’ financial performance continued to deteriorate in 2020. This was not unexpected. Travel restrictions, community lockdowns and initiatives to support their communities through the pandemic, meant councils earned lower revenue (waiving or discounting revenue from car parking, dining, and reduced patronage at public facilities and airports). And they incurred more expenditure (higher employee costs by bringing forward capital projects, maintaining quarantine facilities and border controls, and increased cost of cleaning of council and public facilities). This resulted in 70 per cent of Queensland councils spending more than they earned in 2020, which is 25 per cent worse than last year.
Most councils with a high reliance on grants from state and federal governments have consistently incurred operating losses each year for the last five years. We have found that these councils that regularly incur operating losses often have weak strategic planning, asset management, and financial management practices. That said, planning for financial sustainability is a challenge for these councils because the current funding model provides grants to councils largely on a year-by-year basis, making medium- to long-term planning difficult.
The Department of State Development, Infrastructure, Local Government and Planning (the department) could assist councils by providing greater baseline funding certainty with multi year grant programs. The department could also work with councils to improve financial and asset management capability.
As of 30 June 2020, 25 councils are at a high risk of not being financially sustainable. This is four more councils than last year and represents approximately one-third of the sector.
Since 2013, the department has used three financial ratios to measure the sustainability of councils. These ratios set specific benchmarks that are applied to all the councils, regardless of their size and circumstances. The department recognises the need to update its sustainability measures and is developing options for new measures.