THE LOCAL ROADS FUNDING GAP

Transcription

1 THE LOCAL ROADS FUNDING GAP STUDY OF LOCAL ROADS FUNDING IN AUSTRALIA TO A REPORT PREPARED BY Jeff Roorda and Associates October 2010

2 CONTENTS PART 1 Executive Summary and Recommendations Background Purpose of the study Output Executive Summary Key Findings Recommendations PART 2 Supporting Data and Analysis Spending on all Roads to Total Road Related expenditure by State/Territory to Spending on local Roads to Local Road Expenditure Variations Revenue Raising for Local Roads Local Road Life Cycle Costing Local Road Life Cycle Cost (LCC) and Life Cycle Expenditure (LCE) by States and Territories Local Road Life Cycle Cost (LCC) and Life Cycle Expenditure (LCE) by Council Groups Projected Expenditures Projected Life Cycle Cost (LCC) and Life Cycle Expenditure (LCE) by State and Territory Projected Life Cycle Cost (LCC) and Life Cycle Expenditure (LCE) by Council Group Projected Future Maintenance and Renewal Expenditure REFERENCES APPENDIX A Strategic Regional Road funded projects on State/Territory APPENDIX B Data Used in Graphs and Figures TABLES Table 1: Funding of road related expenditure to (Current prices) Table 2: Funding of road related expenditure to ( prices) Table 3: Total Road Related Expenditure by State and Territory to (current prices). 13 Table 4: Total Road Related Expenditure by State and Territory to ( prices). 13 Table 5: Strategic Regional Roads Funded Projects on State/Territory and Local Roads Table 6: Estimated Strategic Regional Road Expenditure on Local Roads Table 7: Estimated Black Spot Program Expenditure on Local Roads Table 8: National Transport Commission Estimated Local Road Expenditure Table 9: Local Road Expenditure by Funding Source to (current prices) Table 10: National Local Road Data System Local Road Expenditures Table 11: Comparison of Local Road Expenditure Data Sources Table 12: NLRDS Responses Table 13: Road Life Cycle Costs and Expenditures to Table 14: Council Group Classifications Table 15: 15 Year Sustainability Ratio Projections Renewal Table 16: 15 Year Sustainability Ratio Projections Renewal and Maintenance

3 FIGURES Figure 1: Funding of Road Related Expenditure to (current prices) Figure 2: Funding of Road Related Expenditure to ( prices) Figure 3: Total Road Related Expenditures by State and Territory to (current prices). 14 Figure 4: Total Road Related Expenditures by State and Territory to ( prices). 14 Figure 5: Local Road Expenditure by Funding Source (current prices) Figure 6: Local Road Expenditure Estimate Variations Figure 7: Council Depreciation and Revenue Relative Growth Total Revenue Figure 8: Council Depreciation and Revenue Relative Growth Taxation (Rate) Revenue Figure 9: Council Depreciation and Revenue Relative Growth Taxation (Rate) and Grant Revenue.. 21 Figure 10: Council Taxation (Rate) and Grant Revenue Relative Growth Figure 11: Council Total Depreciation and Transport and Communication Function Relative Growth.. 21 Figure 12: Depreciated Replacement Cost showing New and Contributed Assets Figure 13: Road LCC and LCE Australia Figure 14: Road LCC and LCE NSW Councils Figure 15: Road LCC and LCE NT Councils Figure 16: Road LCC and LCE Qld Councils Figure 17: Road LCC and LCE SA Councils Figure 18: Road LCC and LCE Tas Councils Figure 19: Road LCC and LCE Vic Councils Figure 20: Road LCC and LCE WA Councils Figure 21: Road LCC and LCE Urban Small Councils Figure 22: Road LCC and LCE Urban Medium Councils Figure 23: Road LCC and LCE Urban Large Councils Figure 24: Road LCC and LCE Rural Small Councils Figure 25: Road LCC and LCE Rural Medium Councils Figure 26: Road LCC and LCE Rural Large Councils Figure 27: Projected LCC and LCE Australia Figure 28: Projected LCC and LCE NSW Figure 29: Projected LCC and LCE NT Figure 30: Projected LCC and LCE Qld Figure 31: Projected LCC and LCE SA Figure 32: Projected LCC and LCE Tas Figure 33: Projected LCC and LCE Vic Figure 34: Projected LCC and LCE WA Figure 35: Projected LCC and LCE Urban Small Figure 36: Projected LCC and LCE Urban Medium Figure 37: Projected LCC and LCE Urban Large Figure 38: Projected LCC and LCE Rural Small Figure 39: Projected LCC and LCE Rural Medium Figure 40: Projected LCC and LCE Rural Large Figure 41: Projected Future Maintenance and Renewal Expenditure All Councils

4 PART 1 Executive Summary and Recommendations 1 BACKGROUND Local roads make up more than 80% of Australia s total road network by length and their funding is the largest single item of expenditure for many councils. The Federal Government has recognised the importance of local roads and the difficulty that local government has had in providing local roads to communities by establishing the Roads to Recovery Program in The Government has committed that program to be continued until After ten years of the Roads to Recovery Program it is appropriate to examine the impacts of the Roads to Recovery Program including the gap between needs and the funding that is available. 2 PURPOSE OF THE STUDY To identify the funds that have been spent on local roads since and estimate the funding needs of local roads in the period to The study has utilised information from the ABS, federal and state agencies, the ALGA National Local Roads Database (NLRDS), and asset management databases such as IPWEA NAMS.PLUS asset management database and state based programs such as WAMI in Western Australia and the STEP program in Victoria. 3 OUTPUT A presentation on the outcome of the study was made to the ALGA National Local Roads and Transport Congress (13 15 October 2010) in Bunbury WA. The report examines spending by state and territory on an annual basis: Total spending on all roads by source of funds; and Total spending on local roads by source of funds. The report estimates the funding needs and the short fall in funding of local roads. This is examined on a national, state and territory and the Federal Government council category basis annually and in total for the ten year period to The scope of the study is local roads under the control of Local Government. In this report roads refers to roads, bridges and ancillary transport infrastructure such as kerbs, paths and traffic facilities. 4

5 4 EXECUTIVE SUMMARY 4.1 Key Findings FINDING 1 Expenditure on local roads has been less than the life cycle cost for the past five years or more, but trends and future consequences are not being reported. The expenditure on roads has been less than needed to sustain the networks at current levels of service. Despite the welcome supplement from the Roads to Recovery Program, the actual life cycle expenditure (maintenance and renewal) for is 79% of life cycle cost, is only a slight improvement on the 74% of expenditure in (Figure 13). One impact of long term under expenditure is the complete loss of gravel for unsealed roads. Readily accessible road gravel is a finite resource and many gravel quarries are nearing exhaustion, thereby driving up costs of maintaining gravel surfaces Gradual degradation of the transport network has serious consequences if road pavements are allowed to deteriorate to the point where the underlying structure is damaged. Renewal costs are then many times the optimal life cycle costs. The gap between asset consumption and expenditure has widened from $788 million per year in 2005 to $860 million per year in (Table 13). The widening of the gap, despite the slight improvement in the life cycle expenditure ratio, is because of the growth of transport infrastructure managed by councils. (Figure 12). The effects of this under expenditure may not have become fully apparent for two reasons: 1. Assets have not yet needed renewal because of a past peak in asset construction pointing to future expenditures being far larger than the life cycle average. This scenario applies for groups of long life assets that have not yet needed to be renewed and makes long term asset planning and consistent state of the assets reporting essential. 2. There has been a gradual degradation of the transport network but it has not been measured or reported because of the past lack of asset management plans or state of the asset reporting. 5

6 FINDING 2 Expenditure on local roads will need to increase by an average of $1.2 billion per year for the next 15 years to avoid further and possible acceleration of service level deterioration. Future projections of maintenance and renewal for the next 15 years show that current levels of expenditure will need to increase by an average of $1.2 billion per year to avoid deterioration of the local road network. (Table 16). The future expenditure need model is based on a sample size of 158 (out of 564) councils across Australia scaled up for all councils using NLRDS data. 1 The estimates for future renewal are based on council asset registers that form the basis of the audited annual financial statements. The estimates for future maintenance and renewal are based on the current transport networks and service levels and have not allowed for future growth and upgrade of transport networks. Many local road networks have experienced substantial additional transport loads from both manufacturing and primary industry such as mining, forestry and agriculture. Councils are now preparing consistent Asset Management Plans with scenarios showing the consequences of these changes as an essential part of managing the Australian transport network. Councils road related expenditure over the period to shows that total expenditure has increased in real terms. (Table 2, Figure 2). Different data sources show different expenditure patterns over the past five years pointing to an urgent need to improve the quality and consistency of road expenditure data. Under the National Asset Management Frameworks, councils are now implementing accelerated asset management development programs to improve the quality of expenditure data and forward projections. This will enable an update to this report as data improves and provide the basis for whole of government state of the assets reporting recommended in Recommendation 2. 1 National Roads Data System. A national database of council road expenditure maintained by ALGA and state grants commissions. 6

7 FINDING 3 Councils have increased rate revenues at a higher rate than the increase in infrastructure depreciation. Council revenue raising over the period to shows that total revenue growth has been greater than asset consumption (a proxy for asset values) [Figure 8]. Taxation (rate) revenue growth has been greater than asset consumption [Figure 9], however there have been many other service obligations with changing compliance, environmental and social requirements making demands on rate revenues. This has meant that while council revenue growth has been greater than growth in depreciation (asset consumption), expense growth in councils transport and communication function has been less than growth in depreciation (asset consumption). [Figure 11]. Many facilities like swimming pools and community buildings are reaching their end of life at the same time as transport infrastructure. Many of these facilities were initially constructed from funding sources other than rate revenues. Councils are now preparing asset management policies, strategies and plans to inform local communities and provide whole of government reporting on value for money service provision. 7

8 FINDING 4 There is significant growth in Local Government transport infrastructure with no corresponding addition in revenues. Growth in the asset base of councils is significant, as illustrated by Figure 12, highlighting the impact of new assets constructed/acquired by Australian councils and assets constructed by the private sector and contributed free-of-cost to councils. Even though council rates have grown more than asset consumption growth, grant revenue growth has been less than the growth in asset consumption. [Figure 10]. Growth has not been the only driver for change. Changing transport modes, meeting environmental needs and compliance with legislation such as the Disability Discrimination Act require councils to upgrade transport networks. 8

9 FINDING 5 The supporting data needs to improve and be supported by Asset Management Policies, Plans and Strategies in accordance with the National Asset Management Frameworks. Local Government is working on improving quality of supporting data within the National Asset Management Framework and is taking this responsibility seriously. Figure 6 shows the past variability between data sources. Variations may be generally due to inclusions and exclusions of expenditure items such as grants and contributions, state government expenditure on regional and local roads and technical and management overheads. Providing a consistent state of the assets report based on Asset Management Plans and Asset Management Strategies is a recommended step to enable a whole of government approach to manage and plan national transport network outcomes. 9

10 4.2 Recommendations RECOMMENDATION 1 A continuing commitment to a whole of Government approach to asset and financial management as the foundation for providing value for money services and achieving strategic transport objectives. The May 2009 meeting of the Local Government and Planning Ministers Council agreed to the enhancement of existing nationally consistent frameworks on local government asset and financial management (National Frameworks) to assist councils improve their asset and financial management and planning. An ongoing commitment to the nationally consistent asset management frameworks will enable a whole of government approach to infrastructure planning to ensure communities are provided with value for money services and strategic transport objectives are achieved. RECOMMENDATION 2 Consistent reporting of councils improvements to asset management practice and data in accordance with the National Asset Management Frameworks. There has been significant variation in data between data sources. It is expected that this will improve as councils develop Asset Management Plans, Asset Management Strategies and Asset Management Policies in line with the National Framework. An annual review of reporting of asset management maturity against the national framework will enable the development of a national road management and funding plan. The implementation of the National Frameworks will result in all Australian councils having consistent asset management plans, strategies and supporting data. A national road management and funding plan should be developed that includes state of the assets reporting before 2013/2014. RECOMMENDATION 3 Whole of government consideration is needed for action required to bridge the estimated funding gap of $1.2 billion per annum to avoid deterioration of the local road network. Local Government s capacity to raise additional revenue for roads expenditure is limited. The current Roads to Recovery Program expires on 30 June If current levels of service are to be maintained a mechanism must be found to bridge the projected funding gap. 10

11 PART 2 Supporting Data and Analysis 5 SPENDING ON ALL ROADS TO Spending on all roads in Australia over the period to , by source of funding is shown in Table 1 in current prices (the prices applicable in each year) and in Table 2 in prices. TABLE 1 Funding of road related expenditure to (Current prices) Source Australian Government $1,675 $1,459 $1,822 $1,720 $1,818 $2,101 $4,252 $2,772 $2,724 State Government $3,143 $3,714 $3,500 $3,583 $3,599 $3,798 $2,435 $5,592 $7,335 Local Government $2,632 $2,732 $2,730 $2,730 $2,800 $2,619 $2,020 $2,508 $3,127 Private Sector $108 $158 $421 $314 $396 $563 $499 $740 Total $7,450 $8,012 $8,210 $8,455 $8,531 $8,914 $9,269 $11,371 $13,927 Source: expenditures BITRE Information Sheet 24, Table 1 p to expenditures BITRE Information Sheet 37, Table 1, p 3. Note: In 2005/06, The Australian Government expenditures included $307.5 million to accelerate local road projects, $1.8 billion to states and territories for the AusLink National Network and $14.5 million for Strategic Regional Roads. 2 TABLE 2 Funding of road related expenditure to ( prices) Source Australian Government $2,490 $2,064 $2,435 $2,221 $2,223 $2,478 $4,776 $2,960 $2,724 State Government $4,672 $5,255 $4,680 $4,627 $4,400 $4,478 $2,735 $5,971 $7,335 Local Government $3,912 $3,865 $3,650 $3,526 $3,423 $3,088 $2,269 3 $2,678 $3,127 Private Sector $0 $153 $211 $544 $384 $467 $632 $533 $740 Total $11,073 $11,336 $10,976 $10,919 $10,430 $10,510 $10,411 $12,141 $13,927 Source: expenditures BITRE Information Sheet 2005 update, Table 1 p 2 indexed using BITRE road construction and maintenance price indices to expenditures BITRE Information Sheet 37, Table 2, p 4. 2 BITRE, 2008, p 2. 3 BITRE data shows a dip in road expenditure but NLRDS shows an increase in road expenditure (Figure 6). This points to the need to improve data and ensure consistency. 11

12 The expenditures are shown in Figures 1 and 2. FIGURE 1 Funding of Road Related Expenditure to (current prices) FIGURE 2 Funding of Road Related Expenditure to ( prices) 12

13 5.1 Total Road Related expenditure by State/Territory to Total road related expenditure by state and territory is shown in Table 3 and Figure 4. TABLE 3 Total Road Related Expenditure by State and Territory to (current prices) State/Territory NSW 2, , , , , , , ,023.5 Vic 1, , , , , , , ,163.0 Qld 2, , , , , , , ,451.0 SA WA 1, , , , , , , ,166.7 Tas NT ACT Subtotal 8, , , , , , , ,918.0 Other Total 8, , , , , , , ,926.4 Source: BITRE, 2009, Information Sheet 37, Table 5, p 10. TABLE 4 Total Road Related Expenditure by State and Territory to ( prices) State/Territory NSW 3, , , , , , , ,023.5 Vic 1, , , , , , , ,163.0 Qld 3, , , , , , , ,451.0 SA WA 1, , , , , , , ,166.7 Tas NT ACT Subtotal 11, , , , , , , ,918.0 Other Total 11, , , , , , , ,926.4 Source: BITRE, 2009, Information Sheet 37, Table 5, p 10 indexed using BITRE road construction and maintenance price indices

14 FIGURE 3 Total Road Related Expenditures by State and Territory to (current prices) FIGURE 4 Total Road Related Expenditures by State and Territory to ( prices) 14

15 6 SPENDING ON LOCAL ROADS TO Expenditure on local roads and the source of funding is shown in Table 3 as interpreted from BITRE Information Sheets referenced under the Table. There were several programs that provided funds to state and local roads. These included the Black Spot and Strategic Regional Roads programs. A review of project funding allocations was undertaken to estimate the percentage of funds allocated to state and local roads. For the Strategic Regional Roads Program, the schedule of funded projects for was reviewed to identify projects on other than local roads using State Roads Agency road classifications and where necessary, inquiries with councils. Individual projects were identified as being on state/territory/other or Local Government controlled roads and expenditures estimated and summarised as shown in Table 3. Details of funded projects on other than local roads are shown in Appendix A. TABLE 5 Strategic Regional Roads Funded Projects on State/Territory and Local Roads State Australian Government Funded Projects Funded Projects on other than Local Roads Funded Projects on Local roads NSW $158.9 $30.8 $128.2 Victoria $65.1 $20.9 $44.2 Queensland $123.7 $36.8 $87.0 Western Australia $49.0 $3.3 $45.8 South Australia $37.2 $24.7 $12.5 Tasmania $24.5 $17.0 $7.5 Northern Territory $11.4 $9.4 $2.0 Total $469.8 $141.7 $327.0 Percentage 100% 30.4% 69.6% The figure of 69.6% was used to estimate the estimate Strategic Regional Roads Program expenditure on local roads as shown in Table 4. TABLE 6 Estimated Strategic Regional Road Expenditure on Local Roads Funding Source Federal Strategic Regional Road Program Expenditure $14.5 $290.3 $75.7 Estimated expenditure on State/Territory Roads (30.4%) $4.4 $88.2 $23.0 Estimated expenditure on Local Government roads (69.6%) $10.1 $202.1 $52.7 For the Black Spot Program, a review of 73 projects in Tasmania indicated that 83% of Black Spot Projects were on local roads. A review of Black Spot funded projects in South Australia supported this estimate of funding allocation. This figure of 83% was used to estimate Black Spot Program expenditure on local roads as shown in Table 5. 15

16 TABLE 7 Estimated Black Spot Program Expenditure on Local Roads Funding Source Federal Black Spot Program Expenditure Estimated expenditure on state/territory roads (17%) Estimated expenditure on Local Government roads (83%) $37.7 $40.9 $42.4 $44.5 $44.5 $44.5 $44.4 $41.6 $37.3 $6.4 $7.0 $7.2 $7.6 $7.6 $7.6 $7.5 $7.1 $6.3 $31.3 $33.9 $35.2 $36.9 $36.9 $36.9 $36.9 $34.5 $31.0 Source: BITRE Information Sheet 24, Table 3, p 4 and BITRE Information Sheet 37, Table 4, pp 7 8. Note: Percentage of Black Spot Program projects estimated from review of Black Spot projects in Tasmania. TABLE 8 National Transport Commission Estimated Local Road Expenditure Estimated Local Road Expenditure Urban $2,529.0 $2,560.0 $2,675.0 $2,593.0 $2,589.0 $2,670.0 $2,741.0 $3,016.0 $3,409.0 Rural $1,602.0 $1,578.0 $1,679.0 $1,702.0 $1,748.0 $1,700.0 $1,687.0 $1,891.0 $2,246.0 Estimated Local $4,131.0 $4,138.0 $4,354.0 $4,295.0 $4,337.0 $4,370.0 $4,428.0 $4,907.0 $5,655.0 Road Expenditure Payments from state/territory Govts H1 council NA NA NA $307.0 $262.0 $43.0 $42.0 $178.0 $52.0 managed arterials H4 direct spending NA NA NA $117.0 $102.0 $120.0 $112.0 $127.0 $159.0 on local roads H5 other state spending on local roads NA NA NA $97.0 $26.0 $18.0 $18.0 $27.0 $60.0 Total from NA NA NA $521.0 $390.0 $181.0 $172.0 $332.0 $271.0 state/territory Total $4,131.0 $4,138.0 $4,354.0 $4,816.0 $4,727.0 $4,551.0 $4,600.0 $5,239.0 $5,926.0 Source: National Transport Commission, Annual Reports , Tables 2, 3. Note: Payments H2 contract works on state roads and H3 spending on local roads in unincorporated areas not included in state/territory expenditures. 16

17 TABLE 9 Local Road Expenditure by Funding Source to (current prices) Funding Source Australian Government Black Spot Programs * $31.3 $33.9 $35.2 $36.9 $36.9 $36.9 $36.9 $34.5 $31.0 Roads to Recovery $150.0 $302.2 $202.2 $302.2 $253.1 $307.5 $304.4 $262.5 Strategic Regional ^ $10.1 $202.1 $52.7 Improving Local Roads $307.5 Local Government FAGs for Roads Supplementary Funding for SA $388.7 $406.5 $424.8 $451.4 $465.5 $473.4 $499.2 $518.2 $542.7 $4.3 $9.0 $13.0 $13.6 Subtotal $420.0 $590.4 $762.2 $690.5 $804.6 $763.4 $1,170.1 $1,072.2 $902.5 State/territory Governments ^^ NA NA NA $521.0 $390.0 $181.0 $172.0 $332.0 $271.0 Local Government $2,631.8 $2,731.8 $2,730.1 $2,730.4 $2,799.9 $2,619.3 $2,019.6 $2,508.0 $3,127.3 TOTAL $3,051.8 $3,322.2 $3,492.3 $3,941.9 $3,994.5 $3,563.7 $3,361.7 $3,912.2 $4,300.8 Source: BITRE Information Sheet 24, Table 3, p 4 and BITRE Information Sheet 37, Table 4, pp 7 8. Note: * Funded Black Spot Program projects in local roads from Table 5. ^ Funded Strategic Regional Road Projects on local roads from Table 4. ^^ State/territory expenditures from Table 8. The local road expenditure by source of funding are summarised in Figure 5. FIGURE 5 Local Road Expenditure by Funding Source (current prices) 17

18 6.1 Local Road Expenditure Variations There is a difference in the local road expenditures interpreted from the BITRE information sheets, estimated by the National Transport Commission and that reported by councils in the National Local Road Data Systems (NLRDS) expenditure returns to State Grants Commissions. A comparison is shown in Table 11 below and in Figure 6. FIGURE 6 Local Road Expenditure Estimate Variations Variations may be generally due to inclusions and exclusions of expenditure items such as grants and contributions, state government expenditure on regional and local roads and technical and management overheads. The NLRDS expenditures understate local road expenditure due to the fact that there is not a 100% completion of the expenditure returns. The NLRDS does not include expenditures from Northern Territory councils and only 2005 ACT local road expenditures. The NLRDS return rates are shown in Table 13. TABLE 10 National Local Road Data System Local Road Expenditures State/Territory ACT $0 $0 $0 $0 $0 $0 $28 $0 $0 $0 $0 NSW $830 $727 $831 $885 $788 $922 $1,067 $1,115 $1,227 $1,261 $1,351 Qld $317 $414 $667 $701 $522 $599 $640 $711 $760 $586 4 $988 SA $140 $0 $0 $151 $202 $206 $241 $253 $280 $306 $326 Tas $0 $0 $0 $87 $81 $85 $90 $96 $103 $106 $116 Vic $380 $379 $471 $534 $470 $422 $577 $659 $718 $757 $800 WA $302 $0 $355 $401 $384 $371 $391 $412 $451 $499 $563 NT $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total $1,969 $1,520 $2,324 $2,759 $2,447 $2,605 $3,034 $3,246 $3,539 $3,515 $4,144 Source: ALGA National Local Road Data System Local Government amalgamations occurred in QLD in 2008 and this may have affected data returns. 18

19 TABLE 11 Comparison of Local Road Expenditure Data Sources Local Road Expenditure Data Source BITRE Local Govt Expenditure NTC Estimated Local Govt Expenditure $3,052 $3,322 $3,492 $3,942 $3,995 $3,564 $3,362 $3,912 $4,301 $4,131 $4,138 $4,354 $4,295 $4,337 $4,370 $4,428 $4,906 $5,655 NLRDS Expenditure $1,520 $2,324 $2,759 $2,447 $2,605 $3,034 $3,246 $3,539 $3,515 TABLE 12 NLRDS Responses State Response ACT No. Councils 1 No. Responses 1 % 100% NSW No. Councils No. Responses % 91% 98% 93% 92% 91% 100% 99% 99% 99% 100% NT No. Councils No. Responses % Qld No. Councils No. Responses % 90% 93% 82% 84% 92% 89% 93% 86% 89% 100% Vic No. Councils No. Responses % 90% 87% 100% 100% 100% 100% 100% 97% 96% 96% SA No. Councils 68 NA NA No. Responses 68 NA NA % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Tas No. Councils NA NA NA No. Responses NA NA NA % 100% 100% 100% 100% 100% 100% 100% WA No. Councils No. Responses % 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 19

20 7 REVENUE RAISING FOR LOCAL ROADS The amount of revenue able to be raised by councils for roads needs to be considered. There is limited national data on revenue raising for local roads, however the national data are available for councils total assets and total revenue to give an indication of revenue raising for infrastructure of which local roads are the major component. Figures 7 9 provide an indication of relative revenue raising to asset consumption as measured by depreciation for councils total revenue, taxation (rate) revenue as well as taxation (rate) and grant revenue. These figures indicate that Australian councils total revenue growth has been greater than growth in asset consumption. FIGURE 7 Council Depreciation and Revenue Relative Growth Total Revenue FIGURE 8 Council Depreciation and Revenue Relative Growth Taxation (Rate) Revenue 20

21 FIGURE 9 Council Depreciation and Revenue Relative Growth Taxation (Rate) and Grant Revenue The relative growth in councils taxation (rate) revenue to grant revenue is shown in Figure 10. This indicates that growth in council total revenue has been greater than growth in grant revenue. FIGURE 10 Council Taxation (Rate) and Grant Revenue Relative Growth While council revenue growth has been greater than growth in depreciation (asset consumption), Figure 11 indicates that expense growth in council s transport and communication function has been less than growth in depreciation (asset consumption). FIGURE 11 Council Total Depreciation and Transport and Communication Function Relative Growth 21

22 Figures 7 10 indicate that councils have realised revenue growth at a greater rate than growth in depreciation (asset consumption) and growth in grant revenue has been less than growth in depreciation. Figure 11 shows that councils allocation of total revenue to their transport and communication services has reduced over this period. Growth in the asset base of councils is significant, as illustrated by Figure 12, highlighting the impact of new assets constructed/acquired by Australian councils and assets constructed by the private sector and contributed free-of-cost to councils. FIGURE 12 Depreciated Replacement Cost showing New and Contributed Assets Data for Figures 7 12 are shown in Appendix B. 22

23 8 LOCAL ROAD LIFE CYCLE COSTING Life cycle cost and life cycle expenditure are indicators of financial sustainability in providing services from infrastructure. Life cycle cost expresses the cost of providing the service as an annual amount. Life cycle cost includes annual operations and maintenance expenditure plus the cost of consumption of assets measured by depreciation expense. Life cycle expenditure is current expenditure required to provide the service including annual operations and maintenance expenditure plus the cost of renewal/replacement of assets measured by capital revenue expenditure expense. For road service, operations are generally included within maintenance expenditures. Estimations of life cycle cost and life cycle expenditure to provide local road services have been prepared using the ALGA s National Local Road Data System database. This data is made available to ALGA by councils through the State Grants Commissions and Western Australia Local Government Association. The co-operation of the commissions and WALGA in collecting the data from councils and making it available to ALGA is acknowledged with thanks. Table 13 and Figure 13 shows the life cycle costs and expenditures for Australian councils for the years to TABLE 13 Road LCC and LCE to Year Depreciation Maintenance Capital Renewal Exp Life Cycle Cost Life Cycle Expenditure Gap $M 2005 $1,950 $1,079 $1,162 $3,029 $2,241 $ $2,006 $1,141 $1,229 $3,146 $2,370 $ $2,096 $1,246 $1,342 $3,342 $2,588 $ $2,309 $1,294 $1,394 $3,603 $2,688 $ $2,428 $1,458 $1,571 $3,886 $3,029 $857 Source: ALGA NLRDS, FIGURE 13 Road LCC and LCE Australia For life cycle expenditure is 79% of life cycle cost. There has been a slight improvement in funding of life cycle cost over the 74% of funding in

24 8.1 Local Road Life Cycle Cost (LCC) and Life Cycle Expenditure (LCE) by States and Territories The life cycle cost and expenditure were analysed by state/territory and Australian Classification of Local Government (ACLG) council classification. Life cycle costs and expenditures for states are shown in Figures FIGURE 14 Road LCC and LCE NSW Councils FIGURE 15 Road LCC and LCE NT Councils Figure 16 Road LCC and LCE Qld Councils FIGURE 17 Road LCC and LCE SA Councils FIGURE 18 Road LCC and LCE TAS Councils FIGURE 19 Road LCC and LCE Vic Councils FIGURE 20 Road LCC and LCE WA Councils 24

25 The ratio of life cycle expenditure to life cycle cost gives an indicator of financial sustainability in providing local road services. The sustainability position is not uniform over the states and territories as this is affected by factors such as road length, population served, funding levels and ability to pay for services. The life cycle costs for NSW and WA councils shown in Figures 14 and 20 may be understated by up to 60% as these councils are reporting asset values at deemed cost which may be up to 15 years out of date. Councils that are reporting asset values at fair value are reporting a more accurate sustainability indicator that that reported at deemed cost. The figures for Northern Territory are derived from the Annual Financial Statements of the fi ve major councils, Darwin, Alice Springs, Palmerston, Katherine and Litchfield. Darwin City Council reports at fair value and the fair value valuation basis was assumed for NT councils for the purpose of national aggregation and analysis. 8.2 Local Road Life Cycle Cost (LCC) and Life Cycle Expenditure (LCE) by Council Groups Road life cycle cost and expenditure were analysed by council groups based on the Australian Classification of Local Governments. The grouping of councils in detailed in Table 14. Figures show the life cycle cost (LCC) and life cycle expenditure (LCE) position for the council groups in nominal values. TABLE 14 Council Group Council Group Classifications Population Range Urban Small up to 30,000 Urban Medium 30,000 70,000 Urban Large over 70,000 Rural Small up to 2,000 Rural Medium 2,000 5,000 Rural Large over 5,000 Source: DITRDLG, 2010, Local Government National Report, Table F1, p

26 FIGURE 21 Road LCC and LCE Urban Small Councils FIGURE 22 Road LCC and LCE Urban Medium Councils FIGURE 23 Road LCC and LCE Urban Large Councils FIGURE 24 Road LCC and LCE Rural Small Councils FIGURE 25 Road LCC and LCE Rural Medium Councils FIGURE 26 Road LCC and LCE Rural Large Councils The figures indicate that small rural councils have the greatest challenge in managing service levels and life cycle costs of local road services. The understating of life cycle cost by reporting asset values at deemed cost is not taken into account in the council group analysis. The true position may be much worse than that indicated in these figures. 26

27 9 PROJECTED EXPENDITURES Life cycle cost is projected to increase in line with asset growth. Asset growth occurs through the upgrade of existing assets to a higher level of service (sealing of unsealed roads) and construction of new assets by councils, transfer of assets to councils from state Governments and construction of new assets by developers which are contributed to councils free-of-cost. Estimates of projected life cycle costs were developed from 2009 values using growth in asset values over the period to Figure 27 shows the current and projected life cycle cost for Australian councils. The projected life cycle costs are based on NSW and WA councils adopting the fair value basis reporting of infrastructure assets. Note that the values are in nominal values (inclusive of inflation). FIGURE 27 Projected LCC and LCE Australia 9.1 Projected Life Cycle Cost (LCC) and Life Cycle Expenditure (LCE) by State and Territory Projected life cycle cost and expenditures for states and territory are shown in Figures Note that the projected life cycle cost is shown in nominal values (inclusive of inflation). FIGURE 28 Projected LCC and LCE NSW FIGURE 29 Projected LCC and LCE NT 27

28 FIGURE 30 Projected LCC and LCE Qld FIGURE 31 Projected LCC and LCE SA FIGURE 32 Projected LCC and LCE TAS FIGURE 33 Projected LCC and LCE Vic FIGURE 34 Projected LCC and LCE WA 28

29 9.2 Projected Life Cycle Cost (LCC) and Life Cycle Expenditure (LCE) by Council Group Projected life cycle cost and expenditures for council groups are shown in Figures Allowance is made for reporting at fair value using an average national factor. Note that the projected life cycle cost is shown in nominal values (inclusive of inflation). FIGURE 35 Projected LCC and LCE Urban Small FIGURE 36 Projected LCC and LCE Urban Medium FIGURE 37 Projected LCC and LCE Urban Large FIGURE 38 Projected LCC and LCE Rural Small FIGURE 39 Projected LCC and LCE Rural Medium FIGURE 40 Projected LCC and LCE Rural Large 29

30 9.3 Projected Future Maintenance and Renewal Expenditure Note: Data from IPWEA NAMS.PLUS, NLRDS and grateful acknowledgments for contributions of data for Victorian councils by Ian Mann for Municipal Association of Victoria (MAV) and Western Australian councils by Bruce Lorimer for Western Australian Local Government Association (WALGA). Sample size of 158 scaled up to 564 councils using NLRDS data. Planned upgrade indicates expenditure needed by councils to meet increased population, new industry and increasing regulatory requirements such as the requirements of the Disability Discrimination Act. FIGURE 41 Projected Future Maintenance and Renewal Expenditure All Councils TABLE Year Sustainability Ratio Projections Renewal Planned $M Required $M Shortfall $M Sustainability Ratio Total 15 Years $22,635 $37,971 $15, Annual Average $1,509 $2.531 $1, Based on Figure 41 data. TABLE Year Sustainability Ratio Projections Renewal and Maintenance Planned $M Required $M Shortfall $M Sustainability Ratio Total 15 Years $44,870 $62,534 $17, Annual Average $2,991 $4.169 $1, Based on Figure 41 data. 30

31 REFERENCES ABS, 2010, Government Finance Statistics, Australia, , Table 339. General Government Local Total Local, Australian Bureau of Statistics, Canberra, ABS, 2010, Consumer Price Index, Australia, Tables 1 and 2. CPI: All Groups, Index Numbers and Percentage Changes, Australian Bureau of Statistics, Canberra, abs@.nsf/mf/ ALGA, 2007, National Local Roads Data System (NLRDS), Australian Local Government Association, Canberra, BITRE, 2009, Public road-related expenditure and revenue in Australian 2009, Information sheet 37, Bureau of Infrastructure, Transport and Regional Economics, Department of Infrastructure, Transport, Regional Development and Local Government, Canberra. BITRE, 2008, Public road-related expenditure and revenue in Australian (2007), Information sheet 27, Bureau of Infrastructure, Transport and Regional Economics, Department of Infrastructure, Transport, Regional Development and Local Government, Canberra. BITRE, 2005, Public Road-Related Expenditure and Revenue in Australian (2005 update), Information sheet 24, Bureau of Transport and Regional Economics, Department of Transport and Regional Services, Canberra. DITRDLG, 2010, Local Government National Report, National Building Program, Department of Infrastructure, Transport, Regional Development and Local Government, Canberra. DITRDLG, 2010, Black Spot Program, National Building Program, Department of Infrastructure, Transport, Regional Development and Local Government, Canberra, nationbuildingprogram.gov.au/funding/blackspots/ DITRDLG, 2010, Strategic Regional Program Approved Projects, AusLink Publications, Department of Infrastructure, Transport, Regional Development and Local Government, Canberra, JRA, 2005, Road Management Report, Road Asset Benchmarking Project, Roads and Transport Directorate, IPWEA NSW Division, Sydney. JRA, 2008, Road Management Report, Road Asset Benchmarking Project 2008, Roads and Transport Directorate, IPWEA NSW Division, Sydney. NTC, 2010, Annual Report, National Transport Commission, Melbourne. 31

32 APPENDIX A Strategic Regional Road funded projects on State/Territory State Council (area) Funded Projects on State/Territory Roads Funded Project Totals Funded Projects on State Roads Funded Projects on Local Roads NSW $158,940,708 Bega Valley Shire Council Pambula River Bridge $5,000,000 Hawkesbury Shire Council Bells Line of Road Improvements $750,000 Kurrajong Kiama Municipal Council Princes Highway, Conjola Mountain $10,000,000 Deviation Shoalhaven City Council Princes Highway Black Spots $15,000,000 $158,940,708 $30,750,000 $128,190,708 Vic $65,086,195 East Gippsland Shire Council Great Alpine Road $6,500,000 Yarra Ranges Shire Council Bayview Road Belgrave Roundabout $333,000 Yarra Ranges Shire Council Wray Crescent Mt Eveline Road duplication $573,000 Yarra Ranges Shire Council Melba Highway deviation, Yarra Glen $5,500,000 Yarra Ranges Shire Council Widen Wellington Road, Lysterfield Rd and Clematis $8,000,000 $65,086,195 $20,906,000 $44,180,195 Qld $123,718,145 Aramac Shire Council Starlight Way (Aramac to Torrens $7,000,000 Creek Road) Cook Shire Council Lily Creek to Crocodile Gap $10,000,000 Diamantina Shire Council Cluny Sandhills $450,000 Diamantina Shire Council Nappabilly Creek Crossing $1,000,000 Flinders Shire Council Hann Highway development $3,850,000 Nebo Shire Council Peak Downs Highway upgrade $6,500,000 Peak Downs Shire Council Quilpie Shire Council Rolleston to Suttor Development Road Link * Quilpie-Thargomindah upgrade and seal $7,000,000 $950,000 $123,718,145 $36,750,000 $86,968,145 WA $49,001,266 Derby-West Kimberley Shire Gibb River Road Blina to Lennard River Section $3,250,000 $49,001,266 $3,250,000 $45,751,266 32

33 State Council (area) Funded Projects on State/Territory Roads Funded Project Totals Funded Projects on State Roads Funded Projects on Local Roads SA Light Regional Council Main North Road, Gawler to Tarlee $6,000,000 Light Regional Council Kapunda to Marrabel Road $3,000,000 City of Playford Angle Vale Road & Heaslip Road $1,010,000 intersection SA Government Road Conditions Signs automation $490,000 City of Tea Tree Gully Montague Road Upgrade $1,000,000 Unincorporated areas South Australia Strzelecki Track upgrade $6,865,000 Unincorporated areas South Australia Unincorporated areas South Australia Maree-Lyndhurst Road Accessibility Improvements Blinman-Wilpena Road construction and sealing $1,925,000 $2,400,000 Wakefield Regional Council Bowmans Intermodal expansion $2,000,000 $37,203,215 $24,690,000 $12,513,215 Tas $24,459,400 Circular Head Council Bass Highway Sisters Hills $15,000,000 Latrobe Council Port Sorell Road $500,000 Launceston City Council Tasman Highway Nunamara Targa $1,500,000 $24,459,400 $17,000,000 $7,459,400 NT $11,369,500 Coomalie Community Batchelor All Weather Access $700,000 Government Council NT Government Port Keats Road upgrade $4,950,000 Shire of NgaanyatjarraKu Outback Way $3,740,000 $11,369,500 $9,390,000 $1,979,500 Total $469,778,429 $142,736,000 $327,042,429 Percentages of funded projects on state/territory and local roads 30.4% 69.6% Source: DITRDLG, 2010, Strategic Regional Program Approved Projects Note: * Estimated $7M of $11.5M on local roads 33

34 APPENDIX B Data Used in Graphs and Figures B1 Council Depreciation and Revenue Relative Growth Total Revenue (Figure 7) Item Depreciation $3,436 $3,542 $3,653 $3,762 $3,849 $3,988 $4,274 $4,559 $4,844 $5,341 Total Revenue $16,206 $16,787 $18,030 $18,786 $19,933 $21,261 $23,854 $26,014 $27,758 $30,531 Growth with Base $100 Depreciation $100.0 $103.1 $106.3 $109.5 $112.0 $116.1 $124.4 $132.7 $141.0 $155.4 Total Revenue $100.0 $103.6 $111.3 $115.9 $123.0 $131.2 $147.2 $160.5 $171.3 $188.4 Source: ABS, 2010, Government Finance Statistics, Australia, , Table 339, Tables 1, 2 & 3. B2 Council Depreciation and Revenue Relative Growth Taxation (Rate) Revenue (Figure 8) Item Depreciation $3,436 $3,542 $3,653 $3,762 $3,849 $3,988 $4,274 $4,559 $4,844 $5,341 Taxation (Rate) Revenue $6,016 $6,389 $6,757 $7,224 $7,671 $8,183 $8,726 $9,404 $10,128 $10,874 Growth with Base $100 Depreciation $100.0 $103.1 $106.3 $109.5 $112.0 $116.1 $124.4 $132.7 $141.0 $155.4 Taxation (Rate) Revenue $100.0 $106.2 $112.3 $120.1 $127.5 $136.0 $145.0 $156.3 $168.4 $180.8 Source: ABS, 2010, Government Finance Statistics, Australia, , Table 339, Tables 1, 2 & 3. B3 Council Depreciation and Revenue Relative Growth Taxation (Rate) & Grant Revenue (Figure 9) Item Depreciation $3,436 $3,542 $3,653 $3,762 $3,849 $3,988 $4,274 $4,559 $4,844 $5,341 Taxation (Rate) & Grant Revenue $8,066 $8,378 $9,061 $9,322 $9,875 $10,398 $10,822 $11,662 $12,564 $14,188 Growth with Base $100 Depreciation $100.0 $103.1 $106.3 $109.5 $112.0 $116.1 $124.4 $132.7 $141.0 $155.4 Taxation (Rate) & Grant Revenue $100.0 $103.9 $112.3 $115.6 $122.4 $128.9 $134.2 $144.6 $155.8 $175.9 Source: ABS, 2010, Government Finance Statistics, Australia, , Table 339, Tables 1, 2 & 3. 34

35 B4 Council Depreciation and Grant Revenue Relative Growth (Figure 10) Item Depreciation $3,436 $3,542 $3,653 $3,762 $3,849 $3,988 $4,274 $4,559 $4,844 $5,341 Grant Revenue $2,050 $1,989 $2,304 $2,098 $2,204 $2,215 $2,096 $2,258 $2,436 $3,314 Growth with Base $100 Depreciation $100.0 $97.0 $112.4 $102.3 $107.5 $108.0 $102.2 $110.1 $118.8 $161.7 Grant Revenue $100.0 $103.9 $112.3 $115.6 $122.4 $128.9 $134.2 $144.6 $155.8 $175.9 Source: ABS, 2010, Government Finance Statistics, Australia, , Table 339, Tables 1, 2 & 3. B5 Council Taxation (Rate) and Grant Revenue Relative Growth (Figure 11) Item Taxation (Rate) Revenue $6,016 $6,389 $6,757 $7,224 $7,671 $8,183 $8,726 $9,404 $10,128 $10,874 Grant Revenue $2,050 $1,989 $2,304 $2,098 $2,204 $2,215 $2,096 $2,258 $2,436 $3,314 Growth with Base $100 Taxation (Rate) Revenue $100.0 $106.2 $112.3 $120.1 $127.5 $136.0 $145.0 $156.3 $168.4 $180.8 Grant Revenue $100.0 $97.0 $112.4 $102.3 $107.5 $108.0 $102.2 $110.1 $118.8 $161.7 Source: ABS, 2010, Government Finance Statistics, Australia, , Table 339, Tables 1, 2 & 3. B6 Depreciated Replacement Cost showing New and Contributed Assets (Figure 18) Depreciated Replacement Cost Existing Assets $143,042 $138,797 $137,878 $136,299 $137,506 $139,459 $142,831 $147,079 $166,834 $176,046 Constructed Assets NA $3,515 $7,062 $10,750 $14,630 $19,075 $24,188 $29,661 $36,078 $42,833 Contributed Assets NA $3,960 $8,165 $12,588 $17,374 $22,711 $28,821 $35,350 $43,066 $51,198 Total $143,042 $146,272 $153,105 $159,636 $169,510 $181,245 $195,840 $212,091 $245,978 $270,077 Source: ABS, 2010, Government Finance Statistics, Australia, , Table 339, Tables 1, 2 & 3. 35