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Victorian local government – ripe for disruption

Victorian local government – ripe for disruption

The challenges of budget restraints and changing resident expectations need innovative solutions.

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Partner, KPMG Enterprise Advisory, Local Government Leader

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All councils have to deliver on the mantra of doing more with less and financial constraint is often a trigger for innovation.

In local government in Victoria, the introduction of ‘Fair Go rate capping’ has been the catalyst for many councils to critically reassess the way they run their organisations, improving how they respond to the needs of citizens, provide the best of services, and do so with maturity and efficiency.

Mornington Peninsula Shire is one council at the forefront of this approach. CEO Carl Cowie has made a number of changes to drive efficiency and improve service provision. He says although rate capping has not impacted his approach, it now helps his argument.

Mornington Peninsula Shire has over 1200 staff, a $28 million debt, multi-million dollar contracts with major contractors, and a revenue of $220 million – which Cowie sees as equivalent to running a business.

Cowie looks to the private sector as a benchmark of efficiency and profit maximisation, and he equates ratepayers to shareholders. Through this lens, he sees that the obligation of councils is to provide the best possible return for ratepayers. Rate capping means declining income for councils, so they have to think radically to provide ratepayers with similar or better services over a 10-year plan.

Revenue challenges

Many of Victoria’s 79 councils are facing deficits between revenue earned from rateable properties and their running costs. Some already feel the impact; for others, it will come later.

Mature councils: Councils with stable population growth and limited revenue growth from rateable properties are facing the challenge of meeting citizens’ needs, determining what services to provide and their appropriate delivery model. They’re questioning where to innovate and how to deliver in the most efficient and cost effective way. This includes procurement and the potentially overlooked opportunity of other revenue-generating approaches, particularly where large land and property portfolios exist.

Growth area councils: These councils benefit from population growth and increasing revenue. However, they need to fund new infrastructure requirements and respond to a changing demographic demanding new and different services. They need to build internal organisational capability and maturity to transition from what were largely rural councils to large and fast growing urban organisations. This requires skilled resources, mature processes and the introduction of innovative technology solutions.

Changing customer expectations

The expectations of citizens and constituents are also changing, and are driving their interaction with councils and their expectations of services offered. They expect a level of maturity from councils when it comes to the data and information they hold about residents, and how it is managed.

Michael Hiller, National Leader, Infrastructure, Government and Healthcare, KPMG, says that the nominal lack of competition within government means customers can’t ‘leave’ per se, but immunity no longer holds true. He says customers aren’t afraid to express their view when service levels are poor, and social media and 24-hour news add pressure to show that issues are being addressed.

Hiller sees that customers will no longer accept a public sector that is behind the times. They want their tax dollars spent wisely and expect good service, meaning the sector must match the pace of change set by the private sector.

In addition, demographics are changing and community areas now have a mix of generations and ethnicities impacting how people want to interact with councils, and how councils interact across diverse community needs.

Technology and opportunity

These challenges are further complicated by the technology situation faced by many councils. KPMG has assisted several councils to plan for their IT strategy, and we have seen a majority starting from the same position and pain points.

Councils have disparate IT systems, some of which are 20 to 30 years old, creating a complex technology environment, with often hundreds of software applications supported through a set of customised integrations and ageing infrastructure.

There has been under-investment in IT, with technology historically not seen as an enabler to business. Typically, few CIOs have a seat at the executive table. However, technology’s speed of advancement and the capabilities available present a compelling argument for transformation.

Cloud technology is a game changer for local councils. Martin Hopley, CIO, Mornington Peninsula Shire, is an advocate, acknowledging the cloud has enabled councils to quickly adapt and run their business from anywhere.

Technology companies are willing to invest and work with councils to develop potential solutions. This brings healthy competition and a range of options that weren’t available to the sector before.

It’s time for disruption

So why is now the time to transform and disrupt? For many councils, rate capping has forced structural reform. The release valve of guaranteed revenue no longer exists.

Steven Lambert, Director City Transformation, Wyndham City Council, thinks that within the new environment local councils must live within their means like never before.

The good news is that hard choices on what services to provide and how to deliver them will drive efficiencies and priorities, creating a new landscape for partnerships, more sophisticated service planning, and initiatives such as shared council services, reliance on private sector partnerships and more efficient procurement.

A previous version of this article, Victorian local government: Ripe for disruption under ratecapping, was published at Government News.

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