SUBMISSION TO THE NSW LOCAL GOVERNMENT GRANTS COMMISSION Proposed Financial Assistance Grants Methodology – Consultation 2026 Council
Federation Council
Contact person
Adrian Butler
Position
General Manager
Email Date
9 October 2026
SUBMISSION TO THE NEW SOUTH WALES LOCAL GOVERNMENT GRANTS COMMISSION Subject: Feedback on the Proposed Distribution Methodology for Federal Financial Assistance Grants (Targeted Implementation FY 2027/28) Submitting Organisation: Federation Council
Introduction Federation Council welcomes the opportunity to provide feedback to the NSW Local Government Grants Commission on the proposed methodology changes for distributing the Federal Government Financial Assistance Grants (FAGs). Federation Council formally records that this document is effectively an Interim Submission. Council advises that it has formally lodged a request under the Government Information (Public Access) Act 2009 (GIPA) to receive the underlying background modelling, data sets, and technical reports, including the ARIA research undertaken by the University of Adelaide regarding socio-economic rankings and remoteness factors, as well as the detailed methodological work conducted by the International Centre for Economics. Council accepts that the sector has long been calling for a review of the distribution model, however contends that the 28-day exhibition period, whenever it was to occur, worsened by being conducted during peak financial statement preparation is insufficient and fundamentally disrespects the sector. Equally disrespectful, is the lack of disclosure of any background work that led to each council’s results. Councils cannot provide fully informed, technical feedback without access to the full dataset and methodology that drive their funding outcomes. Council understand the Commission is mainly seeking
views on the methodology and not the individual funding outcome, yet this all relates to very critical Federal funding that Councils receive and in Council’s view, should not be entirely separated. Also, even if no funding changes were proposed of any significance, positive or negative, how can Councils make meaningful submissions and be more confident of one of the Commissions main aims, to be a more effective, fair and transparent system of distribution, without more detailed knowledge of how and why they are placed in certain rankings under the new methodology, being placings/scores that then directly impact their grant amounts. Council considers there is every chance that there are errors or mis-assumptions in where Councils have been categorised, or other aspects of the modelling and calculations, and the justification. Council appreciated the recent one-on-one session between Council staff and the Commission/Office of Local Government staff. This did shed some more light on some of the reasons as to why Council is proposed to be impacted by the overall net loss of $2,168 million. Though there remain many unknowns which remain of significant concern to Council. The process should be paused and extended into a 12-month collaborative journey. Council reserves the right to lodge a comprehensive supplementary submission once the requested GIPA information is provided.
1. Overall Position •
Current Position: Do Not Support / Unable to Determine Without Further Information.
Federation Council supports in principle the Commission’s objective to transition towards a Balanced Budget approach, as utilised in most other Australian States and Territories. However, based on the preliminary information provided, Council believes the underlying assumptions, proxy variables, and mathematical modelling could be fundamentally flawed, overly broad, and produce severe unintended consequences for rural and regional communities. Therefore Council does not support the draft methodology. While Council welcomes the proposed increase in its Local Roads Component from $3,125,289 (2025/26) to $4,203,187 (2027/28)—which provides vital support for our extensive road network of approximately 2,200 kilometres, this is drastically offset by a catastrophic reduction in our General Purpose Component.
Grant Component
FY 2025/26
Proposed FY 2027/28
Net Variance ($)
Variance (%)
Local Roads Component
$3,125,289
$4,203,187
+$1,077,898
+34.5%
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 2 of 14
Grant Component
General Component
Total Allocation
Purpose
FY 2025/26
Proposed FY 2027/28
Net Variance ($)
Variance (%)
$6,417,919
$3,246,415
-$3,171,504
-49.4%
$9,543,208
$7,449,601
-$2,168,517
-22.7%
This represents an overall net funding loss of $2,168,517 per annum (a 49.4% slash to general operating grant funds). A funding shock of this magnitude severely compromises Council’s financial sustainability and ability to deliver core community services. Council would be required to make significant and unpopular service cuts, and frankly the community do not deserve this, especially considering the significant additional rates they are now paying, and or seek a further rate increase outlined further below.
2. Alignment with Principles The proposed methodology fails to align with key principles of equity, transparency, consistency, and accountability: •
Equity and Fairness: The model unfairly penalises rural agricultural councils by assuming high farmland valuations equate to higher revenue-raising capacity. Furthermore, allocating lower grants to councils with lower Aboriginal and Torres Strait Islander (ATSI) populations misconstrues service cost drivers and creates demographic inequities.
•
Transparency: The Commission has asked councils to focus on "methodology rather than outcomes," yet has withheld the mathematical models, weighting algorithms, and raw data necessary to understand how outcomes are derived.
•
Consistency: The model applies inconsistent logic by using average household income to assess residential capacity while applying raw capital land values to assess rural capacity. Rural land values can increase the overall net worth of those land owners, but do not mean the land therefore has a greater productive capacity and therefore a greater capacity to pay more rates. Even if it did, Councils are still limited by the rate peg and the special variation process, which also then requires a further rigorous assessment of many factors including the capacity to pay.
•
Accountability: The model fails to compare councils against established like-for-like peer groups, such as the Office of Local Government (OLG) Group 11 categories, leading to skewed comparisons. If the Group 11 categories are sufficient for many other comparatives, why cant it be used in whole or part for this purpose also.
Without having access to the actual methodology, it could be construed that the Commission is prioritising simplicity over all other principles in proposing this methodology.
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 3 of 14
3. Practicality and Implementation •
Rushed Consultation Timeline: Running a 28-day exhibition window during end-of-year financial reporting severely limits the ability of elected members and executive staff to interrogate figures and provide the level of submission that proposed changes of this magnitude deserves, for our community.
•
Flawed Transition Proposals: Even if a 4 to 5-year transition period is introduced, phasing in an inherently flawed baseline methodology merely delays—rather than resolves—the underlying structural deficit imposed on regional communities.
•
National Context & Timing: It is illogical to re-engineer the distribution of a shrinking pie within NSW before the Federal Government resolves the proposed Federation Compact. Decades of local government lobbying have focused on restoring national FAGs pool funding to 1% of total Commonwealth tax revenue (down from historical levels to under 0.5% today). The NSW Grants Commission should stall this process until federal quantum decisions are finalized.
•
Financial Shock to Recipient Councils: Abrupt shifts in general revenue create severe operational shocks. This is particularly so for councils that have recently secured Special Variations (SVs). Obtaining IPART approval requires councils to demonstrate a financial need and exhaust all alternative revenue and efficiency pathways. For example, Federation Council secured IPART approval for a 69.94% cumulative general rate increase in May 2025. To offset the proposed $2.2 million annual reduction in operational grant funding, Council would be forced to seek an additional ~16% SV.
•
IP&R Alignment and IPART Lead Times: Any major policy change impacting council revenue must account for the statutory lead times required by the Integrated Planning and Reporting (IP&R) framework and IPART’s SV application cycle. A realistic implementation timeframe requires a minimum of 18 months to enable community consultation, document exhibition, and formal adoption prior to submitting an SV application.
4. Transparency and Clarity During a preliminary briefing with Commission and OLG representatives, Council was informed that its steep general purpose grant decline was primarily influenced by: 1. A relatively low local Aboriginal and Torres Strait Islander (ATSI) population score. 2. High agricultural/farmland property values. 3. A Remoteness (ARIA) score calculation. However, no quantitative formulas were provided to explain how these variables were weighted or why they produce such dramatic downward shifts. Expecting Council to accept this without access to the underlying logic undermines trust in the Commission's oversight. In effect, inadequate information has been provided to understand the methodology. Assumptions have not been explained and Council is unable to understand how the outcomes are determined.
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 4 of 14
It is also not transparent to hide the computations calculated by the Commission and therefore this does not enable the other principles to be assessed. The Victorian Grants Commission releases a report annually on its distribution of FA Grants between Victorian Councils and the factors that have been taken into consideration. For 2025/26 this was a 122 page report, with detailed schedules of relevant data, Revenue and Cost adjustors, grant outcomes. This contrast with a presentation with 49 slides, of which 10 are cover and ending slides. It would be more appropriate for the NSW Grants Commission to put out a comprehensive discussion paper with data, similar to Victoria, for engagement on this matter.
5. Data Sources and Indicators Federation Council highlights critical flaws in the specific data sources and proxy indicators selected for the proposed model:
A. Distortion of Farmland Valuations as "Revenue Capacity" •
The assumption that higher unimproved land values automatically denote a higher capacity to pay rates is fundamentally flawed. In the agricultural sector, land valuation growth is driven by market dynamics, such as supply, demand, and broader economic factors, and does not correlate with annual farm income or operational cash flow. High asset valuation on paper does not translate into immediate liquidity to meet local tax burdens.
•
Land value growth does not grant a council statutory freedom to arbitrarily expand its overall rate yield. Under the NSW rate-pegging system and the IPART Special Variation (SV) framework, total council rate revenue is strictly capped regardless of land valuation movements. Using land value growth as a proxy for council "revenue-raising capacity" fundamentally misrepresents local government revenue mechanics in NSW.
•
The currently proposed methodology creates an inequitable, hybrid model. While residential capacity to pay is assessed via broader socio-economic indicators, farmland and business categories are assessed almost entirely on land value. Just as rising land values do not enhance a residential homeowner’s available income, they do not increase an agricultural or commercial landholder’s capacity to pay. Applying a simplified, valuation-based proxy selectively to certain land categories violates core principles of horizontal and vertical equity.
•
If unimproved land value is utilized as a distribution metric solely to satisfy the "simplicity" principle, it must be applied consistently across all land categories, including residential, rather than selectively distorting rural and business ratings.
•
Agriculture in regional Australia has seen substantial productivity gains through technology adoption and evidence-based science. However, these efficiency gains are frequently offset by volatile global commodity prices, rising input costs, and climate variability. An increase in land valuation (e.g., within Federation Council from 2017 to 2025) reflects land market inflation, often fuelled by investors seeking capital stability, rather than a proportional increase in agricultural revenue or farm profitability.
B. Misapplication of Demographic Variables (ATSI Population) Using a low ATSI population metric to penalise general-purpose allocations is flawed logic. While councils with higher Indigenous populations require targeted support (which is primarily provided via specific state
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 5 of 14
and federal targeted grant schemes), having a lower ATSI population does not lower the baseline operational cost of maintaining community infrastructure.
C. Inaccurate ABS Regional & Remoteness Classifications •
For benchmarking and allocation purposes, we understand Federation Council has been assigned to the Australian Bureau of Statistics (ABS) Inner Regional category (within a broad 49-council grouping). Benchmarking Council against predominantly urban or peri-urban regional centers distorts the operational reality of serving a dispersed rural footprint.
•
The classification fails to capture Council’s dual geographic footprint. While a majority of the resident population centres around the Murray River corridor (classified as Inner Regional), 77% of Federation Council’s total geographic landmass is Outer Regional, with only 23% falling within the Inner Regional definition.
•
Remoteness Score Deficit: Federation Council was assigned a remoteness score of 3.31 (where metropolitan areas score 0 and Western NSW scores up to 14). This score drastically underestimates Council’s operational remoteness, vast geographic expanse, and decentralized service delivery model across multiple distinct towns and villages of which there are 13 spread across almost 6,000 square kilometres. They include the larger centres of Corowa, Howlong, Mulwala, and smaller towns of Urana, Oaklands, and other smaller towns and villages.
This map image is derived from the Australian Bureau of Statistic Census website, with the darker shaded area referring to the Inner regional Australia and the lighter shaded area referring to Outer Regional Australia.
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 6 of 14
•
Classification methodologies must align directly with underlying expenditure drivers. Transportation and road maintenance represent Council’s single largest annual capital and operational expenditure burden. Because the overwhelming majority of Council’s land mass, agricultural freight routes, and unsealed road network sit within the Outer Regional zone, categorizing Council based primarily on population concentration artificially diminishes its recognized cost-of-service delivery.
•
Funding distribution models that rely on ABS broad classifications must either apply weighted spatial modelling or default to the dominant land and infrastructure category (Outer Regional) when assessing transport, infrastructure, and expenditure allowances.
D. Confidentiality of ARIA+ data Using the ARIA+ data source as a key driver of FA Grants outcomes is not fair or transparent. Council was advised that this data source is confidential and Council can only be advised its own ARIA+ score. This prohibits Councils, or the pubic, from understanding the methodology proposed by the Commission.
E. Inclusion of One-Off Disaster Recovery Capital Grants The proposed methodology includes historical grant receipts within a 4-year rolling average to estimate council revenue capacity. Inclusion of one-off emergency disaster recovery funding—such as the >$10 million received by Federation Council following the catastrophic 2022 floods,grossly distorts operating capacity. Disaster grants are strictly ring-fenced to rebuild destroyed public assets; they cannot be spent on operating libraries, swimming pools, parks, or customer service centres. F. Operating Grants Aside from Financial Assistance Grants, operating grants are provided for a specific purpose by either Commonwealth or State Government. Amongst other things they support libraries, preschools, roads, your week, floodplain management, tourism events. Including these in the revenue capacity of council infers Council has control over these. In fact they are based on the policy of the Commonwealth and State Governments of the day and are provided with a specific purpose on which they must be spent. It is recommended that they be excluded from the Revenue Capacity of Council because they are outside the control of Council. G. Restricted income It is not clear how restricted income is dealt with, for example domestic waste income, which is legislatively required to only be spent on domestic waste collection services. H. Factors not included The methodology does not appear to take into account any of the following factors:
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 7 of 14
•
Population disbursement – where the population is spread over a large area, service provision is required in multiple locations. For example, a metro Council example, with a geographic area of 10 Km2 and a population of 72,909, can provide one library or swimming pool, with that service easily accessible due to proximity and available public transport. A regional council example, with a geographic area of 5,685 Km2 and a population of 13,075, requires multiple libraries (4) and swimming pools (5) so that services can be accessed somewhat locally. These are also in areas with very limited or non-existent public transport. This decentralised service provision requires greater expenditure to deliver.
•
Aged communities – aged community members are more likely to require access to Council services, due to need, lack of mobility, etc. When a community has a higher proportion of aged people this creates great demand on community services.
•
Pensioner concessions – ratepayers holding pensioner concession cards are eligible for a pensioner concession. The cost of this is split between councils (45%) and the NSW Government (55%). Those councils with a greater proportion of pensioners are disproportionately funding this mandatory scheme. The methodology does not appear to take this into consideration. The following graph shows that rural and regional councils have a greater proportion of pensioners than other councils
•
Provider of last resort - In rural and regional communities, Council is often the provider of last resort, where the private sector or other level s of government fail to deliver. Additional services provides by Federation include: financial support and accommodation for GP clinics and hospital staff, preschool services, Service NSW agency services, Centrelink, etc. From the information provided it is not clear how Council’s role as a service provider of last resort is factored into the equity consideration.
J. Financial Data Return Council holds concerns regarding the reliability and comparability of the Financial Data Return (FDR) data due to varied accounting treatments, revenue/expenditure classifications, and reporting practices across NSW councils.
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 8 of 14
To prevent inequitable funding outcomes caused by accounting discrepancies, Council submits the following key recommendations: •
Request that the Office of Local Government (OLG) demonstrate how FDR data is standardised, audited, and made strictly comparable across all councils prior to assessing expenditure needs or revenue capacity.
•
Request clear disclosure of the specific FDR data fields utilised, how they are treated in the model, and any adjustments applied to rectify reporting inconsistencies.
•
Guarantee that data is applied consistently across all jurisdictions to safeguard against unintended financial penalties arising solely from differing accounting treatments.
I. Local Roads Component (Rawlinson's Index) Council supports in principle using Road Length $\times$ Rawlinson's Construction Cost Index for the road component. However, without complete disclosure of the raw data, cost adjustments, and weighting factors used by external consultants, Council cannot verify the accuracy of the $4,203,187 proposed road allocation.
6. Potential Impacts Financial & Service Delivery Impacts The General Purpose Component provides flexible funding for vital social infrastructure and everyday services. A $3.17M drop in this funding (net $2.17M overall loss) directly impacts: •
Public libraries, community halls, and youth centers.
•
Public swimming pools, sports ovals, parks, and reserves.
•
Public toilets, town beautification, and customer service centers across our decentralized towns.
•
Subsequent likely employment cuts where Council employment plays a significant economic and social component.
Inability to Recoup Funding via Rates To recover a net loss of $2,168,517 solely through rate revenue, Federation Council would require an immediate 16% Special Rate Variation (SRV). Recoupment Math: Net FAGs Loss ($2,168,517) --> Requires ~16% Rate Increase (SRV)
This is entirely unviable. Federation Council and its community have already undertaken significant financial adjustments, implementing a cumulative 69% total rate increase over the last four years to ensure long-term structural sustainability. This increase will take Federation Council’s average residential rates above the average residential rates for OLG Group 11 councils for 2026/27.
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 9 of 14
In the current economic climate—characterised by severe cost-of-living pressures, high inflation, and surging fuel, diesel, and electricity prices—asking the community to absorb an additional 16% rate increase is impossible. Even if IPART were to approve such an application, Council could not ethically or practically impose it. Consequently, this model will force direct, severe cuts to essential community services.
7. Risks and Unintended Consequences •
Perverse Financial Penalties: The model effectively penalises councils that have undertaken difficult structural reforms and SRV processes to achieve financial sustainability.
•
City vs. Regional Inequity (The 30% Per Capita Floor): Under current federal legislation, every council—including wealthy, high-density metropolitan councils with massive rating bases and diverse commercial revenue streams and often relatively smaller land areas, is guaranteed a minimum allocation of 30% of their per capita share. Metropolitan councils do not face vast road networks, low population density, or duplicated infrastructure across remote townships. Guaranteeing a 30% floor to metropolitan councils redistributes the funding burden directly onto regional and rural communities.
•
Infrastructure Duplication Costs Ignored: The model fails to recognize the compulsory operational overheads associated with rural multi-town models (maintaining multiple pools, halls, and ovals to serve scattered populations across thousands of square kilometres).
•
With the proposed changes to some very similar regional and rural Councils, there is the situation of some Councils receiving increases at the expense of other Councils, where in reality, there are very little differences in their inbuilt cost structures and revenue capabilities.
8. Suggested Improvements 1. Pause Implementation & Grant Exhibition Extension: Immediately suspend implementation of the proposed methodology for FY 2027/28. Convert this process into a 12-month collaborative review and extend the submission window until GIPA requests are fully satisfied and potentially changes to the methodology, more information on it, and new submissions can be sought following this. 2. Advocate for Legislative Reform (30% City Rule): The NSW Grants Commission should formally petition the Federal Government to amend the legislative requirement guaranteeing a 30% minimum floor to metropolitan councils that possess high independent revenue-raising capacity. 3. Align with Federal Federation Compact: Postpone any methodology changes until the Federal Government responds in detail with a new agreement, in response to the national local government advocacy to increase the total financial assistance grants pool funding back to 1% of national tax revenue. 4. Remove Capital Disaster Grants from Revenue Averages: Formally exclude all one-off disaster recovery funding, flood restoration grants, and other one off operational grants from the 4-year rolling revenue calculations.
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 10 of 14
5. Adjust Remoteness & ABS Data Metrics: Re-evaluate spatial data to reflect actual geographical composition (correcting Federation Council’s 77% Outer Regional footprint) rather than applying blanket ABS classifications. 6. Decouple Farmland Values from Capacity to Pay: Remove raw capital/unimproved farmland valuations from revenue capacity models, aligning rural evaluation metrics with income/cash-flow realistic indicators used in residential settings. 7. Utilise OLG Grouping Benchmarks: Benchmark regional councils against their designated OLG peer groups (e.g., OLG Group 11) to ensure comparative fairness. Make all Councils allocations public and easily obtainable, such as on the yourcouncil OLG website. 8. Release a discussion paper: Develop and release a comprehensive discussion paper detailing the methodology and the data the drives the outcomes, in a way similar to the Victorian Grants Commission.
9. Additional Comments & Formal Notice Federation Council reiterates that Financial Assistance Grants exist to ensure Australians, regardless of where they live, have access to an equitable level of local government services by returning locally generated federal tax revenues. Federation Council formally requests that the NSW Local Government Grants Commission acknowledge receipt of this submission, and grant an extension to all Councils, for the chance to submit a further, detailed supplementary submission following the complete disclosure and release of all background modelling, technical reports, and data requested under Council's GIPA application.
See below for the list of information requested under the GIPA – I request access to government information held by the Office of Local Government (OLG) and the NSW Local Government Grants Commission (LGGC) regarding the review and allocation of Commonwealth Financial Assistance Grants (FAGs) to NSW local councils. The request covers records produced, received, or maintained from 1 January 2025 to the date of this application, unless a specific year/model is explicitly cited below. a) A copy of the complete Centre for International Economics (CIE) report and all associated attachments provided to the LGGC and OLG regarding the Financial Assistance Grant methodology (including all final reports, draft reports, and commissioned papers), including any specific information on the methodology as it relates to Federation Council. b) All documents, reports, briefs, instructions, memoranda, assessments, evaluation frameworks, or criteria relating to the OLG and LGGC review on the allocation of Financial Assistance Grants to NSW Councils, and any specifically in relation to Federation Council. c) Alternative Methodologies & Data Sources Evaluated: d) All documents identifying, comparing, or evaluating different allocation methodologies considered during the review, including their identified advantages, limitations, costs, risks, and projected outcomes.
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 11 of 14
e) Discarded Data Sources & Analysis: All documents, working notes, assessments, emails, and internal discussions concerning data sources, datasets, or variables initially considered or evaluated during the methodology review process but ultimately excluded, rejected, or omitted from the proposed final model. f) All correspondence, emails, and attachments discussing or reviewing these methodologies, proposed data sources, or related reports. g) The complete, working methodology spreadsheet models (including all underlying formulas, macros, algorithms, calculation records, and worksheets) used for: 1. The current Financial Assistance Grant calculation model. 2. The 2025/2026 allocation model. 3. The 2026/2027 allocation model. 4. The 2026 model used to calculate the Financial Assistance Grant proposal for 27/28. 5. Federation Council Specific Inputs & Calculations 6. All council-specific datasets, input data, assumptions, variables, weighting factors, indices, benchmarks, formulas, calculations, and worksheets used to determine the allocations for Federation Council (covering both the General Purpose Component and Local Roads Component) for the 2025/2026, 2026/2027, and proposed 2027/2028 periods. 7. All documents relating to the proposed 2027/2028 Financial Assistance Grant for Federation Council, specifically including the calculation of the General Purpose and Roads Component as set out in the letter to Federation Council dated 4 September 2026 (Reference: A1020255). On behalf of Federation Council Submitted electronically to the NSW Local Government Grants Commission
Adrian Butler General Manager 09/10/2026
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 12 of 14
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 13 of 14
Submission to the NSW Local Government Grants Commission – FA Grants methodology (26/40449)
Page 14 of 14