Councils across this State – whether by choice, demand or necessity – are involved in a huge range of business activities. I know of Councils that have started hairdressing businesses as they heard feedback along the lines that said while there was no hairdresser in the town, people didn’t want to move to that town. I know Councils that have opened up a medical surgery and employed doctors because there was a lack of medical facilities in the town. There are some Councils (mostly in metropolitan areas) that spend the majority of their time in dealing with developments but in regional areas, Councils tend to deliver a range of services. Look at the simple example of Dubbo City Council. Apart from the classic three Rs of Roads, Rates and Rubbish and the statutory requirements, this Council is involved in a huge number of operations. We run a Caravan Park; an Airport; a Childcare Centre; Saleyards; a theatre; the Showgrounds; a Cultural Centre; an Aquatic Centre; a Convention Centre; various sporting fields and a land development function – just to name a few.
Other regional Councils are in a similar position and the first question I would ask is, “Why?” Do Councils really need to run all of these separate operations and, more to the point, is that the intention of the Local Government Act of 1993?
When you read the Act (and I recommend to anyone with some spare time on a lazy Sunday afternoon to curl up in the corner and have a good read of the Act) it is very specific about some Council functions but very open with others. Section 22 of the Act mentions SOME of the Acts where Councils have functions imposed on them. These include such Acts as the ‘Community Land Development Act 1989’ and the ‘Conveyancing Act 1919’ and the ‘Environmental Planning and Assessment Act 1979’. This list alone is quite comprehensive. Throughout the rest of the Local Government Act, a variety of other Acts are mentioned but the most significant part of the Act is Section 23, and I quote: “23 Supplementary, incidental and consequential functions. A council may do all such things as are supplemental or incidental to, or consequential on, the exercise of its functions.”
I would say that this section covers pretty much anything. Therein lies one of the great assets – and great challenges – of any Council in any town or City. The Act says that you can do pretty much anything – unfortunately sometimes that means that residents expect Councils to do everything. If I spoke to a Councillor from Sydney City and asked them how they run the Council owned hairdressing studio or their medical surgery or their saleyards, I am sure I would receive a blank stare. If they asked me how proceed with informing neighbours of a Development Application for a skyscraper, I would probably return that blank stare. The point here is that Councils have the power to perform different functions through necessity and a core function of doing what the community needs to be done. I still have a core belief that regional Councils seem to have more responsibilities and accountability than metro Councils – and if you consider that in a previous report I found that of the 11 Councils that were then part of OROC, 7 of those 11 Council areas had Council as the largest single employer and in the other 4 areas, Council was in the Top 5. This gives a small indication of just how important a regional Council is to its town.
The next tough question – and seemingly a perennial question – is this. Should a Council expect all of its ancillary operations and business functions to be profitable? For example, if I open a medical surgery to ensure the people in the community have access to doctors, do I need to see a commercial return on my investment? If I am a businessperson and I run a business, I want to see a better rate of return on my investment than if I have that money sitting in fixed interest deposits or Managed Sharemarket investments. If I am not seeing a better return (and this return can include dividends and capital gains) then there is no point in me taking the additional risk associated with a business. Most businesspeople want at least a ten per cent annual return on their investment and many would accept nothing less than twenty per cent. When a Council runs a business, there are various arguments about expectations of rates of return compared to good for a town. If a businessperson opens a medical surgery at a cost of $200,000 and makes a net profit before tax of $5,000 each year, it would be seen as a bad investment. At only 2.5 per cent return, the $200,000 would be better invested elsewhere – unless there was an expectation of a large capital gain when I sold the business. If a Council opens that same business and returns the same profit BUT attracts new residents due to the fact that medical services are now available, it would be seen as a roaring success. Of course it is difficult to know just how many people are attracted to a town or City due to the addition of that one business. This is a huge grey area for all Councils that run any business operations. The actual financial return on the investment versus the return for the City.
I don’t have an easy answer as to how to approach these situations except to say the one rule that applies across all areas is that you must treat each scenario separately. It may be justified to lose money in one function to boost the overall economy but it may not be justified in another area. Whichever approach is taken by a Council, they must deal with the facts. What is the actual commercial rate of return (or loss) to (from) the Council from a business function judged in the same way a business would judge that return. Once that data is known, decisions can be made with the actual facts at hand.
Tell me your opinion on Council run businesses at firstname.lastname@example.org.
Clr Mathew Dickerson
Mayor of the City of Dubbo