Roundup Unfiltered - Potholes and Pitfalls - a new report on what it will take to fix our local roads

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*This episode was recorded prior to the government's announcement on 19th November of increased funding for roads maintenance.

A new report from the Grattan Institute has sounded alarm bells about the state of local roads across Australia and suggests the situation will only get worse without significant government investment.

Joining Chris Eddy on Roundup Unfiltered is one of the report's authors, Marion Terrill, to discuss the report and its findings.

Available exclusively to Roundup subscribers for a limited time.

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• 21:50 (Cont.) Roundup Unfiltered - Potholes and Pitfalls - a new report on what it will take to fix our local roads

Transcript

Chris Eddy [00:00:13]:

Hello everyone. Chris Eddy here from the Local Government news Roundup with a new episode of RoundUp Unfiltered, our periodic interview specials where we take a deep dive into issues of importance to the local government sector. Today, a new report from the Gratton Institute looking at the state of local roads across the country has sounded alarm bells this week, suggesting that the situation will only get worse without a significant injection of new funding. And the problem is being exacerbated with each extreme weather event that is experienced. The report is called Potholes and Pitfalls - How to Fix Local Roads, and it's written by Natasha Bradshaw, Dominic Jones and Marion Terrill, who joins me now.

Chris Eddy [00:00:57]:

Marion, welcome to the Local Government news Roundup. You've done this very interesting report around how local roads are managed by councils across Australia. The first question is, why have you done this piece of research?

Marion Terrill [00:01:10]:

It started with last year, actually, when I spoke at the ALGA National Roads and Transport Congress in Hobart, and I'd been asked to talk about the topic of from megaprojects to maintenance. And I've done a lot of work on megaprojects. But in researching for that speech, I became very interested and realized what an underresearched area local government and local roads are. And I talked to a lot of interesting people at that event and I came away thinking, we've got to do an in depth report on this. So my team and I spent most of the year on this report and this is the culmination of that work.

Chris Eddy [00:01:51]:

So there's 537, I think, is the number councils across Australia. There's no one size fits all. Even as you go from state to state, let alone council to council. Did you have a sense of the scope of the task that you were taking on here?

Marion Terrill [00:02:05]:

Yeah, I was a bit nervous. I've got to be honest with you, Chris, one of the difficulties and one of the reasons why I think that this is an underresearched area is that it's quite difficult. There's no clean data. You've got to get it from here, get it from there, put it together. A lot of the data is very poor quality. So we've done some, I think, some quite interesting work to try to mitigate that. But I do understand why it's a bit of a daunting task for many people to tackle.

Chris Eddy [00:02:35]:

So the headline finding here is much more investment is needed if councils and communities are going to keep on top of the local road maintenance task. Can you try and put that into context for us? How much money, how much of an investment. Do we actually need?

Marion Terrill [00:02:55]:

Yeah, there's just not enough money in the system and we've done some estimates of this and we have come up with the figure of at least a billion dollars per year is needed on maintenance. That is an important headline finding. And the way that we came up with that number, just to give you a bit of a sense of what it's made of, is that we use spatial data to model the cost that each council would need to spend just to stop their network from deteriorating. And we compared that with what they're actually spending. So that's the $1 billion underspend. It's not about improving roads, it's just about keeping them at the state that they're already in. Now, the other thing that's really key, and I'm sure your listeners will be very well aware of this, but the underspend is much higher in regional and remote areas. So regional areas are underspending by more than 40%, and for remote areas it's more than 75%, whereas in metro areas it's very modest, more like 10%, which.

Chris Eddy [00:03:59]:

Is interesting in and of itself, because regional and rurals in particular have far vaster road networks and asset bases to manage, don't they? So, based on these figures, they're just falling further and further behind.

Marion Terrill [00:04:15]:

That's right. So the typical thing is that a regional or remote council's got a smaller population, smaller rate space, and it's got a lot more road to manage. We have a look at the question of where this money should come from, because a lot of people might say, well, the councils can just raise their rates. In fact, it's not as simple as that. A significant cause for this underspend is that some councils can't raise more revenue themselves to combat these pressures. Part of it is because you do have state imposed restrictions on revenue raising, the most obvious example being rate capping in New South Wales and Victoria. But there are many other examples and cost shifting and so forth. But even without these restrictions, a lot of remote and regional councils would struggle to increase their revenue.

Marion Terrill [00:05:13]:

So we've done some analysis that shows that regional and remote councils already charge much higher rates and fees per person than metro councils, despite the fact that their populations, on average, have lower incomes. So there just is limited scope to get more out of that source. I think there's a special thing about roads, though, and that is that roads are a network. And so any given bridge or stretch of road is important to the locality that it's in. But it's also important beyond that locality, for example, if you've got a key freight route and one bridge or one component of it that is locally managed is not up to scratch, it compromises the whole route. And for that reason, higher levels of government do have an interest in local roads working properly, which is beyond the responsibility or the interest, necessarily, or the very direct interest of the residents and ratepayers of that local government area.

Chris Eddy [00:06:14]:

Yeah. So you're suggesting it's the federal government that needs to pick up the investment here?

Marion Terrill [00:06:21]:

Yes. We thought long and hard about kind of where this funding should come from, because originally we had intended to come up with a revenue neutral proposal. In other words, no extra money from anyone. But quite quickly, what I realized is that regional and remote councils are basically in an impossible position. So there is this underspend and there's just a lack of scope for them to raise revenue. So the Commonwealth government is where we landed, partly because of this spillover effect that the benefits of roads and bridges extends to the network as a whole. And There's a secondary argument, I think, which is that states themselves are very reliant on the federal government for some of their funding, what's known technically as vertical fiscal. So there's sort of a precarity, if you like, about expecting states and state governments to fund this shortfall, which is not the case for the Commonwealth government.

Marion Terrill [00:07:28]:

So those are the arguments why we ended up landing on the idea that the Commonwealth has an interest, and also because the Commonwealth is responsible for the rules of the system as a whole and things like a national road hierarchy and associated data collection really makes more sense at the national level, even though some of the methods of asset management make more sense at the state level because they're in state legislation.

Chris Eddy [00:07:58]:

You've looked, as part of this data gathering at how the Roads to recovery program works. It is a case of that being topped up with more money, or is a new funding stream required here, in your view?

Marion Terrill [00:08:15]:

We were more inclined to propose topping up, so we suggested that the core funding to local governments be increased by a 600 million dollar increase in the financial assistance grants, which, of course is untied funding, and a 400 million dollar annual increase in roads to recovery, and that both of those should be indexed in a different way. At the moment, they're indexed as CPI and population. But the problem with that is that what local governments actually spend their money on, the costs of that have increased more quickly than CPI. And so that partly accounts for why Commonwealth funding has been lagging behind over the past ten years. The indexation is just not up to scratch.

Chris Eddy [00:09:02]:

Well, and in fact, with the fags, they were capped for a time, weren't they? There was no indexation being applied, so we were in fact getting further and further behind.

Marion Terrill [00:09:12]:

That's right. There was a three year period and once the indexation resumed, there was no catch up. So it just started from the new lower think. I think it is fair to say that the Commonwealth Funding has just not kept up with costs over the past decade, or a little bit over a decade.

Chris Eddy [00:09:31]:

Another interesting thing, and I'm keen to understand how you went about gathering this data, but another interesting finding, is that a lot of councils, and I'm assuming it's the smaller rurals, maybe some regionals, don't actually have a good handle on the asset base that they've got to manage.

Marion Terrill [00:09:49]:

Yeah. One thing that we did was we ran a survey of road managers in councils and it was fantastic. We had good response rate and we got a lot more depth of understanding from the responses that people gave. But some of the findings are pretty concerning. So, for example, a quarter of councils don't know how many bridges they've got. And when you look at remote councils, it's getting closer to half. And certainly with more detailed information, that's even more scarce. So only 15% of councils have got accurate data on the traffic flows on their roads and only just over a third know the load capacity of their bridges.

Marion Terrill [00:10:36]:

So the baseline of information that councils are working with and as you say, it is particularly remote and rural councils that are suffering from this. But the baseline of information is very poor at the moment.

Chris Eddy [00:10:56]:

Marion, I know you've spoken to a couple of conferences by this time, peak bodies, the MAV, LG, New South Wales. I'm imagining that council people will be hearing this message that you're delivering and saying, we already know, know you're telling us something that we're acutely aware of. How helpful do you think this is going to be? Or how would you like to see councils use this information?

Marion Terrill [00:11:21]:

Yeah, it has been great. For example, when I spoke to the Municipal association of Victoria, one mayor stood up and said, you haven't told us anything that we don't know, but we've never seen it quite documented like this. So what I hope we're able to do is to. It is difficult to document this stuff and it's taken us the best part of a year to do it. So I understand why it hasn't really been done in this form before, but we hope that we do give councils a more solid information base and the local government associations in particular, a more solid information base. We are talking to the federal and state governments about this as well, particularly the federal government, because we do see that they've got an important role to play here. So I hope that this is making a constructive contribution by putting more information in the public domain that is consistent with what people experience, but goes beyond the anecdotal.

Chris Eddy [00:12:22]:

So at the time of recording this, we're starting to see some numbers out of the federal government about its infrastructure review of major projects around the country, and some numbers are starting to be bandied around about the shortfall and the impact of cost of living and construction, sector increases, et cetera. Timing wise, for this message to get some sort of a result from the federal government, it seems to be a bit of a reach, would you think, with all of those major projects as well causing concerns?

Marion Terrill [00:12:56]:

Well, I think it is very timely myself, actually. So the Commonwealth is likely to announce in its mid year update in the second week of December some either cuts or longer time frames for major projects, and they've signaled that they've found already a $33 billion overspend in the $120,000,000,000 pipeline. My comment about this is that the billion dollars sounds like a lot, and for local government it is a lot because they're spending about 5 billion on roads each year. But if you're the federal government, there's absolutely no shortage of money for major projects. So the federal government have committed suspending 120,000,000,000 over ten years. And most of it is about like it's, it's kind of almost entirely about building new stuff, and a lot of it is about megaprojects. Now, a couple of things. Maintenance projects typically have better benefit to cost ratios than megaprojects.

Marion Terrill [00:14:01]:

For example, black spots require that projects have got a benefit to cost ratio of two to one, whereas some of the megaprojects, if you think of the Westgate Tunnel in Melbourne or inland Rail, they had benefit to cost ratios of one to one. In other words, for every dollar you spend, you only get a dollar of benefit, and that's before the costs went through the roof. I think spending on maintenance is actually very good value for money. One of the things that happens is governments commit to projects or they have funding programs. And we heard this in the survey that road managers do apply for funding for new and upgraded roads because that's what's on offer, and people's communities expect them to apply for the funding that's on offer. But of course, only a small fraction of the whole of life costs are the construction costs. So it is brewing a problem. So later.

Marion Terrill [00:14:56]:

So the problem is, I think, that the transport infrastructure spend is sort of misaligned, basically, and it underdoes maintenance and it overdoes megaprojects, which is kind of where this whole project began. So, in a nutshell, I think the amount of money that we're proposing from the federal government is a small fraction of what it would typically spend in a given year. They'll usually spend sort of seven or 8 billion on transport infrastructure, so it's not that much to them. But to local government and remote and rural councils in particular, it is a lot of money.

Chris Eddy [00:15:35]:

Yes. Historically, though, it's not been politically sexy to promise to fix stuff. We've already got to play catch up, and that's before we even start to talk about the growth areas and the infrastructure challenges that they have.

Marion Terrill [00:15:50]:

Yes, but one thing that I've noticed in talking to people about this report is that because we've had three wet years and there's been a lot of quite devastating flooding as well as bushfires in many parts of the country. Roads in the country in particular, local roads are in a pretty terrible state of disrepair and they're quite dangerous and people are quite up in arms about it. So I think the environment's changed and people can see that what we've been doing up to date is no longer good enough. And I'd add to that what many of your listeners would be well aware of, but that if you intervene at the right time, it does cost you less than if you leave it for a road to deteriorate and you might need to do a total rebuild or a much more substantial intervention down the track. So it's a false economy, really, to not do the maintenance when the maintenance.

Chris Eddy [00:16:45]:

Needs to be done makes perfect sense. And I think for most of our listeners, we're preaching to the converted there. So I was going to ask you about the impact of those floods, et cetera. So that's obviously been taken into account when you're talking about what's needed here. A couple of other things that you've noted that I wouldn't mind just exploring with you briefly. One is around the red tape, and I think some of this is related to roads to recovery, some of those extra things that councils are required to do as a result of receiving the funding, but they're actually a pull on council's already limited resources. You've had something to say about that.

Marion Terrill [00:17:21]:

Yeah, look, there's a balance, really, isn't there? It's important that taxpayer money is spent in a responsible way and acquitted properly. And I would never suggest anything different to that, but I think the conditions attached to tide grants are often over the top. In particular. Well, I would say that, for example, you get. I don't have the detail on me, but there's sort of three particular things that I would observe about tide grants. Firstly, that often the time frames are quite short, so, like six months for roadster recovery, for example. And the difficulty with that is that now is a particularly expensive time to build. We hear that all the time because there's cost escalation and there are labor shortages and the megaprojects are sucking the oxygen out of the market.

Marion Terrill [00:18:16]:

So if a council has to complete a project in a short time frame, it's quite likely that they'll end up spending more than they really need to if they could time it optimally. Secondly, I think sometimes the way that grants are given can be, we heard in the survey, competitive grants, for example, if you're a small council applying for a competitive grant or needing to have a full business case or those kinds of things, if you don't really rate your chances too highly, it's not prudent for you to invest your resources in applying for that. But if you think about kind of the goals of the program, you don't really want all the money to be going to the Better resource councils. You'll get more bang for your buck if you fund projects that wouldn't otherwise happen. So that's the second thing. And thirdly, grant funding does tend to favor new construction. And I talked to you before about how construction is all very well, but it does bring a maintenance liability with it, which is not factored into the funding. So councils are sort of caught between a rock and a hard place as to whether they do take this opportunity for funding, but then sort of worry down the track about how they're going to maintain it.

Chris Eddy [00:19:44]:

So I've noticed in relation to the federal government's major projects review, there's already some dialogue happening. Know, a state like Queensland saying we need more attention than New South Wales and Victoria because they've had the lion's share over time. How are you going to respond to states like New South Wales and Victoria, who you recommend get less of the pie because other areas are potentially being left behind when they have the growth to manage over time.

Marion Terrill [00:20:15]:

Queensland has done well out of federal infrastructure funding, as has New South Wales and on a number of measures Victoria has done less well, but I guess those analyses are averaging over a number of years, because in any given year, infrastructure is lumpy and it's a little bit difficult to tell. And I think it's also difficult to say, well, what would you expect it to be? So I've looked at it compared to things like population and population growth and sort of how urbanized it is and so forth, so it is difficult. Queensland generally does very well, unfortunately, out of natural disaster recovery things. I think the states do engage in a bit of theatrics about who's getting data on what, but with this particular focus of the need for a funding uplift for local road maintenance, the states that don't do as well are the ones that have got more remote councils and that's because they have big road lengths. And the way the formula works for the local roads component does favor the. You do better out of it if you've got more urban councils, metro councils in your state.

Chris Eddy [00:21:52]:

We've talked about how you'd like councils to perhaps see, use and take this information forward. What do you hope or expect the federal government might say in response to this?

Marion Terrill [00:22:06]:

Well, I hope that they will, perhaps. There's a couple of things I'd like the federal government to do. So to increase the core funding for local governments through the financial assistance grants and roads to recovery, I'd like to see them establish a fund of $200 million a year to assess and upgrade local roads identified as key freight routes. And in exchange for that, I think councils should provide permit access to compliant heavy vehicles as of right. So that'd be kind of a saving for truck operators and for local council. So that'd be just a productivity improvement. I'd like to see them revisit the formula for allocating the financial assistance grants and we've got some specific proposals for how that should happen. But in essence, to allocate grants within and between states according to.

Marion Terrill [00:23:05]:

Not just between states, but also at the level of within states, on the principle that every council should have the capacity to provide an average level of service to the community, to reduce the minimum grant to 10% of an equal per capita share of the financial assistance grants pool. I know that'll be controversial, but it is good for all the councils to be in the net, but 30% seems arbitrary and quite high. And to combine the local roads component with the general component of the Financial Assistance Grant, basically to overhaul the way it provides funding to local government. And then I think there's been some work begun on the National Road Hierarchy and the minimum service level standards for roads, but to also assist with the collection of essential data items associated with that road hierarchy so that councils can be compared across the country and to improve their ability to learn from one another. I'd like to see quite a lot of action really from the federal government in this realm.

Chris Eddy [00:24:22]:

Well, fingers crossed, it does have that sort of response. Perhaps just a question or two about you, Marion. How did you become involved in this space of research?

Marion Terrill [00:24:34]:

I've been working at the Grant Institute for eight and a half years, so I came and set up the transport program and covered a whole lot of different issues in that time. So a lot on infrastructure investment, but very much at the megaproject end of the spectrum. And I've been interested in sort of tax related questions on transport and cities and more recently I've done work on vehicle emissions and fuel taxes, that kind of thing. So it's a very interesting area. But I must say I've always sort of shied away a little bit from local government because it's very complex sector, it's very varied across the country and it's difficult because of this lack of data. So, in fact, some of our recommendations would go some way to improving that and perhaps open up the sector to more different voices analyzing different aspects of it. So that's another thing I hope to get out of this.

Chris Eddy [00:25:38]:

What about electric vehicle takeup and infrastructure there? Have you yet looked at local government's role in that? Perhaps.

Marion Terrill [00:25:45]:

I have written a report on light vehicle, sort of basically on electric vehicles and looked at the different. So I published that in 2021. So since that time, the takeup of electric vehicles has really shot up. But in that report we recommended fuel efficiency standards. We also had a bit of a steely eyed look at government incentives for charging infrastructure and that kind of thing, and we're pretty disinclined to recommend that government threw a lot of public money at it. I think one way to think about this is that there's already quite a lot of subsidies for buying electric vehicle, and unsurprisingly, the people who buy them tend to be better off because of that purchase price, but they're cheap to run. And I think if you're a council, it's very unclear to me that it makes sense to use ratepayer money from your kind of lower income ratepayers to put in charging infrastructure for what are probably your higher income ratepayers. So I think that this looks to me like one where the market is already stepping in, but the council should be pretty wary about thinking about kind of the composition of their populations.

Chris Eddy [00:27:06]:

That's really interesting and perhaps a topic for another day for more of a deep dive.

Marion Terrill [00:27:12]:

I'd be very happy to.

Chris Eddy [00:27:14]:

Congratulations to you and the team for a year or so of work that's gone into that, and I do hope even just some of those recommendations get taken up. It'd be nice to see them all adopted. Thank you, Marion.

Marion Terrill [00:27:27]:

Thanks very much. Chris.

Chris Eddy [00:27:28]:

I've been speaking with Marion Terrell, who, along with Natasha Bradshaw and Dominic Jones, has written the new Gratton Institute report called Potholes and pitfalls how to fix local roads. You can find that easily by Googling that title, and there's been quite a bit of media coverage on that report's release already this week. That's been a special edition of the Roundup from our Roundup Unfiltered series, and it's been available exclusively to Roundup subscribers for a limited time before going on wide release. There's another Roundup unfiltered coming for you very soon, where I talk to Brian Hood, the mayor of Hepburnshire in Victoria, about how he took on chat GPT this year. Hear the full story on Roundup Unfiltered very soon, and make sure you don't miss our regular episodes of the local government news round up for the latest of what's happening around the local government sector across Australia and beyond. The local government News roundup is recorded in the city of Greater Geelong, Victoria, on the land of the Wadawarung people of the Kulin Nation. Until next time, thanks for listening, and bye for now.