“Environmental and service level sustainability cannot be achieved and maintained unless an organisation also has its house in order financially,” says John Comrie, keynote speaker at the upcoming IPWEA Sustainability in Public Works Conference, in this IPWEA ASSET e-news Q&A.
What is your background and how did you come to be doing what you do today?
My background is in economics and finance, but I’ve always worked with engineers. I worked in the water industry early in my career before taking up employment in local government. Both are capital-intensive and deliver services through infrastructure. I’ve been pushing in various ways for over 25 years to improve financial and asset management planning in local government, because there’s scope to cost-effectively improve citizens’ welfare and service levels from doing so.
In a nutshell, what will your keynote address at the IPWEA Sustainability in Public Works Conference be about?
Environmental and service level sustainability cannot be achieved and maintained unless an organisation also has its house in order financially. This requires looking at the medium to longer-term and not just a one-year planning horizon.
How important is it that financial sustainability is also discussed at the IPWEA Sustainability in Public Works Conference?
People who are keen to promote environmental sustainability need to be able to not only understand financial issues, but also be able to argue and show how organisations can satisfy environmental objectives without risking their financial future (and often they can!).
If there were one key point you would want delegates to take home from your keynote address, what would it be?
Many local governments can and should make greater use of debt and change the way they borrow when they do raise loans. They would better serve their communities, save themselves money and reduce their exposure to risk.
You prepared a report for the Australian Centre of Excellence for Local Government (ACELG) called Debt is Not a Dirty Word: The Role and Use of Debt in Local Government. What was the catalyst for the report?
The report was championed by IPWEA. Earlier published work and training courses I and others had done for the IPWEA had revealed a hesitancy by local government in all states to make use of debt where appropriate, and there was often poor practices in the way debt was structured when it was raised.
What was involved in the preparation of the report?
Work involved reviewing legislative frameworks and data regarding borrowing and investment levels in all Australian jurisdictions over time, together with consultation with local government representative regulators and practitioners to confirm current common perceptions and practices. All of this was then evaluated against commonly accepted debt and treasury management theory, relevant to the local government environment.
What have you found has been the general reaction to the report's findings? 
As I expected, I’ve had some hostile and emotional reactions. Many claim that all debt is bad. (I have no idea where these people got the money to purchase their homes!) Some regulators have been annoyed at the idea of promoting councils to look more seriously at greater and more flexible borrowing. They say this will encourage irresponsibility – I say it is easy to put in place frameworks to prevent this.
What do you find are some of the common misconceptions among councils with regards to achieving financial sustainability?
The biggest misconception is that the challenges are insurmountable. Some councils do indeed need more help, but many can achieve financial sustainability if they are prepared to make incremental changes in revenue raising and service level decisions over time (and of course typically make better and greater use of debt).
How can councils avoid or mitigate the risks they might associate with taking on more debt?
There are four things. First – sound asset management planning. Get a good handle on what you need to spend over the next five to 10 years to maintain preferred service levels. Ditto long-term financial planning to work out what’s affordable on an ongoing basis. Thirdly, make sure these two plans are consistent. This will involve some trade-offs. Finally, be prepared then to borrow if need be to accommodate expenditure peaks, but do so in ways that minimises net interest costs and exposure to interest rate risk. This will necessarily mean that a considerable portion of any borrowings raised should be with variable rather than fixed rates of interest.
John Comrie is a keynote speaker at the upcoming IPWEA Sustainability in Public Works Conference in Tweed Heads, 27–29 July 2014. Registrations for the Conference are now open. Find out more.