In the 2025 financial year South Australia’s Local Government Finance Authority (LGFA) announced an improved after-tax equivalent profit of $6.9 million, but according to Davin Lambert that only tells part of the story.
Lambert, who has been Chief Executive of the LGFA for the last six years, says that in addition to its status as a profit-making organisation, the LGFA’s was created for the benefit of councils and prescribed local government bodies with one strategic objective to drive sector sustainability and capacity.
“We are a profit-making entity and our Act says that we have to follow principles of financial management with a view to avoiding a loss,” says Lambert, who had a career in banking with JP Morgan and Bendigo Bank before joining the LGFA.
“We had a review recently with our board and we talked about that. Are we here to make a profit? Are we here to offer our clients a really good rate? It is an interesting and challenging dynamic that we are faced with, and I think we are achieving both.”
“The reality is that we are not here to make massive margins on councils who are really struggling with the cost of service delivery, and who have ratepayers challenged by the cost of living.”
The LGFA was founded in 1983 and is unique in Australia. It is a state government organisation that is directed to avoid a loss, and also benefit the councils it lends to.
On the eight person board, there are representatives and appointees from State Government, local government and the Local Government Association, in addition to independent directors with banking and finance experience.
“It has never been tested but our read on the LGFA Act is that we are owned by South Australian councils, so it makes sense that we were created for their benefit.” says Lambert.
The LGFA has a loan book of around $1 billion with the local government sector in South Australia, and this includes the authority providing loans to regional and wholly owned subsidiaries that are predominantly in waste management and wastewater businesses.
It also takes deposits from the sector, and uses those funds to lend to counterparties, also in local government, like banks or credit unions do with their customers deposits.
“There are several councils across the State that have large deposit portfolios and several who have large debt portfolios. It usually depends on where a council is in its lifecycle, or if it is experiencing low or high levels of growth.” says Lambert.
“LGFA behaves like a bank or credit union, and we make a margin between our deposit and lending products. We have also have a capital base of our own, of around $80 million, which we have invested in the sector in addition to the loans.”
The LGFA’s modest profits, Lambert says, strengthen the local government sector because it creates a more sustainable financing model. Out of our profitability, we pay a special distribution to the councils and prescribed bodies that use us, and retain the rest to ensure sufficient capital to act in a prudent manner.
The LGFA’s financial principles, modelled on banking, also contribute to a degree of rigour around local government financing which is valuable in a sector which see some councils being challenged with financial sustainability issues.
Lending to infrastructure and projects with revenue streams, for example, is assessed in different ways to those that rely on rate income or potential savings. Councillors need a better understanding of our like for like renewal model embedded in local government asset management planning. If a council wants a new asset, such as a new civic centre, they will often “need to make some really tough decisions” which may mean raising rates higher than CPI inflation or finding corresponding savings that offset the cost of the new asset.
The financial vulnerability of South Australia’s Local Government sector has been under the spotlight through the work of a separate organisation, the Essential Services Commission of South Australia (ESCOSA), which delivers an independent review on the long term financial and asset management plans of all 68 councils on a four-year rotational cycle.
ESCOSA’s reviews, says Davin Lambert, have been “an eye opener” for some metro and regional councils. “It has shown there is probably a deficiency in some of the financial asset management planning, particularly in the regions,” he says.
“There are a few reasons for that of course. The cost of living crisis, the declining ratepayer base, and also it is hard to find the workforce capability. The cost of infrastructure has also gone up so much over the last five years, and councils that may have been scraping through prior to COVID have had to revalue their asset base, creating extra depreciation, and that deteriorates their operating position.”
In this scenario, asset management planning becomes critical, and it is a hot topic in South Australia, as it is in so many other jurisdictions. The LGFA has responded and now has two financial analysts on staff to look at the same financial sustainability issues as the ESCOSA reviews.
“New infrastructure should be a negotiation between the asset managers and the finance teams with a view on keeping rate increases as close to CPI as possible,” says Lambert. “But if there are certain circumstances where if a council really wants a new asset and the community has been appropriately consulted, they should be able to raise rates above CPI to pay for the ongoing costs of the new asset.”
When the LGFA funds new projects it asks for an adopted long-term planning which shows the key financial indicators after the addition of the new project, inclusive of any new expenses, depreciation and other associated costs.
Over the last few years there has been an increasing coupling of the lending credit assessment criteria with financial sustainability literature and indicators from the LGA.
When it comes to the LGFA’s profit, Lambert says he doesn’t “get too many pats on the back from the sector when we print a new record high profitability number. They’re more interested in the other things we actually do for the sector, and I agree with this sentiment” he says.
“Our success is driven more through having a sustainable local government sector in South Australia, because if councils are financially sustainable and viable we can lend to them in a responsible manner.”
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