New guidelines for negotiating Specific Purpose Payments (SPPs) have been developed to enable the NSW Government to evaluate the financial implications and to ensure cost effective arrangements are utilised to achieve better, more accountable, outcomes. The attached guidelines replace the instructions issued in Memorandum No. TM92/1 and Memorandum No. 93-37.

The guidelines are designed to limit the consequences of the increasing reliance on SPPs (currently about 45% of Commonwealth payments to NSW). Many SPPs contain provisions which greatly reduce budgetary flexibility, and impose numerous financial or non-financial conditions on State access to Commonwealth funding. Further, funding provided as a recurrent SPP is usually in part offset by reduced general revenue grants, under fiscal equalisation processes operated by the Commonwealth Grants Commission.

Under the new guidelines, NSW Government Ministers/agencies/departments will not be permitted to sign any SPP agreement without my endorsement. My decision will be based on advice I receive from the Treasurer.

Ministers are now required to advise the Treasurer of funding and related arrangements raised in negotiations, and to seek my approval for SPP agreements at least four weeks prior to the anticipated date of agreement.

To further improve accountability, compliance with the guidelines for negotiating SPPs will be included as a standing item on the agenda of the Annual Performance Review for Ministers.

Bob Carr,
Premier.

Attachment

GUIDELINES FOR NEGOTIATIONS ON SPECIFIC PURPOSE PAYMENTS

For the purpose of these guidelines, a specific purpose payment (SPP) is a payment by the Commonwealth to or through a State Government:

- for the delivery of services which are considered a joint Commonwealth-State responsibility;

- for the funding of activities undertaken more or less on a continuing or extended basis; and

- for which the Commonwealth payment is considered the Commonwealth's share or contribution to the delivery of the service.

This includes agreements which may not necessarily be called "SPPs" (e.g. Partnership Agreements" under the Landcare Program).

An SPP should be distinguished from a contract or fee-for-service arrangement, which is an arrangement whereby:

- the State Government is merely paid by the Commonwealth to undertake certain activities or deliver certain services on behalf of the Commonwealth (the activities not being a part of normal State Government functions);

- the activity or service delivered by the State tends to be a one-off arrangement (although some contract arrangements can be on a continuing basis as well); and

- the Commonwealth payment is considered a straightforward fee paid to the State for services rendered on behalf of the Commonwealth.

To the extent that periodic enhancement bids are made under terms and conditions significantly different to those in an existing agreement previously approved by Cabinet, these guidelines also cover periodic bids.

GOVERNING PRINCIPLES

In developing a negotiating position in SPPs, New South Wales departments and agencies shall adopt the following guiding principles:

1. SPP agreements should contain the overall policy purpose of the program and clearly defined program outcomes which are described in terms of program performance and outputs rather than inputs. To the extent that State policy covering the areas of the SPP agreement is known, the agreement should be aligned with State policy.

2. Agreements should clearly define areas of responsibility of Commonwealth and States. Agreements should clearly indicate whether the State will be running the program as a shared responsibility with the Commonwealth; or whether the State is merely acting as an agent contracted to run the program on behalf of the Commonwealth. Duplicative administrative arrangements should be avoided. For each program area, one level of Government should have clear responsibility for operational program management. Information, reporting and review procedures should be clearly specified.

3. Within the context of agreed program objectives and outcomes, funding arrangements should provide maximum flexibility for the State budget. Where possible, the incidence of tied grants should be reduced. Onerous or excessive conditions on State access to Commonwealth funding (e.g. maintenance-of-expenditure requirements) should be minimised or avoided. To the extent possible, multiple programs serving similar or related purposes should be broadbanded and/or boundary issues with other related programs explicitly addressed.

PROCEDURES

In view of the policy and funding issues arising from SPPs, it is essential that the Premier and the Treasurer be made aware of new agreements or renegotiated terms of existing agreements. The procedures are as follows:

1. That Ministers advise the Premier and the Treasurer of any forthcoming negotiations to be undertaken with the Commonwealth on SPPs.

2. That Ministers discuss compliance with the guidelines for negotiating SPPs at the Annual Performance Reviews.

3. As negotiations progress, that Ministers advise the Premier and the Treasurer of any possible conflicts with the above guiding principles, as well as developments and issues of concern relating to funding and policy, including the following:

Any expected State commitments on policy changes, reforms, legislation, institutional/legal/economic or other policy initiatives constituting pre-conditions to funding access, and/or which may impose explicit or hidden costs on the State budget.

Any conditions which commit the State to specific levels of expenditure or other inputs to a program, whether short or long term.

Any aspects relating to matching requirements and/or payment by the State to the Commonwealth of any income earned from the use of program funds.

Any requirements for the State to set up separate monitoring/reporting or administrative arrangements or create new organisations for implementation purposes.

In general, any requirement or condition discussed between Commonwealth and States which would affect the accessing and spending of program funds.

If negotiations are at a sufficiently advanced stage, any significant differences (actual or expected) in negotiating position between New South Wales and other States/Territories on funding and policy issues.

As required, an officers' group consisting of representatives of central agencies and relevant line departments may be convened to develop the State's negotiating position.

3. That no later than four weeks prior to any SPP agreement being signed, the concurrence of the Premier should be sought. The Premier will consider the matter based on the advice of the Treasurer.

EXPECTED BENEFITS

These procedures are designed to accomplish the following:

Provide an early indication of the likely impact on budget expenditures and levels of Commonwealth funding. In the present fiscal equalisation process, under certain conditions an increase in SPPs could lead to a reduction in general revenue grants.

Help assure consistency in the State's negotiating position across portfolios as it impacts funding and priorities.

Increase budget flexibility by minimising onerous or objectionable conditions (e.g. real terms maintenance of expenditure, duplicative organisational structures or monitoring requirements) and increasing the focus on outcomes in SPP agreements.