Navigating the COVID-19 crisis: the financial resilience of Victorian local government

Extensive research has examined municipal resilience to external shocks; however, quantitative assessments of financial resilience based on performance remain limited. This paper addresses this gap by analysing financial sustainability in Victorian local governments across three phases: pre-crisis (2017/18–2018/19), the COVID-19 pandemic (2019/20–2020/21), and recovery (2021/22–2022/23). Using bias-corrected Data Envelopment Analysis, we find that councils’ financial resilience declined during the pandemic. Although recovery was relatively rapid, performance did not return to full efficiency. Both urban and rural councils experienced reduced resilience, with rural councils closely mirroring the overall sectoral decline. Strengthening rural councils’ financial capacity may generate system-wide benefits, particularly during shocks. Second-stage fractional regression results show that factors such as council size, taxable income, and local unemployment significantly influence financial sustainability, especially during crisis periods. Overall, the findings highlight important policy implications, emphasising improved shock-response mechanisms and stronger governance, particularly for rural municipalities.