Sounds all nice and cosy in theory.
But I will put money on the fact that there is more corruption and graft in local councils and politics than any other level of government.
Property zoning and development approvals would have to contain FAR MORE incidences of improper conduct than any other governmental level.
Also, recently matters such as Warringah Council being sacked on the northern beaches of Sydney (five years ago, or so) show the conduct of local government as being very poor.
It might sound nice IN THEORY to think local government is all democratic, but IN PRACTICE I think that is far from the truth.
The reason I don't think local government works well in the current system is because of the lack of real accountability to their community, and the meddling of state and federal governments above them.
Corruption and poor adminstration occurs because people let it. Sure ICAC names and shames wrongdoers and a few get prosecuted, and the Minister for Local Government can appoint administrators, but these mechanisms rely on people complaining about the performance of their council. If council makes a bad planning decision there are ample ways to have it reviewed, besides letters to the paper and local protest movements.
The main problem is that come voting time, people are generally disengaged with the performance of their local councillors. They whinge and moan about rates and charges, bad planning decisions, poor community infrastructure, but few actually blame the councillors who are making decisions on their behalf.
There are some excellent committed councillors out there, but there are also a bucketload of party hacks wishing they were somewhere else and developer's friends who only care when "mates" developments come up for approval. There are also council staff who work freaking hard and are committed to serving their communities, but this is too easily undermined by ineffective councillors (or overpaid council executives).
The idea of the ward system is that councillors represent their local (or sub-local) communities. Who communicate with residents in their ward, who understand local issues and local sentiment. Instead we get much less than that; I don't even know who my ward councillors are.
There is also requirement for councillors to possess certain skills, knowledge or experience, yet we charge them with making critical decisions that effects the entire community. Few councillors understand planning rules and local government rules, and in the absence of good quality advice from council staff it is little wonder councils fall into maladministration. Some councils are so wracked with factionalism that they can't make a decision even where they have that good advice and assistance from council staff.
This is where democracy at the local level fails, because instead of there being deliberation and consensus-building by elected councillors prior to any council meeting on significant issues, it is run according to party politics or the individual opinion of the councillor.
As for state and federal interference - the Minister for Local Government uses rate caps to prevent councils raising rates above a set amount (12% in the latest cap) except in exceptional circumstances. This is fine but some councils have to meet expenses providing community infrastructure over and above the limit placed on it by the Minister. For example, rate concessions are granted to residents over 60 means many local governments in rural and "sea-change" areas have little revenue and yet have ballooning costs with providing community infrastructure for older people.
The federal interference is in the form of tied grants - the Feds give money, say for local roads, in return for the local government doing something else, flying the Australian flag (for example). The state government places similar conditions on grants to local government.
The other interference is the form of usurping council power. Part 3A planning powers which were transferred from Councils to the Planning Minister for major developments is the classic example. It essentially robs local people of influencing the development decision, which is utterly undemocratic.
Of course there is more graft and corruption in local government because there are more local governments (about 70 odd in NSW) than state (seven) and federal (one) governments and more councillors and council staff to can recieve corrupt payments (or even sex in lieu of $). But that doesn't mean it is less democratic overall. ICAC does a lot of investigations into a lot of councils, councillors and council staff, but they are still only a very small proportion of all councils, councillors and council staff.