RV Submission to Parliamentary Inquiry of the Fair Go Rate (Rate Capping) Policy

Background

A Parliamentary Committee was setup in  2015 to monitor, every six months, the outcomes of the State Government policy of local government rate capping on councils’ viability, service impacts on local communities and impacts on the provision of local infrastructure. Justification for this inquiry is mainly based on the concerns of (Parliament of Victoria, 2015)

  1. Risks to the critical services and infrastructure provided by councils around the state as rate capping is implemented;
  2. Risks that council debt along with other charges, fees and levies, will be increased to compensate for rates being capped at the rate of inflation.
  3. Risks that wage increases for council employees at levels far beyond the CPI will see pressure to cut services and infrastructure maintenance to close the gap between revenue and expenditure.

These risks arise primarily because it is perceived that:

  1. Councils’ operating costs cannot be in lock step with the CPI because councils and their peak bodies view their expenditures comprise a very different ‘basket’ of goods and services;
  2. State Government do not adequately fund councils to localise state services & infrastructures and expect councils to recoup the cost of delivering these amenities to local communities.

To date, there are 2 inquiry reports published so far.

Third Review:

The third review is underway, and Ratepayers’ submission is as follows:

Introduction

Most ratepayers view the Fair Go rate policy is working successfully. However there are the few those, such as councils and their peak bodies, who perceive the policy is  not working, because they lack the resolve to want and make the state policy work.

Local Government Systematic Gaps: Causes & Effects

Causes

For decades, local government has been operating in its own vacuum, as the decentralised units of the Victorian State Government’s Local Government (LG) portfolio. The LG portfolio works under the discretionary operations of 79 councils, each with different appetites for budget and operating models for localising state services and managing local liveability.

A major overhaul of the LG Act took place in 1989, implying the Act is more than twenty years old. Since then, over 100 band aid amendments were added. We also observed many discretionary variations when councils interpret and practise compliance to the legislated rules, including handling non compliance.

Unsurprisingly, many councils and their peak bodies are still in the mind-sets of the eighties, their  legacy to current practice norms cultivating:

  1. Self-directed operating autonomy that duplicates and increases inefficacy in the LG system
  2. Growing appetites for escalating rate rises , without adopting more modern practices of budget planning and management
  3. Leadership cultures often lacks practice competency of good governance principles in council conduct, decision making and implementation.

Effects

These practice discretions explain why the current and legacy business models and work cultures of many councils are out of date and out of touch with today’s generations of ratepayers.

Today’s generation of ratepayers and their advocacy groups:

  • are more well informed and professionally astute;
  • have higher expectations of democratic civil participation and rights
  • want to see more transparent good governance compliance evidence in council affairs;
  • expect to see more socially responsible and best value for money community-outcomes resulting from council decisions and service provisioning.

When councils and ratepayers disconnect, the “best” outcomes for local communities is easily dictated by those who hold decision making power and the capacity to ensure legislated objectives can be easily construed by discretionary and subjective decision arguments, politicised agendas and autocratic leadership styles.

 

Inquiry Reports: Analysis Shortfall & Gaps

The first and second inquiry reports focused to summarise the face value findings of submissions from stakeholders who primarily resist the rates capping policy, because it threatens the autonomy of status quo and/or because of politicised reasons. Conclusions are made on the basis of submissions’ summary highlights. The reports lacked deep analysis of the findings to investigate the motivation and causal drivers underpinning the strong consensus resistance against the rate capping policy. Neither do the reports address the prevailing systematic issues that require short to long term  reform interventions, such the rate capping policy to contain current and sustain future rates affordability & equity for local communities. This example has  trade-offs that councils and their peak bodies dislike, because the tradeoffs disrupt status quo domination of power in LG.

Legacy Systematic Municipal Financial and Service Management Gaps

If there is optimisation of economies of scale and scope, there is no need for rate capping. A system that is guided by a rule-book (the LG act) that is more than twenty years old and especially when its compliance policing is discretionary, loose and subjective, resulting systematic inefficacy is a natural given, further worsen when there are 79 decentralised and autonomous councils doing what and how they like. Therefore, it is not difficult to see why systematic cost-shifting blames occurs,  when operational duplications and decentralised autonomy are the real structural barriers to economies of scale and scope and they increase system management complexity.

Claimed uncertainties in budget planning is not due to rate capping, but competency gaps in zero based and scenario budget planning, risks management and total lifecycle cost of ownership in assets management, financial management alignment to councils’ strategy cycles and the lacking clear definition and hence integration of service management structures in councils’ charts of accounts.

When councils complain they have hundreds of services, their complaints reveal there is no understanding of service management and lacking capabilities, which affect the integration of service and financial management structures in charts of accounts that are crucial for effective management reporting.

Reforming systematic change is inevitable to improve the situation. The previous Liberal State Government started the journey of reforms, by introducing the development of LG Performance Reporting KPI framework (LGPRF) and making short term legislation changes to fix growing conduct issues. The present Labour Government is intensifying this change journey and the resistance to change is very real and strong, coming from councils and their peak bodies. Both previous and current State Governments have their heads and hearts in the right place, to reform the LG system in the interest of current and future communities.

Peak Bodies Self Interests

Councils’ peak bodies rely on councils to bring in their revenues through membership fees that are calculated based on the financial capacities of councils. MAV also earns big money from councils outsourcing their procurements. The worldview is escalating rates are good, because they pay every provider stakeholders very well and always increase.

The LG Index was designed to justify ongoing  uncapped rate increases, only supported by evidence of uncontested common practices, and ignoring good practice design and program logic evaluation principles.

This year, MAV also initiated an advocacy rates capping program for its members to contest the policy.

Self interests and preservation are the key providers’ motivators for resisting change, especially rate capping that hurt their real hip pockets  badly.

Rates Affordability: A Needed Social Responsibility

If rates are not capped and councils are not made more accountable for increasing operating efficacy, ongoing and escalating rate rises will make owning properties unaffordable for most and exclusive to the rich, often overseas investors.

A fairer rate system that ensures rate affordability is not unreasonable but a social responsibility necessity.

Councils and their peak bodies are failing to meet their statutory obligations to ignore this growing ratepayers’ dilemma by insisting rate capping is detrimental to their operations and autonomy in local municipal service provisioning.  We witnessed in a MAV meeting this year, one socially responsible Council, ie the Colac Otway Shire , asked other council attendees have they checked with their local communities if they want rate capping and many chose to ignore the question asked and supported the MAV lead rate capping program.

Most ratepayers, especially if they don’t work in the LG sector, will want rate capping to continue, even more having higher future rate caps until they can see KPI evidence that their councils have optimised their operating and service provisioning efficacy. Today service management and accounting is a dog’s breakfast and while LGV is working on improving KPI reporting and performance transparency, councils continue to winch about good governance and compliance obligations as bureaucratic waste of time tasks.

Creative Cost Shifting Games

The first year of rate capping only applies to the general rate and municipal charges components of council budgets. Other expenditure areas of councils are not affected. We have received cost shifting reports from our members that some councils are reducing general rate and municipal charges to other expenditure areas, to be less constrained by rate capping. We also observed the sector wide trend in increasing fees and other charges, and differentiate rates, to compensate the financial impacts of rate capping.

Councils are now cost-shifting to their communities and yet they complain about costing shifting from the State Government. Cost shifting may be a contributor of insufficient funding of councils’ expenditures, but  operational inefficacies and lacking systematic economies of scale and scope are the larger and higher impact causes.

Such practices are not kosher, especially when statutory financial indicators reveal many and often metro councils have large reserves of unrestricted case, over  geared working capitals and long standing underperforming asset renewal ratios ( that have been prevailing for many years when rates were not capped).  The patterns of news media reveal that there is implicit collaboration to use the media to discredit rates capping. The common media manipulation is publicly complaining that rate capping is hurting communities because councils have to cut services (selectively), such as school crossings. The tactic is when one lies enough and the lies become reality, often used by social engineering rogues.

Infancy Good Governance Competency

The rate capping policy provides councils the choice of increasing rates above capped levels through a rate variation process. The process requires them to consider a strong business case, show good explicit decision making traceability and demonstrate genuine community engagement. This process integrates good governance principles –  especially concerning transparency, accountability, community responsiveness and inclusiveness, efficiency and effectiveness. Accusing the rate variation process is bureaucratic and consumes unplanned and large resources and money, only reflects the real good governance competency of winching parties, also their capability-level to write business cases, or some other  sinister reasons.

One would squirmed even to think the future fury reactions of councils and their peak bodies when future rate caps can be further increased and efficiency factors integrated in the rate capping formula.  Does LG serves in the interests of councils and the peak bodies first before local communities – the new black in LG?

Conclusion

What this inquiry’s submissions and reports have not revealed are the legacy leadership cultures and systematic issues in councils and their peak bodies that are blocking the rates capping policy and compromising its implementation success. Concluding the inquiry findings, based on summarising the common themes of submissions (which are mainly from stakeholders who oppose rate capping) at face value, lacks substantiation of deeper analysis to identify the real causal barriers to rate capping and consequently system efficacy improvements.

 If councils are tactically persistent to discredit and remove rates capping, they may as well include the LGPRF improvement program and cancel the modernisation of the LG Act. They can also consider restructuring the State Government, to remove the LG portfolio. These cancellations and state government restructuring would allow councils and peak bodies to:

  1. continue their legacy status quo and without a good governance conscience when monopolising and dictating municipal service provisioning and pricing;
  2.  jeopardise very quickly rates affordability and equity for many Victorians.

Then the rule of law principle of good governance, which relates to complying to the LG Act,  can be bent, not breached, to fulfil the wishes of the exclusive few before interest of local communities first?

Cutting to the chase, the policy is working now. If councils and their peak bodies redirect their energies and resources to ensure the success of the policy, there will be greater systematic improvements and many longer term benefits arising from rate capping.

Like it or not, Councils, rate capping is coming to stay……

Read what the fuss is about in the Herald Sun’s Victorian Government moves to cap council rates article, by Matt Johnson, 19 Oct 2015:

“VICTORIAN households have been whacked with average rate hikes of 6 per cent a year for the past decade, adding hundreds of dollars to family budgets.

Ten councils have jacked up their charges by more than­­ 7 per cent a year since 2006-07, while every local government other than Melbourne City has had a minimum 4 per cent ­annual increase.

As a result, average rate bills are now about $700 higher than a decade ago.

Data was supplied to the Sunday Herald Sun by the ­Andrews Government ahead of a decision on how it will ­implement a rate capping election promise.

The biggest percentage ­increase for rural councils was Golden Plains, at 8.9 per cent a year, while Banyule had the highest metropolitan average increase of 6.9 per cent.

Labor will ­announce soon whether it will accept Essential Services Commission recommendations for a cap of about 3.05 per cent — or about $55 — next year.

While Labor promised a consumer price index cap ­before the election, the ESC wants two inflation measures to work out the limit, in recognition of council costs.

The Coalition said this would be a broken promise by the Andrews Government.

“Victorians have had enough of never-ending rate increases,” Local Government Minister Natalie Hutchins said.

“This data shows that on ­average over the past 10 years, Victorians have faced a rate ­increase of nearly 6 per cent a year.”

The Government will send councils to the ESC to hike rates above inflation, for reasons such as natural disasters.

“The best councils keep a tight rein on budgets, and only spend what it takes to get a job done well,” Victorian Local Governance Association president ­Sebastian Klein said.

He said rural councils would suffer under a severe cap because they had a lower number of rateable properties with a lot of roads and infrastructure in need of repair.

Mr Klein said, in one case, the community of a council backed a 12 per cent rate rise to fix bridges and roads.

“The best outcome is if it encourages councils to genuinely talk to their communities about the priorities required to meet their needs,” he said.”

Rate Rises in the Last 10 Years

Rate Rises in the Past 10 Years (Source: Infogr.am in Herald Sun, 2015)

 How rates changed year by year

How rates changed year by year (Infogr.am in Herald Sun, 2015)

Rate Capping Policy Development

 Ratepayers Victoria Inc (RVI) has been very busy contributing to the rate capping policy development. Our committee members have been submitting several different perspectives in responding to the Essential Services Commission (ESC) papers, including the latest report proposing a rates capping solution, that has considered a balance perspective of all stakeholders’ views and interests. From that angle, the solution is also explicitly ratepayers inclusive, emphasizing the need for effective community engagement, and transparent and quality business cases when councils seek to vary their rate increases from capped targets.

We also have nominated Dr Chan Cheah to be the official RVI spokesperson in the Fair Go Rates Reference Group, who meets with the Minister, to be briefed and discuss about the incremental progress milestones of the policy development. The panel comprises of people from councils, peak bodies, unions and two ratepayers groups – RVI and the Victorian Farmers Federation, and organisers from Local Government Victoria (LGV) and ESC, and including Local Government (LG) Minister Hutchins. We had two meetings so far, and the scope of meeting agendas were also presented in public briefings organised by the ESC. If you have not attended these public meetings, the next coming ones are scheduled as follows (we already send a notice last week):

ESC is asking for feedback submissions to their report 2 – found in http://www.esc.vic.gov.au/getattachment/658ebba8-0cdc-4845-8535-a70f79b75626/Draft-Report-A-blueprint-for-Change-Local-Governme.pdf. The deadline for public submission is 28 August. RVI will be submitting several responses, facilitated by several individuals and groups who are submitting their different analytical perspectives, the purpose to give a diverse range of ideas and analytical insights for the ESC.

There is also a Parliament inquiry about rate capping – for details refer to http://www.parliament.vic.gov.au/about/news/2664-rate-capping-inquiry-invites-submissions.


LG Act Review

On Tuesday, 11 August, the office of Minister Hutchins released a press media communique announcing “The Andrews Labor Government is getting on with its election commitment to review the Local Government Act 1989, to improve accountability and create a more contemporary, accessible Act to meet the current and future needs of Victorian communities”. Details can be found in http://www.parliament.vic.gov.au/about/news/2664-rate-capping-inquiry-invites-submissions.

Collaborating with other ratepayer groups, we have formed a working group to be actively involved in strategically contributing to this second and major reform initiative. This LG Act Review is a major opportunity for Victorian ratepayer groups and advocates to influence the reshaping of the current LG Act, which is currently biased in its subjective and varying interpretative applications, which often go against ratepayers.

On Saturday November 14 , we are hosting a Victorian Ratepayers Seminar, themed “Re-engineering Local Government”. This seminar will enable us to facilitate discussions and review feedback from ratepayer groups and advocates to work out the different future scenarios of a new future LG environment.  We envisage a new and better future that will be governed by a refreshed and ratepayers inclusive LG Act, fosters a balance of stakeholders’ views and interests, requires active community/council collaborations in decision making and shows explicit evidence of good governance when addressing all matters of local municipal government. We see ratepayers will play a major and collaborative roles in prioritizing local services and exercising community driven governance oversight, assuring and ensuring services meet real community needs and that explicit good governance becomes business as usual and a future visible norm in all Victorian Councils.

We are inviting individuals and groups to present at this seminar, summarizing their local issues and root causes stemming from the 7 principles of good governance described in the Good Governance Guide. Discussions will be facilitated  to use the presented information to identify and scope appropriate and effective changes to the LG Act. Through this approach, we would be identifying changes that would help us:

  • prevent and mitigate our current issues we face with our councils today and
  •  make a sustainable LG system that is stakeholders equitable, ratepayers/communities inclusive, transparent, traceably accountable, community responsive, efficient and effective and fosters both the letter and spirit of the law.

The working group is also developing a survey to assess the good governance capacity of councils, which we are aiming to have it integrated in mainstream LG system in the future.  There are more new initiatives and creative innovations currently under early planning in our strategic development pipeline. We will keep you posted on future updates.

If you are interested to be a presenter or guest speaker or to attend the 14 November Victorian Ratepayers Seminar: Reengineering Local Government, please email either Jack Davies (jack_d@iinet.net.au) or Dr Chan Cheah (chancheah@gmail.com).

 

ESC Rates Capping Policy Review: RVI response & involvement

Local Government Victoria (LGV), representing the state department of municipal local government , is pursuing a rates capping policy. Minister Natalie Hutchins  heads up this state department, which operates through a decentralised structure of 79 councils. The objectives of this rates capping policy is to “contain council rates growth and develop greater transparency and accountability in rates setting” (ESC, 2015). The reasons for this policy ie because of long standing and current systematic inefficiency, transparency and accountability in councils’ rates setting practices.

The Essential Service Commission (ESC) has been instructed to conduct a consultative review and recommend a rates capping and variation framework for implementing this policy by the 31 Oct, 2015. Ratepayers were among the other stakeholders invited to provide inputs to ESC.

RVI and many other ratepayer groups’ representatives attended the first meeting with the ESC team on Tuesday the 12 May, 2015 in Level 37, 2 Lonsdale St. There was genuine consultation and the exchange of information was  valuable and heartfelt.

RVI, together with Monash and Knox ratepayer groups submitted a report responding to the ESC consultation paper.

RVI’s response can be found in the ESC site, which was submitted 18 May 2015 – http://www.esc.vic.gov.au/Local-government/Local-Government-Rates-Capping-Framework-Review/Consultation-Paper-Local-Government-rates-capping/Submissions.

The key highlights of this RVI’s response is that ratepayers support the rates capping policy 110% and will support LGV in making it work. We also highlight the power struggle between LGV and MAV, VGLA and councils in controlling the LG sector, reflected in the strong and coordinated resistance against and groupthink challenge to opposing rates capping.  We also met with LGV to express our strong support for the policy.

We will keep everyone posted on progress updates.

Ratepayers footing the bills for Councils’ social media use

Last week, Ratepayers Vic Inc (RVI) was asked by the Herald Sun to response to their question – “Would your association want councils to spend money on social media at the expense of delivering vital community services or do you see a need for increased use of social media in this digital world as a way of communicating with residents?

The following is our official response:

” Social media are just forms of communication channels, for specific purposes. When Councils do not have clear strategic communication plan or social media use policy, ratepayers will be paying for their costly & risk learning curves. To worsen matters, the prevalence and quality of social media policy vary from Council to Council. For example:

  • the City of Melbourne has a pretty good  & comprehensive policy;
  • Maribyrnong Council’s policy is Mickey mousy  as it only states what social media and contact tools they use;
  • Monash Council has no such policy and just allowed their Mayor to use his private blog in official Council newsletters, etc which is causing many potential transparency, accountability and conflict of interest issues that it is not admitting.

 The key concerns is many Councils who do not understand the risks of social media will use them as “big boys’ toys”, exposing ratepayers to pay for very expensive learning curves. These Councils also run the risk of breaching good governance, including the Local Government Act, when Mayors and Councillors are allowed to use their private blogs and other on-line communication tools (that mix personal and Council contents) in official Council communications.

 Because of high learning curves that are costly and risky, Ratepayers Victoria Inc does not support Councils to spend unnecessary ratepayers’ money on social media. The Minister of Local Government or the MAV should set a best practice social media policy for all Councils to use, of which many already in the private and higher government levels. This approach will reduce learning curves and risks for all Councils and facilitate good practice management consistency in the multi-modal digital communications of all Councils. Until such time, discretionary and explicit social media costs are irresponsible and cannot be supported in all Councils.

 Councils should also consult with their communities when developing their social media policies because these policies set the rules of their on-line and interactive engagement with their communities. “

The Local Government Minister acknowledged the value of fostering a statewide policy to ensure Mayors and Councillors use social media in compliance with good governance principles. She also advised that her office is aware of the lack of and inconsistency in social media policies in Councils. She advised ratepayers that there “will be a legislation in 2014 aimed at enhancing the understanding of Councillors about the rules that apply to their role and the high standards of conduct they are required to uphold. Furthermore the proposed legislation will strengthen internal Council processes so that Councillor conduct matters are better managed internally. This should include the circumstances in which Councillors can publicize their work on Council through private mechanisms including social media“.

We see some light at the end of the tunnel.

The Herald Sun’s News Article

Andrew Jefferson from The Herald Sun reported (source: Local councils are all a-Twitter article, 23 Jan 2014):

” MELBOURNE councils are directing increased resources towards social media as local government gets more tech-savvy.

Some employ as many as five staff with social media responsibilities as councils spend increasing amounts of time pushing messages through sites such as Facebook, Twitter and YouTube.

But critics say councils are wasting ratepayers’ money on social media with many mayors and councillors using it as a self promotion tool.

The City of Melbourne employs two people whose primary responsibility relates to managing social media, resulting in 8946 likes for its official Facebook page and 132,000 for its That’s Melbourne page.

Spokeswoman Bronwyn Perry said the council was active on social media with the number of followers for its Facebook and Twitter accounts about 334,000.

“The City of Melbourne believes social media is a vital channel to inform residents, businesses and visitors of council policy and activity,” she said.

Other councils with big Facebook followings include Mornington Peninsula (7512), Wyndham (6325), and Knox (5580).

Some councils just have a single Facebook page, while others have several pages for specific events.

Port Phillip (508 Facebook likes) and Manningham (244 Facebook likes) both employ five people with social media responsibilities in addition to their primary roles.

Manningham chief executive officer Joe Carbone said updating social media took up only a small part of his staff’s time.

“Updating social media accounts takes staff members only minutes a day and as this function is currently a minor part of existing roles there have been no additional staff costs,” he said.

Nillumbik, with just 128 Facebook likes, employs three communication staff who are specifically trained to contribute to council’s social media platforms.

Port Phillip’s media and communications officer Siobhan Coughlan said the council’s costs on social media were minimal, spending about $100 a year on software.

“In 2011 we employed a consultant to assist with branding on Facebook and Twitter and work around strategy and policy, costing around $10,000,” she said.

Dr Chan Cheah, from Ratepayers Victoria, said when councils do not have clear social media policies, they run the risk of them being abused.

“These councils run the risk of breaching good governance, including the Local Government Act, when mayors and councillors are allowed to use their private blogs and other online communication tools that mix personal and council contents in official council communications,” he said.

MAV President Cr Bill McArthur said it was vital that all levels of government adapt and provide information in a way sought by communities in this increasingly digital age.

“Social media provides councils with a genuine means of engaging with communities, many of whom may not be otherwise connected with their council,” he said.

Some councils such as Hume, Melton, Whitehorse, Whittlesea, and Yarra City do not have any dedicated council Facebook pages “.