As part of the Minister for Local Government’s Local Government Reform Agenda, one of the main planks of the package, rate capping, has just become law. The Local Government Act Amendment Bill was passed in the Legislative Council and will stop councils raising their rates above a cap, based on the Melbourne Consumer Price Index (CPI), commencing the 2016-17 financial year.

The Bill provides the Essential Services Commission (ESC) greater oversight of council spending, ensuring ongoing compliance and monitoring of overall outcomes for communities.

Some of the key requirements are:

• Subject to ministerial consent, a single rate cap will be applied to general rates and municipal charges commencing 2016-17. The indicative CPI forecast annual rate cap is 2.75%, but is likely to be lower
• Councils now need to ascertain the impact on future revenues and long term financial plans. Should a council face budgetary pressures, they can apply for a rate variation amount above the cap.
• The ESC is authorised to monitor compliance and assess variation applications
• If Councils are to seek a variation, they need to notify the ESC by January 2016
• Any variation application process will need to:
  1. Outline the reason a variation from the cap is required
  2. Take into account of ratepayers’ and communities’ views
  3. Confirm the variation represents efficient use of council resources
  4. Confirm service priorities and funding options have been considered
  5. Integrate the variation into the council’s long-term strategy.
• ESC are in the process of developing a guidance paper.

With the emphasis on proving service delivery is efficient and effective, the State Government has just launched the “Know Your Council” website (knowyourcouncil.vic.gov.au).   This website is designed to improve the transparency and accountability of council performance to ratepayers and provides an opportunity to access the performance of local councils across Victoria.

Council Action Required

Consequently, Councils now need to act.  They will need to create a risk intelligent rate capping response framework and supporting methodology tool kit to facilitate decision making, including:

• Conducting a financial evaluation of the impact of the loss of income, both short term and long term, on:
  • The delivery of critical services/service quality/care levels
  • Maintaining critical assets needed to deliver the critical services.
• Should long term sustainability be effected:
  • Conduct financial and risk analysis on potential cost reductions
  • Test that existing service delivery is efficient and effective
  • Review the rating strategy/funding policy
  • Inform the Councillors and determine whether a request for a variation should be pursued (before Jan 2016).
• If a variation application is required:
  • Develop a community engagement strategy and seek ratepayer feedback on options
  • Extract relevant service delivery information in order to respond to the ESC’s five criteria.

So as usual, there is plenty of change occurring in the local government sector requiring strong vision and leadership.

Councils need to do more with less whilst maintaining the sustainability of a very large asset base.  This will require the industry to challenge itself – review the way it has always operated and question the methods currently used to deliver services.

Most Councils I talk to indicate they will be ok in the next 12 months but beyond that ….   There is uncertainty.

The next short while will require strong leadership, a vision for the future and an appetite to change.  Shared services, cloud computing, ratepayer committees, social media, online service delivery.  All strategies that are worth exploring.

Should you require any further information or wish to discuss this paper, please do not hesitate to contact Jeff Webb on 0437 539 015.  JNW can assist Councils:

• Evaluate financial impact/funding gap from rate capping (short and long term)
• Create risk intelligent rate capping response framework
• Develop service focused accounting systems required for variation application (based activity costing)
• Assist with rate cap change and variation applications
• Conduct service delivery efficiency reviews
• Due diligence on potential new revenue streams
• Community engagement strategy – leveraging social media mechanisms
• Reporting – new Council plan/Long Term Financial Plan/Service Driven Asset Management Plans
• Councillor engagement.