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Friday, 12.15.2017
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11:05 AM
Betrayed and Robbed.

Do you remember the Fair Go Rates scheme promised by the State Government regarding our council rates for 2016/2017?

The 'Fair Go Rate Scheme' was supposed to restrict increases in the council's total rate intake in 2016/2017 to CPI, that is to around 2.5%. (Please see the media release below from the State Government)

It sounded great, didn't it? It must have brought in a lot of votes for the current state government. The state government said they were going to put a stop to the exorbitant increases in council rates each year.

But you and I will see little of the Fair Go Rates scheme if we own a residential property in Manningham.

As soon as Manningham Council heard of the Fair Go Rates scheme, they complained about it.

Soon after it was announced, Manningham Council devised a scheme to get around the state government legislation and significantly increase their rate revenue in the coming years.

That's right, significantly increase not decrease their total revenue from council rates.

And their scheme will work.

How did they do this? How did they get around the the law?

Please allow me explain.

 

A Carefully Crafted Property Revaluation lays the Foundation.

The State Government legislated that for 2016/2017 the TOTAL increase in rates collected by the council must not exceed CPI, that is 2.5%

However, there are many different types of rates. For instance there are: rates for industrial land, rates for commercial land, rates for residential land, rates for recreational land, supplementary rates, and so on.

And lucky for Manningham Council, there was a property revaluation due just prior to the start of the Fair Go Rates scheme.

As a result of this property revaluation, there was a dramatic reduction in rates compared to the prior year for: industrial land (down 6.2%); commercial land (down 5.7%); recreational land (down 56.2%) and supplementary rates (down 59.5%).

However total rate revenue from residential properties is to increase by 4.6% over the prior year. (Please see the results of the revaluation on page 39, table 7.5, Manningham City Council – Annual Budget 2016/2017 tabled at 26 April 2016 meeting).

 

While the total rate revenue increases by 4.6%, the rates per residential property will increase by 3.3% due to the increase in the number of residential properties. But the rate increase for residential properties is very uneven. For instance, some residents I have spoken to will see a rate increase of more than 8%. You might want to do some calculations of your own to see how much your rates increased over last year. It is not clear how many residential properties are going to see a rate increase anywhere near 2.5% in 2016/2017. Since the average increase is 3.3% you would expect quite a few.

 

The property revaluation done by Manningham Council shifted the rate burden away from Industrial, Commercial and Recreational properties onto Residential properties.

Our rates are driven by the value of our properties.

Think of it this way. The Council decides (yes, they just decide) the total amount of money they want from us in a year. First, they total up the values of all the properties in Manningham. Then the fraction of the total rates they want that you or I pay, is the same fraction that the value of our property is to the total value of all properties in Manningham.

So if the council wants to move the rate burden away from industrial, commercial and recreational land and onto residential land, then the values of industrial, commercial and recreational land must decrease in comparison to residential land so they form a smaller fraction of the total value of all properties.

And that is precisely what this revaluation did. Please see the tables below taken from page 39 of the 2016/2017 Manningham Budget. See how the number of residential properties has increased by 1.3% but their value has gone up by 33.2%. Note how the value of other types of land has not increased in value any where near this extent.

(Note that table 7.2 does not take supplementary rates into account. Supplementary rates bring the total rate increase down to 2.5%. See table 7.10 on page 42 of the 2016/2017 Budget).

 

Now we all know that residential property prices are increasing in Manningham. But why would residential properties increase in value far more than industrial and commercial properties? Later on I will show that I have good reason to think that commercial and industrial properties are experiencing a boom in price similar to residential properties.

Now some may think that the reason why residential rates is going up more is because there was an increase in the number of residential properties and the reason why rates for recreational land decreased was because there was a decrease in the amount of recreational land.

It is true that the number of residential properties increased and the amount of money the council collects in rates from residential properties increased as a result, but what we need to focus on is the change in rates per residential property. The same is true for recreational land which saw a decrease in number and the amount of money collected from recreational land decreased, but again, it is the change in rates per property that we are interested in.

 

After the property revaluation, when you you add up all the numbers for all the different types of properties, and take supplementary rates into account, the increase in total council rates is 2.5% just as the State government wanted. (see page 42, Manningham City Council – Annual Budget 2016/2017.)

But the rate burden is now heavily skewed towards residential properties. Residential properties will pay the lions share of the increase, that is total residential rates will go up by 4.6% in 2016/2017. Remember that our rates for the prior year (2015/2016) were budgeted to increase by 4.5%, excluding waste charges (See page 1063, Minutes for Meeting 21 April 2015). So general rates have gone up slightly more in 2016/2017 than they did in the prior year.

Most residential properties in Manningham will see little of the Fair Go Rates scheme from the State Government. Rates per per property will increase on average by 3.3%. But the increase is very uneven and many Manningham residents will see rate increases far above 3.3%.

As far as many Manningham residents are concerned, the State Government may as well done and said nothing.

 

Manningham council may argue that there will be a reduction in the waste charges (our rubbish bins) by 10.8% over the prior year. This is due to the renegotiation of the waste contract. I think this was done to soften the blow to ratepayers. But note that the State Government cap of 2.5% did not include the waste charges but was on general rates only. And general rates for residential properties will go up on average by 3.3% in 2016/2017 with many residents seeing a much greater increase.

 

What I also find interesting is that the council does not want us to make any link between the property revaluation and the way the rates burden shifted onto residential properties. They want us to think that it was entirely normal and there was 'nothing to see here'. We were cautioned by the council not to make any connection between the two.

"However, it should be noted that the introduction of the rate capping scheme also coincides with a revaluation year. It is important for residents to understand that these two matters are quite independent of each other and that rate capping is applied to the average municipal rates and charge and not to each individual property." (Page 1, Annual Budget for 2016/2017).

 

The Revaluation Moves the Rate Burden onto Residential Properties.

Let me ask you this.

Where do you think the growth in Manningham will be in the coming years?

  • Do you see the number of industrial sites increasing?

  • Do you see the amount of recreational land increasing?

  • Do you see the number of commercial properties increasing? (Possibly they will.)

  • Do you see the number of residential properties increasing?

Off course residential properties are increasing in number. The council is approving residential properties, in particular high density residential developments, hand over fist.

Their current plans are to build high rise residential properties along Doncaster Road, Manningham Road, Elgar Road, and so on. Not to mention the redevelopment of residential blocks in areas away from these roads.

The council knows that the number of residential properties are going to explode over the coming years. They approve the building permits, know the number and approximately when and where they will be occupied and start paying rates.

So it is very important for them to continue to increase residential rates as much as possible if they are going to capitalize on the growth in the number of residential properties.

It would be silly for them to give only a small rate increase to residential properties and forgo all that potential income.

 

These Changes Bring the Council an 'unexpected' Windfall each Year.

First of all, the council does experience a windfall of 'unexpected' rate income from new residential properties each year. Let me give you the numbers from last year.

The Budget for last year, 2015/2016, said the council's total revenue from rates (excluding waste charges) would increase by 5.3% (See page 74, Manningham Council Annual Budget 2015/2016).

So what happened? Did it increase by 5.3%?

Not at all. Due to the increase in the number of residential properties it actually increased by 8.29% (Please see page 10, Manningham Council Annual Report for 2015/2016. You will need to do some calculations to see the percentage increase.)

Also the council want us to think that this actual increase was entirely unexpected. Please see their surprise on page 123 of the Annual Report for 2015/2016.

"Outcome: Greater than budget $1,159,000 or 1.4 %

Rates and charges are $1.16 million favourable to budget mainly due to rates payable on the former Eastern Golf Club site following its sale and an increase of 641 properties rated for the first time during the year." (Manningham City Council Annual Report 2015/2016 Page 123 )

(Also I like the way they hide this statement well down in the Annual Report as a note in one of their spreadsheets. They have a habit of hiding important information away in the cells of spreadsheets.)

 

So why do new residential properties bring such a windfall?

It gets a bit tricky but let me explain.

From what I can tell from council documents, Manningham Council set their budget without taking new residential properties into account. That is, they set their budget based only on existing properties at the time the budget is made.

This means that the percentage increase in rates is slightly higher than it needs to be. Remember how the rates are calculated. The rates the council wants to collect is spread over existing properties who all pay a fraction of the total what the council wants. It appears that new properties are not taken into consideration at that time.

If the council were to calculate our rates taking into account the new properties that would start paying rates during the year, then our percentage increase would be slightly smaller.

So here is why it works so well.

First the council moves the burden of rates onto residential properties while decreasing the rate burden for industrial, commercial and recreational properties. This means that the rates for residential properties increase by the largest amount. Then the way they do their calculations for their budget means that they make the percentage increase in rates for residential properties slightly higher than it need be (because they do not take new properties into account).

Finally this means that for every new property that starts to pay rates during the year, the council gets the maximum possible rates it can AND they can take the full amount of the new rates as unexpected and unplanned income.

You see, it has all been carefully set up.

This positions the council so when new residential properties start paying rates, they are set to make a killing. And that is precisely what happens.

This scheme works year after year. Each year the council will experience a windfall in rates while the number of residential properties increase significantly.

If they took the increase in residential properties into account when they made their budget, then this surprise windfall would hardly occur because new properties would be included when they spread the rates out over all the properties. But they would not do that and would argue that they cannot do that. However private enterprise often make their budgets taking into account expected growth in their customer base, etc. But our council appears not to do that.

The last step of this scheme is the council then bluffs us and says that this windfall comes as a complete surprise to them.

 

So How will Manningham get this past the State Government?

Very easily.

Manningham council have their excuses ready in advance.

They will tell the state government that they only planned, in their budget, to increase rates by 2.5% and what is more, the state government approved their plan!

Then this actual increase of 4 or 5% (or more) can be said to come as a total and unexpected surprise for them! They can say 'How about that! We never knew that was going to happen'. And the state government bureaucrats will believe them.

These are the kind of people we have in Manningham Council: sneaks and schemers. They are the kind of people who say they are there only to help us while in actual fact they actually are helping themselves.

 

Was the Property Revaluation Honest?

I don't think it was.

I am of the view that the property revaluation was engineered by the council to give them the numbers they wanted.

Please allow me explain my reasons.

 

Industrial Land.

My experience some years ago with industrial land leads me to think that it is normally valued at 2 or 3 times that of residential land and is highly sought after. My recent experience suggests that industrial land is experiencing very good capital growth.

For example, in Mitchell Street, Maidstone there are three large industrial sites. All were standing empty for several years and, from what we can tell, were owned by foreign investors.

Someone I know at a company in Mitchell Street said they wanted to rent one of those factories. They actually had to track down the owner in Hong Kong. I was told that initially the owner was not keen to rent their factory but later gave my friend's company a very good rental agreement.

From what we can tell, the investor in Hong Kong was perfectly happy to leave the factory empty and just let it appreciate in value – and had no plans to rent it out for rental income!

It would appear that industrial land is experiencing good capital growth for the owner not to be interested in renting his empty factory out.

The other two factories, as far as I can tell, are still empty and, from what we know, are also owned by overseas investors.

 

Commercial Land.

Regarding commercial land (shops, offices, etc.). Many people may not know this but commercial land is in high demand. People who run their own Self Managed Super Funds usually invest their superannuation money by buying commercial properties to derive a rental income.

Prices of commercial properties are booming. For instance there were two identical shops along Doncaster Road in Greythorn Village that I have first hand experience with. One shop sold in December 2015 for $900,000. The second shop, identical and next to it, sold in April 2016 for $1,350,000. An increase of 50% in 4 months.

In Tunstall Square back at the start of 2016, one shop was expected to sell for around $2.2 million. Instead it was sold for $2.8 million. Something few, if any, of the estate agents present were expecting.

 

So from what I can see it is completely unreasonable for the council to say that industrial and commercial property values have not gone up in price as much as residential properties. Commercial properties have been experiencing a boom in prices in this area for some years. And in 2015/2016, from my observations, prices have been increasing at a much greater level than residential houses.

I think the council revaluation of properties in Manningham was not intended not to be a proper valuation of land and capital improvements but instead was meant to serve the council's purpose of maximising their rates revenue in coming years.

 

Conclusion.

Manningham Council is planning to get all they want.

They will get their massive rate increases despite what the state government said.

They will also get their obscene pay increases of 3.4%.

And on top of their pay increase of 3.4% they will get their increases in pay due to staff 'going up in bands', that is as staff increase in seniority.

This why the budget for staff salaries goes up MORE than 3.4% each year even though there is no significant increase in staff numbers. It is to pay for their 3.4% increase PLUS their seniority increases.

On the other hand, we will not get what we want or what we were promised by the state government.

You and I will not see almost nothing of the State Government's Fair Go Rates scheme.

Instead we are being robbed and plundered by the scheming but otherwise mediocre people in Manningham Council.

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