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Monday, 12.18.2017
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Manningham Council is far too clever.

The state government is pressuring Councils to be more efficient and reduce costs. However Manningham Council is far too clever for the bureaucrats in the Victorian State Government.

First lets look at how Manningham Council complains about the State Government reducing funding to push them to be more efficient.

Cost shifting by other forms of government. This occurs where a government grant to provide a service does not increase in line with the cost of service delivery, leading to an increasing gap being funded by ratepayers. Examples include library services, maternal and child health, school crossing supervisors and aged care services;

A freeze on indexation of the federal financial assistance grants. The Commonwealth announced in its 2014/15 Budget that it would pause indexation of the financial assistance grants to local government for three years (2014/15, 2015/15, 2016/17). While indexation has resumed in 2017/18, Council has endured a permanent $0.7 million loss of revenue in the four years up to and including the 2017/18 budget, and will incur an additional $200,000 loss in each subsequent year;

The State Government landfill levy has increased from $9 per tonne in 2008/09 to a forecast $63.27 per tonne in 2017/18. This represents an increase of 700 per cent since 2008/09, forcing Council to pass on the massive increase to ratepayers;

(See Manningham Council Minutes 26 April 2017, page 427.)

 

I think the State Government is doing this to drive efficiency gains and smarter work practices in local government. Waste at the local government level is an open secret. In other documents on this site, I estimate that waste at local government runs at somewhere around 30 to 45% of all spending.

Manningham Council, off course, resists and shows little enthusiasm to cooperate and reduce their costs and improve efficiency.

However, private enterprise is usually keen to make radical changes to their businesses and reduce costs. But for councils, more work always means more staff and more costs. Whenever a government body is faced with more work their immediate reaction is that they need more staff and more money.

Manningham Council's efficiency gains to date have been small to insignificant, even laughable. One year they achieved a 0.5% efficiency gain. But anything could have given rise to this 0.5% gain. The council spends over $100 million per year. This efficiency gain represents only $500,000. For Manningham Council two public toilets cost $500,000! To them this is really insignificant.

And why would Manningham Council worry about how much money they spend? In the past they could simply increase their rates and fees and no one could do anything about it.

But now the state government is trying to put a stop to their poor management and waste - or so they think.

Manningham Council will talk about efficiency gains.

A major focus is being placed on improving operational efficiency, investigating and implementing new sources of revenue, cost saving opportunities and reequipping the organisation to respond to the rate cap and the changing expectations of the community. A major strategy to strengthen the organisation and the way it works with and responds to customers is the Citizen Connect program.

(Minutes Page 427)

But this appears only to be talk. Manningham Council will never remove wasteful or incompetent staff. Actually, as far as I have seen, there has never been any deliberate removal of staff for performance issues. There is no effective warning system like there is in private enterprise. And there will never be a pay freeze because this would effect their superannuation payouts. A 3.5% annual pay increase is built in to the council budget.

What the council will do is reduce their services to the community.

To pressure local government, the State Government this year is only allowing a 2.0% increase in rates.

But Manningham Council is far too clever for the bureaucrats in the state government. So what has our council come up with? Please allow me to explain how our got around the 2% limit.

Last year, the state government said rates were to increase by 2.4%. However, Manningham Council was able to achieve a total rate increase in that year of around 3.4%.

What Manningham Council did in 2016/2017 was to move the rate burden onto residential properties and at the same time move it away from recreational, commercial and industrial land. In the end the total rate increase averaged out at 2.4% but residential properties were paying the lions share of it.

Why would they do this? Well the important thing to remember is that the amount of recreational, industrial and commercial land is not increasing much in Manningham. What is increasing is the number of rateable residential properties. In fact, Manningham Council is approving permits for new residential properties hand over fist.

What this means is that each year there will be a sizable number of new residential properties that start to pay rates for the first time. Last year the amount of rates that were paid by these new properties was close to $1million dollars.

Think about that for a minute. That $1m never appeared in any of the council's budgets. It was never part of the figures given to the state government for approval. As Manningham Council put it, it was an 'unexpected windfall'. But it was anything but 'unexpected' and 'unplanned'. It was planned from the start to be used to boost council revenue.

Manningham Council set the whole thing up. They knew precisely that if they increased residential rates as much as possible, it would maximize their income from new properties.

The council can repeat their little trick for years to come. Currently their are plans for high density development along most of the major roads in Manningham, most of which have not even started to be built. The building of these properties will continue for years into the future. And so Manningham Council can rely on this 'unexpected windfall' for many years to come.

$1m is approximately 1% of the total rate intake. So basically Manningham Council was able to increase their rates last year from the 2.4% allowed by the state government to 3.4%.

And for 2017/18 they have done even better – far better. They have been able to sneak in another increase on top of the one I described above.

As I mentioned above, the state government allowed Manningham Council to increase their rates this year by only 2.0% (last year it was 2.4%). But Manningham Council was not going to stand for that!

Most likely no residential property owner is going to see a rate increase of 2% next year. Please see the table below taken from the 2017/18 budget, page 475. What do you notice?

Rates: 2017/2018 Budget 2017/2018 % Increase
Residential $78,592,416 3.7%
Commercial $5,457,941 1.7%
Recreational $31,900 2.9%
Industrial $351,316 2.1%
Total $84,432,674 3.5%

See page 475 Annual Budget 2017/2018.

Note how rates for residential properties are planned to go up 3.7% (not the 2.0%) and total rate income is planned to go up 3.5% (not the 2.0%).

Our council is full of tricks. All of them line their pockets with money. This trick is something they did not think of last year.

This year they read section 158 of the Local Government act very carefully and asked 'how can we get more money from ratepayers and it still stay vaguely within the law'. They came up with a new piece of sneakery.

They increased the rates you pay per dollar of Capital Improved Value (CIV) by just 2%.

This is clever because there are two things used to calculate the rates. First the value of improvements made to a property (CIV) and second is the cents you pay per dollar of CIV as rates.

The key thing is that your CIV is increasing with inflation. It does this by itself. The council increased the amount of CIV you pay as rates by 2.0%. But remember there are two things increasing here, both the CIV (which increases regularly) and the amount of CIV you pay as rates.

So the cents per dollar of CIV you pay as rates went up by 2%. But in the table above the total rates go up by 3.5%. The difference between the 2.0% and the 3.5% is, as far as I can tell, the increase in CIV due to inflation.

Now, I don't think this is entirely within the spirit of the local government act. The state government said rates were to increase by 2% however the council went back further and changed a number used in the calculation by 2% not the end rates itself. You can see the council's sneakiness here because while I don't think it is not in the spirit of what the State Government said, it could be defended from section 158 of the local government act.

From page 475 of the minutes, we see how they changed the cents we pay per dollar of CIV.

2016/2017 Cents/$CIV 2017/2018 Cents/$CIV Percent Change
0.0017380 0.0017730 2.0%

So Manningham Council managed to increase the state government allowance from 2% to 3.5%

But we now need to add in their 'unexpected windfall' they engineered in the prior year. So the council is also going to make around a 1% additional windfall in rates due to new properties paying rates for the first time. So add this 1% to the 3.7%.

So total rates for 2017/18 for the council will not increase by the 2% as the state government thinks. No, it will increase by 3.5% + 1% = 4.5%.

So we are back where we started. This is the type of annual rate increase we used to have before the state government tried to control rate increases.

The state government may as well not done anything at all. And I bet Manningham Council has left the bureaucrats in the state government lost is a cloud of accounting dust.

Manningham Council is obviously far too clever for the bureaucrats in the State Government. These bureaucrats apparently are the kind of people who sit there wondering what happened and don't have the intellectual grey matter to figure out or see what is going on.

It is also quite clear that state government bureaucrats don't have grey matter to word legislation to achieve what they want. And people who apply their minds, like Manningham Council, find they can drive a bus through their vague legalese gibberish.

This whole sorry story of failure, waste, inefficiency and greed raises two important issues:

 

A) Manningham Council can achieve efficiency gains and cost reductions. But they will not apply themselves to do so.

Manningham Council can apply their minds when it comes to extracting more money from ratepayers.

But they will not apply themselves to do what the state government wants.

This is most likely because they think like government bureaucrats - more work always means more money and more staff.

And consider this. Managers at Manningham Council like to compare themselves to managers in private enterprise and say that they deserve comparable remuneration packages for managing comparable organisations.

But if they want the same pay as managers in private enterprise, they need to do comparable work. Managers in private enterprise are always looking at how to cut costs and improve efficiency and make significant improvements in this area. If government bureaucrats cannot do that, then their pay needs to be reduced accordingly.

 

B) Was the State Government ever genuine in their promise to voters.

This is an interesting question. We must remember that at both the state and local government level we are dealing with the same type of people. All are interested in extracting the maximum possible amounts of money from the public. All are interested in their own pay and their own superannuation retirement package.

Should we expect either to represent the best interests of the rate payers.

Was the state government's pledge to control rates only a ruse? Were they really sincere? Where they colluding with local governments all the while, passing what appeared to be laws in our interest, but behind the scenes working with them and allowing them to circumvent these laws with ease and impunity?

Unfortunately we will never know.

 

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