At the risk of sounding like I’m making a political statement in the shadow of the federal budget, but following on from the posts of recent months, I thought I’d provide an overview of the regular sources of funding that allow council to carry on its business. Of course it’s budget time for council too, so the following information is also topical in that respect. All quoted figures are from council’s most recent (2012-2013) Audit Report.
The most obvious source of local government funding is council rates and charges. As most people will be aware, rates in NSW are a tax based on the unimproved value of a property, as assessed by the NSW Valuer General. Rates are used to fund the delivery of a wide range of services throughout the shire, although general rates comprise only about 28% of council’s revenue stream.
Remember that council doesn’t get more money from rates because your property value increases. Each year, the dollar value of Council’s rate revenue is effectively set by the state government. While rates do invariably increase in line with CPI, the only thing that changes with changes in property values is the distribution of the rate burden within the shire. As such, while it would be unusual, your rates may actually decrease relative to those of other residents, even if your property value increases.
Nonetheless, to put this in perspective, rates provide revenues of around $8 million, while council’s employment budget alone is in excess of $9 million. Palerang Council is, nonetheless, one of the leanest in the region. Council can afford to retain this workforce, at least in part, but significantly because it draws in contract road maintenance work from RMS (formerly the RTA), and from neighbouring shires.
Residents are charged separately, where relevant, for water, sewer and waste services. Unlike general rates, water, sewer and waste charges must be used only in the provision of, and must reflect the actual cost of delivering water, sewer and waste services respectively. Annual charges comprise around 20% of council’s revenue stream.
User fees & charges associated with the delivery of services listed in council’s annual Fees & Charges Pricing Policy are the other source of ‘resident funding’. These cover services such as the assessment of development applications, various registration fees and document searches, and the hire of community facilities. Many of these fees, however, are fixed by the state government and thus do not necessarily reflect the cost of delivering the associated services. User Fees & Charges comprise around 24% of council’s revenue stream.
The final major component of council’s annual revenues, around 20%, comes from state and federal grants and developer contributions. The former are provided within the constraints of the policies of the governments of the day, not necessarily the practical realities associated with the cost of the infrastructure they are provided to support. For example, some of council’s road funding has not changed its dollar value in 10 years, and where grants are indexed, the increases are rarely in line with the increases in associated costs. Developer contributions are also currently capped, so council is limited in its capacity to levy costs that reflect the true impact of new developments on community infrastructure.
This tight budget situation makes it all the more painful when the government of the day freezes indexation of one of the most significant sources of funding available for the provision of community infrastructure. The federal government Financial Assistance Grants (FAGs) alone are worth around $3 million per year to Palerang. This includes a significant proportion of our road maintenance budget, and most of our budget for the maintenance of community infrastructure. The current federal budget proposal to freeze indexation on this funding could result in a shortfall of more than $1 million over the next four years.
This is a common story for rural councils. While it is never immediately obvious from national news reports or budget analyses, when higher levels of government withdraw or restrict funding to local government, rural communities are invariably forced to carry a disproportionate share of the burden.
Since rates revenue is the only other general source of funding available, this is where councils must look to fill any shortfalls in grant funding. The system of rate pegging in NSW, however, makes the task of increasing rates beyond the pegged level, a so-called Special Rate Variation, a lengthy, resource intensive process. Nonetheless, this is often the only course of action available, and the whole affair becomes little more than another exercise in cost shifting.