Essential Services Commission

Response to:

Essential Services Commission

Fair Go Rate System

Independent Review 2016

After reviewing the comments by Peter Brown – Independent consultant we have the following inputs:

We were not surprised that the ESC received very good marks in its fairness and obligations in administering the FGRS in its first year and acknowledge that a lot was learned and that some tweaking will be necessary to make it better.

RPV was satisfied with the decisions made in relation to rate variance applications and the due diligence taken, and agree wholeheartedly that:

"The community consultation required for applications should not be a stand alone process to satisfy a higher rate cap application but rather part of councils’ ongoing planning and consultation processes outlined in the current Local Government Act and further expanded within the proposed new Act".

Finding: The assessment method undertaken for year one of the implementation of the FGRS was appropriate.

The ESC considers allowing councils to make a presentation to the ESC at the pre‐application or submission stage of the application process.

RPV's position is that representatives of the community should be also represented in any pre-application submissions.

The ESC advises councils if there is media interest and before the public release of information concerning council’s expression of interest, application and/or the final decision on the application by the ESC.

RPV's position is that this is redundant and not necessary. The process worked this time and councils were aware that applications would be posted and that should be the process. We are not sure what this would accomplish??

The ESC provide councils with a copy of the final decision and an opportunity for a debrief and comment prior to public release.

RPVdoesnot support this position as we feel it will lead to arguments and "doctoring" the reports. But OK if original report is not altered and comments are posted for the public to review.

ESC accept that if the Mayor on behalf of the Council sign off that the criterion concerning community consultation on the higher rate cap has been undertaken in accordance to the framework that this criterion is met

RPV does not support this proposal. it is a good start but many mayors will sign off thinking they have done the job and some will outright lie. We find that consultation is at such a low level that the mayor signing off is essential but must be tested.
PPV would accept this position if councils were audited to make sure that the collaboration process is adequate. Input from Ratepayers would be essential in this audit.

That the ESC places on their website all relevant information they used to form their decision on a council higher rate cap application, including any consultant or advisor review.

RPV agrees totally with this statement. Total Transparency.

That a model chart of accounts, common definition of the services and assets councils provide and standardized quality and effort measures for local government be developed;

RPV has been advocating for this for some time now. It is essential also to make the LGPRF effective also. This is mentioned several times in this review and RPV takes the position that this must be addressed with a high sense of priority.
The Victorian Auditor General also acknowledged this issue in “Rating Practices in Local Government‐ February 2013” page vii “The reporting of rates and charges data should be improved and standardized so that it is used consistently across all municipalities, and ratepayers and the general community can readily interpret the data.”

That the LGV, ESC, VGC and VAGO work with local government to coordinate and rationalize the reporting requirements for the sector to improve the quality and relevance of the datasets for measuring the sectors’ financial and operating performance.

RPV is of the opinion that Ratepayer groups must also be part of this working group.

The guidelines explained what was in the cap, the general rate and municipal charge and what was not capped, service rates and charges, revenue in lieu of rates, special rates and charges, recreational cultural land, the fire services levy and the actual supplementary rate revenue received in the base year. Within the guidelines there needs to be a definition as to what each of these revenue streams includes to save confusion or cost shifting from the general rates to service charges.

RPV has been very concerned about this from the beginning of the process. We are starting to get some feedback on these issues and agree that the problem of cost shifting must be addressed.

There is no common description of services within local government, nor is there a common handling of the accounting for services. Some councils allocate overheads to their service areas, some only account for the direct cost of the service. This makes comparing baseline information and benchmarking services between councils very difficult.

RPV comment: Again the need for a very prescriptive chart of accounts. We also contend that only direct costs be considered; allocated overheads can vary too much based on prejudice and "feelings" not on facts. The methods and allocations would always be suspect. to change the result just change the allocations.

From the interviews, councils do not use the information provided for their own management purposes and each set of information provided to the State authorities is separately prepared

RPV comment: And we wonder why councils are inefficient? Great cost savings here! It is hard to not use hyperboles here.

It would be timely for the State to assist councils to move to a model chart of accounts, common definition of the services and assets councils provide and standardized quality and effort measures. This would make the gathering of data for the purposes of applying for a higher cap more transparent and efficient.

RPV comment: prescriptive chart of accounts again.

Councils need to work with the State and peak bodies to achieve a common chart of accounts, clear definition of the services and assets councils provide and standardized quality and effort measures.

RPV comment: and again

RPV comment: and Ratepayers. Why does everyone leave them out of the equation?

Some applicant councils recommended that as part of either a pre‐application or application submission that the council be given the opportunity to present their case to ESC officers, thereby answering any initial queries early in the process.

RPV comment: This would be a good place to check the "consultation" process and results.

There was criticism of the ESC’s handling of the media enquiries during the initial notification period by Councils in January and the final decision in May; councils were not being made aware that the ESC would release the information publicly. In particular, with the release of the final decision councils felt they had no right of reply, this was contrasted with the Victorian Auditor General’s reports that seeks council comment on the annual audit report prior to public release.

RPV Comment: councils would like to see this process completely behind closed doors. it was quite clear that these would be posted for public scrutiny. Give the councils the right or reply so long as it is posted and Ratepayers can have a right of reply also.

There is a perception that ESC does not understand local government, its governance and local service responsibilities.

RPV Comment: This is a good thing as it gives a fresh approach to look at these items. The inbreeding in local council councilors and officers makes it impossible to see that they might be wrong and there is a better way to do it. In this case, ignorance is bliss.

The ESC provide councils with a copy of the final decision and an opportunity for a debrief and comment prior to public release.

RPV has addressed this issue previously.

The ongoing costs to councils should become negligible if they incorporate the higher rate cap application process into their normal annual corporate planning activities or apply for a four year cap.

RPV comment: Exactly, these analysis should be part of the councils operating review as a matter of routine.

Best practice for councils is to incorporate the rate determination and any higher rate cap process into the council planning and strategic resource planning process. This will eliminate extra cost and provide a context to any higher rate cap in the consultation with the community.

RPV comment: Exactly

Councils to incorporate any higher cap community consultation into the council planning process required under the Local Government Act.

RPV comment: this is essential

Councils express more clearly what trade‐offs they considered with their community prior to submitting a higher rate cap application.

RPV Comment: Absolutely essential.

The subject of what level of consultation with the community is acceptable is always going to be vexed, as it goes to the heart of representative democracy with elected Councilors versus participative democracy that has local electors having more say in how decisions are made.

RPV comment: This has always been an issue with ratepayers. Councilors and officers should have to attend compulsory training on the subject of participative democracy and the course should be set up and monitored by LGV.

How the higher cap is an efficient use of council resources and represents value for money

RPV Comment: What is value for money? How is it determined? How is it measured? This is the biggest throw away word used by councils – "it is good value for money" - but they can never quantify it.

Also embedded in this criterion was how Councils could demonstrate they were achieving improved efficiencies within their operations.

RPV Comment: Easy As – the same way it is demonstrated in the private sector. with hard financial evidence.

It is clear also that the current practices of determining the asset renewal gap is also open to question, this needs to be resolved.

RPV Comment: Prescribed chart of accounts.

Few of the Councils demonstrated clearly how they had satisfied this criterion and the ESC gave Councils with short term underlying operational deficits the benefit of the doubt. Councils also did not explore alternate funding sources.

RPV Comment: This speaks for itself

As outlined in 5.1 above, the ESC with the LGV, the VGC and VAGO with the local government sector should in resolving the common handling of financial and performance reporting help create a firmer and respected foundation to the development of creditable long term financial strategies for local government.

RPV Comment: Standardized chart of accounts.

To meet the current requirements of the Local Government Act Section 223 councils need to advertise their budgets in the May at the latest preceding the financial year of the proposed budget to satisfy the 28 day public consultation period to receive submissions. This is followed by a Council meeting to hear the submissions and then to respond to the submissions, finalize and then adopt budget.

RPV Comment: The S223 submissions are inadequate as they are way after the draft budget is developed. the S223 submissions need to be before the budget process begins and the council must have to comment which have been included and which have not and why not. Analysis has shown that few items in the S223 submissions cause change from the draft budget.
RPV Comment: Participatory Budgeting methods must be "forced" on councils.

It is not possible to undertake meaningful community consultation on the budget when the timelines are so tight and when the first time a council knows whether their higher rate cap application was successful or not is 31 May of the year preceding the budget year.

RPV comment: this would not be a problem with proper collaboration on forward planning. will always be a problem if not considered before the current year budget process.

S. 223 for budget submissions require 28 clear days before Council can consider its response.

This process should occur 28 clear days before budget process starts and then it is not a problem.

The current timelines for the announcement of the Minister’s cap and the higher cap application and decision process are very tight for councils, to the point of making long term planning and community consultation meaningless.

RPV Comment: actually increases the necessity for better long term planning and community consultation. The development of the current budget should just be a "tweaking of the long term planning if properly done.

Council elections are occurring in late October 2016, followed by induction of the new Council. This is followed by the development and completion of the 4 year Council Plan, Strategic Resource Plan, and budget to be adopted by 30 June 2017. This policy work requires meaningful community consultation to satisfy the LG Act requirements for Council planning.

RPV Comment: if planning is done correctly and with community collaboration then this is not a problem because the foundation is sound and should not need a major re-write. Should only need some "tweaking"

To assist both the decision making process of Councils and the resource allocation required by the ESC it would be worthwhile exploring having at least 2 opportunities within the calendar year for Councils to apply for a higher cap.

RPV Comment: NO, if they can't get it right the first time then why would they the second time. This is all solved by proper long term planning and community Collaboration.

joe lenzo/chan cheah

Ratepayers Victoria, inc. (A004092M)

21 October 2016

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