VICTORIA Annual Report of the VICfORIA GRANTS COMMISSION for the Year ended 31 August 1988 Ordered by the Legislative Assembly to be printed MELBOURNE JEAN GORDON GOVERNMENT PRINTER 1987-88 No.3 VICTORIA GRANTS COMMISSION ANNUAL REPORT 1988 The Hon. Andrew McCutcheon, M.P., Ministerfor Local Government, National Bank House, 500 Bourke Street, MELBOURNE, VIC. 3000 As Members appointed under section 3 of the Victoria Grants Commision Act 1976, we have the honour to present the twelfth Annual Report of the Victoria Grants Commission, in accordance with section 17 of that Act. JIM STEVENSON, Chairman DIANNE FULLER, Member IAN PA WSEY, Member MIKE ULBRICK Secretary October, 1988 VICTORIA GRANTS COMMISSION MEMBERS Jim Stevenson, B.E., M.Eng.Sc., Chairman Dianne Fuller, T.P.T.C. Ian Pawsey, A.A.S.A., A.C.I.S., A.I.M.M. STAFF Mike Ulbrick, B.Ec., Dip. Ed. Executive Officer Alex Bashtannyk, B.Ec. Econometrician Graeme Bales, B.A. Computer Systems Officer Cameron Rowe, B.A. (Hons.) Research Officer Peter J anssen Research Officer Jean Gibbons Confidential Secretary LOCATION The Commission is located on the 7th floor, National Bank House, 500 Bourke Street, Melbourne (postcode 3000). TABLE OF CONTENTS CHAPTER Page No. 1. ROLE OF THE COMMISSION 1 Legislation 1 2. CALCULATION OF THE GRANTS 2 Total Fund-1988-89 .. 3 State Shares 3 Council Grants for 1988-89 .. 3 Final Grants for 1987-88 3 Principles 3 - Standards for Equalisation 4 - Natural Disaster Relief .. s Method ofEqualisation s - Expenditure Needs and Disabilities .. s - Revenue Raising Capacity 6 - Treatment of Specific Purpose Payments 6 Minimum Entitlements 7 Implementation of Change .. 7 Returns of Information 8 3. CONSULTATION 9 Regional Consultation 9 Bodies Representative of Local Government 9 Exchange of Information 10 Consultation with Municipalities .. 10 Submissions 10 Issues Arising .. 10 Arrangements for 1988-89 .. 13 4. OTHER MATTERS IS Conference of State Grants Commissions .. IS Membership of the Commission IS Acknowledgements IS APPENDICES Page No. I. Terms of Reference-Review of the Financial Arrangements between the S.E.C. and the Municipal Electricity Undertakings for the Distribution ofElectricity . 17 2. Shares between the States and the Northern Territory. 19 3. Transmittal Memorandum and 1988-89 Allocations 21 4. Final Allocations for 1987-88 . 27 5. Implied Grants 1988-89 . 33 6. Expenditure Needs and Disabilities 35 A. Needs 35 B. Standards . 40 7. Revenue Capacity.. 41 A. Tax Base and Implied Rate 41 B. Distribution of Rateable Property 45 8. Consultation Program 1987-88 . 47 A. Program for Regional Conferences 47 B. Advertisement 49 C. Consultation with other bodies (Representative of Local Government) . 49 D. Councils attending Regional Conferences 50 E. Municipal Meetings . 52 Chapter 1 ROLE OF THE COMMISSION Legislation 1.1 The principal role of the Commission is to determine the allocation of general revenue grants provided by the Commonwealth to the State for local councils. The covering legislation is the Commonwealth's Local Government (Financial Assistance) Act 1986 and the Victoria Grants Commission Act 1976. The purpose of the more recent legislation is to see that the funds are allocated to support the needs and disabilities of the more disadvantased municipalities. 1.2 Each council supports the Commission in this role by providing the information required by the Commission for its assessments. The Commission also conducts inspections and examines submissions from councils so that it is acquainted' with their needs and disabilities. 1.3 The Minister for Local Government also requested the Commission to enquire into the financial arrangements applying between the State Electricity Commission and the 11 Municipal Electricity Undertakings. A copy ofthe referral by the Minister and the Terms of Reference, which specify a final reporting date of3l March 1989, are included in Appendix I. 1.4 The Commission consists of a Chairman and two part-time members appointed by the Governor in Council for a period of not more than live years. The Commission was convened on 44 days during the year ended 31 August 1988. Chapter 2 CALCULATION OF THE GRANTS Total Fund-1988-89 2.1 The funding of general purpose financial assistance for Australian Local Government is set out in the Commonwealth's Local Government (Financial Assistance) Amendment Act 1988 at a level of $652·5 miJlion for 1988-89. This represents a $15·8 million (2·5 per cent) increase on the total allocation of$636·7 million for 1987-88. State Shares 2.2 Provision is made in the Commonwealth legislation for a transition to straight population shares between the States and the Northern Territory by 1988-89. On this basis, the share for Victoria for 1988-89 is 26·4714 per cent. a total amount of $172 725 885. This represents a growth of 4·97 per cent on the total final allocation -to Victoria of $164 548 774 for 1987-88. The additional funding for 1988-89, as a consequence of the move towards a straight population basis, is $4·1 million. The apportionment between the States and the Northern Territory is shown in Appendix 2. Council Grants for 1988-89 2.3 The Commission's recommendation on the grants to Councils was transmitted to the Minister for Local Govemmen~ the Hon. Jim Simmonds, M.P., on 14 July 1988. A copy of the recommend-:ions is shown in Appendix 3. 2.4 The grants to individual Councils for 1988-89 were determined in accordance with the principles of allocation approved on 17 August 1987 by the Commonwealth Minister for Local Government, Senator the Hon. Margaret Reynolds. The change to the distribution of the funds as a consequence of the application of the new principles is to be phased in over a period of four years. This year is the second year of the phase·in period. Final Grants for 1987-88 2.5 The total amount to be provided as general revenue grants for the preceding year, 1987-88 was to be maintained in real terms and the grants reported in the Commission's 1987 Annual Report were based on an estimated CPI figure of 8 percent. 2.6 As the final CPI figure determined by the Commonwealth Statistician at the end of the March (1988) quarter was 7·84 per cent, an adjustment was made to the total amount for allocation for the year. This meant that the preliminary allocation for 1987-88 was reduced by an amount of$244138. 2. 7 The adjustment was allocated among the 210 municipalities pro rata their share of the allocation determined in August 1987, excluding special factor allowances. The adjustments were made in the May 1988 quarterly payment. The final grants for 1987-88 are shown in Appendix 4. Principles 2.8 The 11 principles for the distribution of the grants in Victoria are listed below. They were approved subject to a requirement of the State Government that the resultant distribution of funds to local government would not be inconsistent with an efficient allocation of resources at the local government level. 3 PRINCIPLES FOR FISCAL EQUALISATION 1. The allocation of funds made available by the Commonwealth as general revenue grants to local government will be made, as far as practicable, on a full horizontal equalisation basis, that is a basis that ensures that each local governing body in the State is able to function, by reasonable effort, at a standard not lower than the average standard of other local governing bodies in the State. 2. In determining each local governing body's horizontal equalisation entitlement, regard will be had to the expenditure required by each local governing body in the performance of its functions and to the capacity of each local governing body to raise revenue. 3. The assessment of required expenditure {expenditure disabilities) and of capacity to raise revenue (revenue-raising disabilities) will be effort or policy neutral; that is, it will be independent of the policies or practices of the respective local governing bodies in raising revenue and in the provision of services. 4. The assessment of disability for any function (either revenue or expenditure) will depend on deviations from average. Both positive and negative deviations will ordinarily be taken into account. 5. Disadvantages in revenue and expenditure functions will be accorded natural weights, not weighted or discounted prior to aggregation. 6. Only one calculation of disadvantage will be made for each expenditure function without supplementary use of calculations for special needs. 7. In adjusting its assessment of disability for specific purpose grants the "inc1usion approach" will be followed. 8. The assessment ofneeds will include consideration of the situation whereby a local authority is providing significant services to people other than its own residents. 9. The minimum allocation determined for a local governing body will be not less than the amount to which the body would be entitled tf 30 per cent of the total amount for the State was allocated on a per capita basis. 10. Recognition will be given to the net cost to a local governing body of approved natural disaster relief and restoration measures. 11. The changes to the distribution of the funds among local governing bodies as a consequence of the adoption of these principles will be phased in uiniformly over the four-year period to 1990-91. Standards for Equalisation 2.9 The principles of fiscal equalisation prescribe the standard of equalisation as "the average standard of other local governing bodies in the State", whereas the previous legislation referred simply to "a standard not appreciably below the standard of other local governing bodies in the State". The Victoria Grants Commission uses modal or most common levels of expenditure as the standards for determining allowances for expenditure disabilities.