Local Government Act Review

Imagining Local Government in the 21st Century

YEHUDI BLACHER

December 2015

Purpose of this paper

This paper has been prepared for the Local Government Act Review by Mr Yehudi Blacher who, as the Director of the Office of Local Government between 1991 and 1995, oversaw the major restructuring of local government in Victoria that occurred during this period. As a departmental Secretary between 2002 and 2011 Mr Blacher was responsible for Local Government Victoria which was then a division in the Department for Victorian Communities (2002- 2007) and the Department of Planning and Community Development (2007- 2011). Page 2 of 16

Introduction

The last major review of the core legislation regulating the conduct and operations of local government in Victoria occurred over 25 years ago. In the intervening period Victoria’s population has increased from 4.3 million to 5.5 million and Melbourne’s population from 3 million to 4.2 million and current population projections have Melbourne growing to between 7 million and 8 million people and Victoria’s to between 9 million and 10 million people over the next 35 years. To put this in perspective whilst it took around 170 years for Victoria to reach a population of 5 million it is projected to grow nearly that much again in only the next 35 years.

The coming three decades will present significant challenges for all levels of government; none more so than for local government. Since the Second World War there has been a seemingly inexorable trend in intergovernmental relations, transferring financial and policy- making influence and power from the State Governments to the Commonwealth Government.

In addition the place of local governments in the Federation has always been uncertain. Their legitimacy as democratic institutions is constrained by the fact that they are creations of State Parliaments and can be dismissed by those Parliaments. Furthermore their role as service providers is also limited by their dependency on other levels of government for a significant proportion of their revenue and the narrow basis of self sourced revenue.

These limitations notwithstanding, as Victoria’s population grows over the coming decades, the need for local democratic representation reflecting the needs and aspirations of diverse communities will become more not less important. The challenge for local councils will be to find a balance between their role as democratic representative institutions whilst at the same time ensuring they can efficiently and effectively deliver the services for which they are responsible.

Since the passage of the Local Government Act 1989 Victoria’s system of local government has itself gone through major change; the most significant of which was the structural transformation of local government which resulted in the number of councils being reduced from 210 to 78. The impetus for this transformation was the Kennett government’s view that the structure of local government was no longer fit-for-purpose; a view, incidentally, shared by the Cain government which in the mid-1980s presided over a failed attempt to restructure local government and all previous reviews of local government going back to the 1860s.

In addition to restructuring, local government has been subject to numerous other changes. These include changes relating to accountability, transparency, operational requirements, governance, franchise arrangements and election procedures. Since 1989, there has been at least one local government amendment act in all but four years. The Act, which when passed in 1989 comprised 136 pages, has grown to over 450 pages.

Page 3 of 16

There are two reasons to welcome a review of the Act; to bring the Act back to a manageable size and to position local government for the challenges of the coming decades.

Reviews of legislation usually take one of two forms. Firstly, a tidying up of parts of an act which have become redundant, have not achieved their intended objective or are just badly worded. Secondly, a ‘first principles’ examination of the purposes of the legislation to assess whether it is fit- for- purpose in view of changing circumstances and future expectations.

This paper is written with the latter in mind. It will attempt to ‘imagine’ some key aspects of what a system of local government could look like if it was being established today having regard to the future trends and challenges as they are currently understood.

It is of course not possible to literally construct local government anew. However as a starting point, to tease out some key issues, it is worth a brief look back to the actual beginnings of Victoria’s system on local government. Past attempts at reform Peculiar beginnings

The first embryonic ‘municipal’ institutions in what was to become Victoria were established in 1840 when the then colonial government of New South Wales created two ‘counties’ Bourke (covering Melbourne) and Grant (covering Geelong) in the District of Port Phillip. The purpose of these creations were to establish an administrative vehicle through which the growing populations 1 of the new counties could be made to financially contribute to the provision of key services (road, water sanitation) needed by these rapidly growing urban centres.2

The two new counties were conceived not as a form of local self- government but as a local taxation district administered by agents appointed by the colonial government in Sydney.

The first institutional form of what could be called local self-government occurred in 1841 following a meeting in Melbourne to authorise the creation of a market. New South Wales legislation required the election of commissioners for this purpose. Melbourne was divided into four wards each required to elect two commissioners. Electors comprised those with either annual income from property of 20 pounds or ownership of property to the value of 200 pounds. 3

From its very outset local government in Victoria was the creation of an act of parliament of another level of government and has remained so ever since.

1 By 1840 Melbourne had a population of approximating 10,000. 2 David Dunstan ‘A Long Time Coming’ , in Brian Galligan (ed) Local Government Reform in Victoria , State Library of Victoria, 1998, pp. 3-30. 3 Ibid p. 8.

Page 4 of 16

The market commission was the progenitor of the creation in 1842 of the first Melbourne City Council (MCC) with the authority to carry out broader municipal functions.

In addition to its municipal functions the MCC provided a political forum for pressure to create a colonial authority separate from New South Wales. This occurred in 1851 through the creation of a new colonial authority, the Legislative Council of Victoria.

The establishment of a colonial authority in Melbourne put paid to whatever aspirations the council may have had independently to undertake broader functions. The legislative primacy of the Legislative Council and its need to respond to a rapidly growing population as a result of the gold rush lead to a centralisation of functions with the Colonial government, leaving little space for municipal government.

The passage of the Municipal Institutions Act 1854 provided for the creation of municipal districts resulting from petitions “from at least 150 householders in areas not exceeding 9 square miles and containing a population of 300 people”.4 They were to have responsibility for functions including roads, wharves and water supply and to operate markets, cemeteries and museums and were able to take measures to protect the poor and the sick.5

A decade later the Road District and Shires Act required new rural shires to cover at least 100 square miles and have revenue of at least 1000 pounds.

The Local Government Act was legislated in 1874 bringing together rural and metropolitan councils under a single piece of legislation. The ease with which councils could be established meant ‘by the latter half of the 19th century Victoria had over 200 boroughs and shires.” 6 This structure remained largely unchanged until the reforms of the early 1990s.

As the number of councils grew, the breadth of functions they undertook narrowed. By the end of the 19th century, and into the early 20th century, Victoria had both a fragmented system of local government and a plethora of government departments, boards and agencies responding to the need to plan, fund and provide services such as health, water, energy, sewerage and public transport at a metropolitan level, rather than to leave them to the vagaries of municipal decision making.

Three themes emerge from this short historical overview. Firstly, the role of local government as part of Australia’s federal system of government. Secondly, the desirable functions which councils should perform. Thirdly, the appropriate balance between local government understood as service funder and provider and local government as an institution of democratic governance.

These themes are not just of historical interest but continue to shape current public debate about the structure, role and functions of local government in this State.

4 Board of Review, 1979, Local Government in Victoria: role, structure and administration (The Bains Report), Local Government Department, p9. 5 Ibid, p9. 6 Ibid, p9.

Page 5 of 16

Tilting at windmills

The first formal review of Victoria’s system of local government was the 1863 Stuart Commission. At the time Victoria had 54 municipal districts. The review found that Victoria had too many small councils with rate-bases too limited to undertake functions expected of local councils. Nothing came of the recommendations of this review.

Similar outcomes resulted from reviews in 1873 and 1902-6.

In 1889 the Melbourne City Council was given the power to voluntarily amalgamate with neighbouring districts but the parties were unable to come to agreement. The one success of a voluntary amalgamation process came in 1905 when North Melbourne, Flemington and Kensington agreed to become wards of the City Of Melbourne.7

Additional formal reviews of the overall structure and financial capacity of local government were the 1962 ‘Commission of Inquiry into Local Government’ (the Mohr review), the 1972 ‘Board of Inquiry into Local Government Finance’ (the Voumard Report), the 1979 ‘Board of Review of the Role, Structure and Administration of Local Government in Victoria’ (the Bains review) and the 1985 Victorian Local Government Commission Report titled ‘The Restructure of Local Government in Victoria – Principles and Program’ (the Morris review).

What these reports had in common were similarities in their analysis of the problems with the Victoria’s system of local government, high quality conceptual and technical work regarding the principles and processes of reform and an expectation that local councils would see the good sense in their arguments and would voluntarily amalgamate.

What they also shared was that each failed due to lack of political will on the part of successive state governments as a result of vocal Parliamentary, councillor and to a lesser extent community opposition.

The reforms of the 1990s

This experience formed the background to the fundamental reforms of local government undertaken by the Kennett Government over the period 1992-95.

The lesson the Kennett Government took from the previous failed processes was that in Victoria voluntary reform would use up too much political capital in what, experience showed, would likely be another failed attempt; indeed in opposition Kennett himself had been very active in opposing the process undertaken by the Cain Government.

A further element underlying the Kennett reforms was that they were undertaken in the context of an economic crisis in Victoria which provided the rationale for major reforms of the public sector. These included privatisation and corporatisation of many government business enterprises, amalgamations of government departments and reforms of their

7 David Dunstan op.cit p22

Page 6 of 16 operating models. The reform of local government was seen by the Government as part of that broader program.

For this reason the reforms went well beyond the structural changes proposed by reviews going back to the 1860s. In addition to dramatically reducing the number of councils from 210 to 78, they included changes to council business operations particularly through the introduction of compulsory competitive tendering (CCT), changes to the relationship between councillors and their Chief Executive Officers, significant rate reductions and subsequent rate capping, increased transparency in reporting of council operations to their communities and the auditing of councils by the Auditor-General.

There were also changes in the minimum and maximum number of councillors in each municipality ranging from 7 to 15 down to 5 to 12 councillors. This meant that not only were there fewer, larger councils but the total number of councillors in Victoria was reduced from over 2000 to around 600. These changes were consistent with the Government’s view that, as well as being elected community representatives, councillors had responsibilities which were akin to those of a board of directors. They were responsible for setting the strategic directions for their municipality and ensuring that these were delivered by council officers. The view was that the number of councillors in each municipality should be numerous enough to ensure local representation for different communities of interest whilst not being so large as to make the council deliberations overly cumbersome. A secondary objective was to reduce the council administration costs.

Some have argued that the reduction in the number of councillors reflected a significant shift along the democratic governance–service funder and provider spectrum away from councils as institutions of democratic governance. A more balanced view is that the quality of democratic local government is not a matter of the number of elected representative but about the quality council governance - it is not by coincidence that many of the subsequent amendments to the Local Government Act 1989 have dealt with just those issues.

One of the most contentious aspects of the reform process was the dismissal of councillors and their replacement by government appointed Commissioners. 8 The Commissioners were required to implement the many complex processes associated with the reforms and to prepare the new councils for elections.

The decision to have an interregnum in democratic governance was not taken lightly. It needs to be seen in the context of the failure of previous reform attempts over more than a century; the most recent being only six years earlier. More significantly, as indicated above, the reforms were not just about restructuring local councils but also about changing the way councils operated and ensuring that the initial efficiency benefits of the restructuring went

8 The Borough of Queenscliffe was the only council not dismissed.

Page 7 of 16 back to ratepayers in the form of rate reductions. A judgement was made that it was inconceivable that these objectives could be achieved had councillors been left in place. 9

A second very contentious aspect of the reforms was the introduction of CCT. This required councils to subject 50% of their services to open competitive arrangements over a 3 year period beginning 1994-5. At the time council services were overwhelmingly provided by in- house staff and the introduction of CCT raised the prospect of many council jobs disappearing and being replaced by eternal providers; as had happened and continues to happen to a greater or lesser extent to services provided by other tiers of government.

Opposition was therefore to be expected although at the state level Victoria already had a long history of contracting services to external providers and non-government organisations. Indeed, local councils themselves were often contracted by state agencies to be providers of such services.

Much of that opposition centred on an argument that the legislation required 50% of council services to be contracted out. In fact what the legislation actually required was that 50% of services needed to be market-tested. Councils were free to choose a higher cost service whether internally or externally on condition that they made the reasons clear to their communities who would be paying higher rates for those services than would otherwise have been the case. The objective of this policy was therefore not just cost- efficiency but also transparency to the community as to the costs of council services. Whilst CCT was only in place for a short period, one positive effect was that for the first time councils needed to be clear about the costs of their internally provided services and how these compared when benchmarked against external providers or similar services provided by other councils. This practice has been retained by many councils when deciding whether services should be provided by in-house or contracted staff.

This year marks twenty years since the last of the council elections under the new boundaries created by the Kennett Government. Looking back from this vantage point it is remarkable to observe how few of those reforms have been overturned by subsequent governments. The structure is essentially the same.10 The CCT requirements under the Act have been expunged but councils continue to contract out a significant proportion of their services. Rate capping was introduced in 1995 and ceased in 1998 but is now being reintroduced by the Andrews Government. The requirements for increased transparency and community consultation have been enhanced and councils continue to be audited by the Auditor-General.

There are many ways to assess the success or otherwise of systemic reform. One must surely be continuity through several electoral cycles where successive governments have had the opportunity, but have determined not to undo structural changes introduced by

9 In those States were councillors were not dismissed the objective was only to reduce the number of council not the extensive operational changes which occurred in Victoria. 10 There are now 79 instead of 78 councils as a result of the splitting of Delatite into the Shires of Mansfield and Benalla.

Page 8 of 16 their predecessors. Indeed over the last two decades other States have followed Victoria, albeit using different processes and more modest objectives, to restructure their systems of local government.

The Local Government Act 1989

Three years before the beginning of the Kennett reforms and approximately a similar period after the failure of the Cain local government restructuring process the Cain government passed the Local Government Act 1989 .

The timing is important. It is significant that the Act was passed after the bruising experience of the 1985-6 reform process but before the enormous changes to the structure and operations of local government which occurred not long after.

From one perspective the Act which was intended to establish a contemporary framework for the future of local government could be said to have become quickly redundant only three years later. One indication of this is the number and range of amendments to the Act in the period since its passage. Since 1989 there have been 32 local government amending acts and an additional 5 amendments to acts governing the Cities of Melbourne and Greater Geelong. The matters covered by these amendments include constitutional recognition, council structures and restructuring processes, administration and operating procedures, governance, electoral processes, franchise arrangements, probity arrangements, accountability issues and revenue raising processes. Indeed it could be said that the current Act resembles the 1989 in name only.

However seen from the perspective of the 1958 Act the Local Government Act 1989 was a serious attempt at modernising legislation which, in many parts, dated from the 19th century. In her second reading speech the then Minister for Local Government the Hon Maureen Lyster stated that local government was a “distinct and essential tier of government” and that the Local Government Act 1989 was intended to be “a clear, simple and coherent statement founded on two fundamental principles: that local government should have greater autonomy and that local government should be democratically accountable to its community”. Importantly, “taxpayers were entitled to expect that taxes will be applied equitably”- a fundamental element of any good system of taxation.

The intent of the Act was to “free councils from the constraints of existing legislation” and enable them to develop in the best interests of, and with the active involvement of, their communities”. It was intended to be less prescriptive than its predecessor, the Local Government Act 1958 giving councils general powers, inter alia, to undertake necessary functions and activities “to promote the social, economic and environmental viability and sustainability of the municipal district” and “improve the overall quality of life of people in the community.” 11

11 M. Lyster Hansard Legislative Council 22 March 1989 p127.

Page 9 of 16

Local government practitioners, councillors and officers have argued that many of the amendments passed since 1989 are contrary to that intent. Rather than enabling councils to exercise the general powers free from the ‘clutches’ the State, many of these amendments have been unnecessarily prescriptive in specifying the minutia of council operations. Others have argued that many of the amendments filled in gaps not adequately covered in the original act and that less prescriptive does not mean autonomous.

The reality is that there is an element of truth in both positions. The Local Government Act 1989 did indeed deal poorly with many areas relating to council governance. However from today’s vantage point, looking at the sum total of the subsequent amendments, an observer could not fail to conclude that the act is more prescriptive and complex than it needs to be.

Past, present and future

Three themes can be discerned from this brief overview of the history of local government in Victoria which are material to the structure and content of any future local government act.

Firstly , the need to balance the role of local government as a funder and provider of services and as an institution of democratic governance need to be seen in the context of councils being on part of the architecture of the overall administration of the State. Ultimate responsibility for the latter rests with the State Government. Councils always have been creatures of state (or colonial) governments and this should continue to be the core framework within which a future act should operate. Accordingly, the roles and responsibilities of councils should continue to be framed by the State having regard to possible changes in the division of responsibilities between the Commonwealth and State Government.

Secondly , the direction of structural reform of local government around Australia over the past two decades has been to create fewer, larger councils in part because of the economies of scale and potential efficiencies which come from such arrangements. Whilst there is no formula for the optimum size and number of councils, as the costs of delivering local government services increase, state governments should continue to both encourage and require councils through a range of mechanisms (rate capping, market testing of services, adoption of best value principles) to improve the efficiency and effectiveness of the services they provide.

Thirdly , their local character places a particular responsibility on councils to ensure proper processes in relation to both electoral and governance processes. This was an underdeveloped aspect of the 1989 Act and accounts for a significant proportion of the many subsequent amendments to the Act. However these changes have created an unnecessarily complex and prescriptive set of requirements. In this regard the new act should consider both a less complex electoral system and a framework that mandates councils to operate in accordance with the principles of good corporate governance.

Page 10 of 16

Principles for a new Act

This paper argues that the key legislation regulating local government should be the mechanism for ensuring a balance between the two dimensions of ‘good government’ - the efficient and effective delivery of services and representative democratic governance.

Accordingly, the overarching principle underpinning that legislation should be that the Act specifies only the minimum level of prescription necessary to contribute to the twin objectives underpinning the contribution of local councils to the administration of the state.

As indicated above a core objective of the Local Government Act 1989 was to provide a simple and coherent legislative framework within which local government could operate including an equitable system of taxation. Although the current act falls short in relation to each of these principles they continue to be relevant today as they were in 1989.

Accordingly it is suggested that a new local government act should include the following features:

• A clear statement of the role of local government. • Clear specification of its functions consistent with that role. • A simple and equitable system of rating that is easily understood by ratepayers. • A simple and fair set of electoral arrangements consistent with other levels of government to deliver strong representative democratic government. • A framework for the conduct of council business consistent with the principles of good corporate governance – including an appropriate role for mayors. • A framework for creating new councils consistent with maintaining the benefits achieved through the restructuring of councils in the first half of the 1990s. • Appropriate oversight by the state through the Minister; including capacity to dismiss councils not providing ‘good government’. Possible Reforms

Based on the principles outlined above a number of reforms could be considered. They are not intended to be exhaustive. Rather they are proposed with a view to make less complex the environment in which councils operate and improving accountability to their communities.

Simple and fair electoral arrangements to deliver strong representative democratic government

Councils have 5 ways in which they can structure their electoral districts. They may be may be unsubdivided (28% in 2014), have single member wards (14%), uniform multi-member wards (20%), non-uniform multi-member wards (19%), single and multi-member wards (19%).

Page 11 of 16

It is hard to understand why 79 electoral districts need 5 different electoral options. Those that support this arrangement argue that councils are very different one from the other and so need a variety of arrangements to ensure proper representation.

Others argue that just as Federal and State elected officials need to represent their entire electorates councillors should do likewise and the ‘local’ characteristic of councils is reflected in the fact that there may be between 5 and 12 councillors to represent areas similar in size to state electorates and generally smaller than federal electorates. In fact councils are less different one from the other than is sometimes made out and in any case they are no more varied in character than are state or federal electorates and no-one would countenance different arrangements for different electorates for those levels of government.

Just as state and federal members of Parliament need to represent all their electorate so should local councillors. As such the optimum arrangement should be that elections for all councils should on an unsubdivided basis. Elections for unsubdivided municipalities are conducted on the basis of proportional representation. This method provides opportunities for a more diverse range of community interests to be elected than is the case through an exhaustive preferential system.

A simple and equitable system of rating that is understood by ratepayers

Council revenues typically come from three sources; rates, grants from the state and commonwealth governments and user charges. State government grants, in the main, are for specific projects and activities. The Commonwealth Government also provides grants for specific projects and activities as well as block grants administered by the Victoria Grants Commission on a formula which takes into account factors such as population and geographic dispersion

The two areas of revenue which are at council discretion are rates and user charges. Rates are a system of taxing property owners and in general comprise the largest component of council revenues.

There are five principles which should underpin any system of taxation. They should be:

• Equitable: taxes should equally apply to people in similar circumstances. • Progressive: people in better circumstances should pay higher taxes than those less well off. • Efficient: compliance costs to taxpayers and administration costs should be kept to a minimum. • Simple: taxes should be easy to understand by the taxpayer being levied. • Neutral: taxes should be neutral as to their impact on different economic activities.

Victoria currently has three systems for valuing land- site value (SV), net annual value (NAV) and capital improved value (CIV). There is also a provision for differential rates which is only available to councils using CIV.

Page 12 of 16

Councils may also set a municipal charge levied on all ratepayers as a contribution to the administration costs of a municipality.

It is difficult to imagine a more complex system of taxation and even more difficult to understand what purpose is served by such a system. Whilst the system is relatively efficient it fails the tests of equity simplicity and neutrality.

Whilst none are without the problems which apply to all property taxes the CIV method most closely reflects the principle of progressivity. Currently 73 councils operate under CIV and 6 under NAV. Given that NAV is a derivative of CIV the development of a new act provides the opportunity to move to CIV as the only basis for determining rates. Such a move would provide a platform for comparing the rating effort between municipalities and therefore a basis with other measures to compare the efficiency and effectiveness of council service delivery.

A second reform should be the elimination of the municipal charge. This charge was introduced in the 1989 Act as an alternative to what was then called the minimum rate. The minimum rate was a flat charge which effectively meant that lower valued properties were effectively rated more highly than higher values properties. The municipal charge is intended to be a contribution to the cost of council administration and must not exceed 20% of the monies collected through the general rate. Whilst an improvement on the municipal rate, which often saw councils raise up to 40% of their rates through this mechanism, the municipal rate continues the inequity implicit in the minimum rate. The is no reason why the cost of council administration should be separated from the delivery of other council services and paid for through a flat charge rather a charge reflecting the value of the property being rated.

A final reform which could be considered is whether differential rates should continue to be allowed under the act. Differential rates allow councils to set different rates for different property types. Under a CIV based system which already provides for rating to be linked to the value of land and capital improvements it is difficult to understand why, in addition, a further distinction should be made between property types. This issue was implicit in the differential rating provisions introduced in the 1989 Act which limited the highest differential rate in a municipality to four times the lowest rate. On equity grounds differential rates should be proscribed in any new act. However if that proves two difficult the highest differential rate should be limited to two times the lowest.

Good corporate governance – including an appropriate role for mayors

An important aspect of good governance is the need for a proper balance between the role of councillors and that of their administration. The key positions in this regard are the roles of council Chief Executive Officers and mayors. From a governance perspective the relationship between a council and its administration is akin to that of a board of directors to its administration; the former setting policies for the municipality and being its ceremonial face and the latter implementing those policies.

Page 13 of 16

Victoria has two ways of determining who will be the mayor in a municipality. For all but two councils 12 mayors are selected by their councillor colleagues. Their appointments are for one year unless a council resolves that the appointment is for two years and they can stand for appointment for additional terms.

There are approximately 600 councillors in Victoria. Of those approximately 200 have served at least one term as a mayor; 102 serving one term only and 57 serving two terms. Currently 45 mayors are serving their first term.

The practice of frequent changing mayors is encouraged both by the provisions of the Act and the status involved in the position. The additional remuneration which mayors receive for the time involved is also attractive when compared with that of councillors.

From a governance perspective however this practice leaves much to be desired. Councils are significant corporate entities responsible for large budgets, staff and services. No other corporate entity –commercial or representational - would consider changing their board chairman on an annual basis. Indeed, frequent changes of mayors diminish their leadership role and send a signal to the community that the ceremonial aspect of the role is primary.

One impact of this ‘musical chairs’ method of selecting mayors is that the relationship between the mayor and the council’s CEO is one where the incoming mayor is often dependent on the CEO to define the scope of the corporate leadership role. Like any position mayoral roles are ones that are learned over time and many occupants of these roles have reflected to this author that just as they are getting on top of the different aspects of the role, their terms are up and someone else is waiting in line.

In order to strengthen the leadership role of mayors it would be desirable for them to serve a full four years in the role. This would make the process of electing a mayor at the beginning of the council’s term one of electing someone capable of leading the council for its full term rather than one of dividing the attractions of the mayor’s office between a numbers of councillors. It would also have the potential of changing the balance of the relationship between a council’s elected officials and its administration. If a mandatory four year term is seen as a step too far a fall-back option would be to amend the Act to make the minimum mayoral term two years.

The role of local government

Under the current act councils have wide-ranging representative, legislative, advocacy, planning, and service delivery responsibilities. Indeed councils may undertake any functions not specifically proscribed by State legislation.

In addition to functions which councils choose to undertake there a large number of responsibilities which councils must undertake as a result of state legislation. These include

12 The Cities of Melbourne and Greater Geelong Mayors are directly elected and serve for the four year term of the council.

Page 14 of 16 requiring councils to approve planning permits and subdivisions, requiring councils to enforce building regulations, enforcement of parking and traffic regulations and regulating pet ownership to name but a few. These functions must be financed through councils’ own revenues.

There are also other functions which councils undertake on the basis of contractual arrangements with the state and commonwealth governments.

A constant complaint by councils is the extent to which other levels of government transfer functions to local government without properly funding them. It arises in part because councils are not autonomous levels of government and so can be required to undertake these functions. In part also it arises because of the aspirations of councils to exercise the discretion available under the Act in relation to the services they provide to their communities; but have to do so in the context of a limited range of revenue-raising sources.

An underlying feature of intergovernmental financial relations in Australia is its very high level of vertical fiscal imbalance (VFI); the extent to which there is a mismatch between revenue-raising and expenditure responsibilities.

The current review of the Local Government Act 1989 provides an opportunity to rethink the relationship between councils’ revenue raising and expenditure responsibilities.

Rather than seek to be ‘all things to all people’ consideration should be given to doing a limited number of things well. In this context consideration could be given to the following framework:

a) All councils must undertake a number of core functions determined through a process of consultations between local government and the State government. These functions would be specified in a schedule of a new local government act. They would be determined on the basis of applying the subsidiarity principle- that service delivery responsibility be undertaken at the lowest possible level of government and would be fully funded by councils. b) Councils could also undertake at their discretion non-core functions which they would either fully-fund or fund in conjunction with other levels of government on a contractual basis.

A reporting regime could be implemented to provide each community with clarity regarding the core service responsibilities of their council. This would enable residents to compare how well their council is delivering its core service responsibilities in comparison with like councils. This arrangement could similarly provide communities with an understanding of the non-core functions councils have chosen to deliver.

To the extent that this framework is prescriptive regarding core functions which councils must deliver, it could be seen as a reversion to aspects of the Local Government Act 1958 . However this perception needs to be balanced by the fact that there are numerous state acts which are equally prescriptive. Where it differs from both the 1958 and 1989 Acts is

Page 15 of 16 that it combines a degree of prescription with enhanced accountability to the communities which councils serve.

It is also consistent with the arguments discussed in the recently released Green Paper on the ‘Reform of the Federation’ which, inter-alia, canvasses the need to address VFI between the Commonwealth and the States and the need for clarity regarding responsibility for key functions such as health and education currently shared by both levels of government.

Appropriate oversight by the Minister

The Local Government Act 1989 prescribes a role for the Minister for Local Government (the Minister) in numerous aspects regarding the operations of local councils. These include electoral matters, conflicts of interest, certain rates and charges, implementation of Best Value principles, inquiries into councils and restructuring of councils.

In addition the Auditor-General, the Ombudsman, the Victorian Electoral Commission, IBAC, VCAT, the Essential Services Commission all have oversight of aspects of council operations. For councils this is a complex array of accountabilities.

The primary responsibility of the Minister is to ensure that there is a representative system of local government in Victoria and that councils provide good government to their communities. As such the power of the Minister to directly intervene in council operations should be limited to the constitution, suspension and dismissal of councils and the conduct of councillors.

Given the scope of the responsibilities of the Auditor-General, the Ombudsman, IBAC and the Essential Services Commission, a case could be made that with a general referral power to each of these bodies, the Minister could be satisfied that due consideration would be given to performance or governance issues relevant to the Minister’s responsibilities.

Advice from these bodies could provide the basis for action relating to suspension or dismissal of councils or councillors. By the same token councils could be satisfied that issues of concern relating to their performance and governance could be dealt with fairly.

The process in relation to the structure of local government – the constitution of new councils – should continue to rest with the Minister and the Parliament.

Conclusion

From the very earliest days of settlement, the roles, responsibilities and structure of municipal governance has been at the heart of the public policy deliberations between successive colonial and Victorian Governments and the councils established under their auspices. Until the 1990s various attempts to implement reforms to the structure and

Page 16 of 16 operations of local government foundered on the rock of parochial resistance, parliamentary opposition and lack of political will.

The reforms of the 1990s, whilst radical in both process and intent, sit squarely within that framework; and may not have been as necessary or as radical had councils themselves taken up any of the numerous opportunities for reform over the previous 140 years.

In the 25 years since its passage the Local Government Act 1989 has grown more than threefold to over 450 pages effectively defeating one of the original purposes of the Act; to streamline and simplify the legislation.

The current review of the Local Government Act 1989 provides an opportunity to refresh the core Act governing the operations of councils in Victoria. In accordance with the principles of simplicity , coherence and equity this paper suggests that the new act should be framed on the basis of the minimum level of prescription ensuring a balance between the objectives of competent, democratic governance and the delivery of efficient and effective services.

The proposals discussed in this paper – simpler, easier to understand, electoral and rating arrangements, greater clarity and accountability in the services undertaken by councils, the need for mayors to have stronger leadership roles and finally a simpler accountability framework for councils by clarifying and limiting the role of the Minister – will, no doubt, have their critics, particularly from within the local government sector. However, they are written from a different perspective. They are an attempt to suggest commonsense arrangements which can be easily understood by the residents of the communities which councils serve. As such they are intended to stimulate debate and provide pointers to some reforms which could be incorporated into a modern simplified local government act.

© The State of Victoria Department of Environment, Land, Water & Planning 2015

This work is licensed under a Creative Commons Attribution 4.0 International licence . You are free to re-use the work under that licence, on the condition that you credit the State of Victoria as author. The licence does not apply to any images, photographs or branding, including the Victorian Coat of Arms, the Victorian Government logo and the Department of Environment, Land, Water and Planning (DELWP) logo. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/

ISBN 978-1-74146-964-6 (pdf)

Disclaimer

This publication may be of assistance to you but the State of Victoria and its employees do not guarantee that the publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication. Accessibility If you would like to receive this publication in an alternative format, please contact the Local Government Act Review Secretariat, email [email protected] phone (03) 9948 8518. This document is also available at www.yourcouncilyourcommunity.vic.gov.au