1979

VICTORIA GRANTS COMMISSION

ANNUAL REPORT

1979

Ordered by the Legislative Assembly to be printed

By Authority : F. D. Atkinson, Government Printer No. 56

VICTORIA GRANTS COMMISSION

MEMBERS

D.V. Moye B.Ec .• H.D.A. (Hons). Chairman

F.S. Bales F.I.M.A .• J.P.

S.L. Cooper J.P.

SECRETARY

F.M. Thomas (Acting) B.Ec. (Hons).

VICTORIA GRANTS COMMISSION

ANNUAL REPORT

1979

The Hon. Dighy Crozier, M.L.C.. Minister for Local Government. 480 Col/ins Street. MELBOURNE. V/C. 3000.

As Members appointed under section 3 of the Vicroria Grants Commi.uion Act 1976, we have the honour to present the third Annual Report of the Victoria Grants Commission, in accordance with section 17 of that Act.

D.V. MOYE. Chairman

F.S. BALES. Member

S.L. COOPER. Member

F.M. THOMAS, Acting Secretary

November. 1979

TABLE OF CONTENTS

INTRODUCTION...... 9

CHAPTER I. THE YEAR'S ACTIVITIES...... ll Board of Review of the Role. Structure and Administration of Local Government...... 13 Review of State Shares of Amount of Personal Income Tax for State Government...... 13 Conference of State Grants Commissions...... 14 Other Conferences. Seminars. etc...... 14

2. THE BASES OF THE DETERMJNATIONS...... 15 As-of-Right Entitlement...... 16 Equalisation ...... 17 Revenue raising needs...... 17 Expenditure needs and disabilities...... 20 Standards...... 21 Determining the Individual Allocations...... 23 Acknowledgements...... 24

APPENDICES I Transmittal Memorandum and Determinations ...... 25 11 Municipalities Inspected 1978-79 ...... 32 Ill Revised Categories of Municipalities...... 34 IV Formulae...... 36 V Distribution of Rateable Property, Rate Income. Rating and Population ...... 40

INTRODUCTION In October 1976, the Parliament of Victoria enacted the Victoria Grants Commission Act 1976 giving authority to the Government of Victoria to establish the Victoria Grants Commission. The primary role of the Commission is to determine the allocation between municipalities in Victoria of grants from the Commonwealth to the State for local government authorities under the provisions of the Commonwealth's Local Government (Personal Income Tax Sharing/ Act 1976. The Victoria Granu Commission Act 1976 was proclaimed on 9 February 1977 and the Commission. consisting of a fulltime Chairman and two part-time Members. was formally constituted on 24 May 1977. By notification in the Commonwealth Gazette of 30 June 1978, the Victoria Grants Commission was formally declared the body to be the Local Government Grants Commission of the State of Victoria. in accordance with section 4 of the Local Government (Personal Income Tax Sharing 1 A et 1976. Section 12 of the Victoria Grants Commission Act 1976 requires the Commission, on or before 31 August each year. to determine the amount to be allocated to each municipality in that year. The Commission's determination for the 1979-80 financial year was delivered to the Minister for Local Government on 31 August 1979. A copy of the transmittal memorandum and of the determination are included in Appendix I to this Report. Section 17 of the Act requires the Commission to report to the Minister by 30 November each year on the activities of the Commission during the preceding year ended 31 August. This Report is in compliance with that requirement.

9

CHAPTER I

THE YEAR'S ACTIVITIES 1.1. The primary role of the Victoria Grants Commission is to determine. on or before 31 August each year, the allocation among municipalities in Victoria of general revenue grants from the Commonwealth to the State for local government authorities under the provisions of the Commonweath's Local Government (Personal Income Tax Sharing} Act 1976 and under the Victoria GrantJ Commission Act 1976 which complements it. 1.2. The Victoria Grants Commission Act provides that: " l 0. (I) Each municipality shall supply the prescribed information to the Commission - (a) on or before the day fixed by the Commission by notice published in the Government Gazette; or (b) in the case of a particular municipality, on or before such later date as is fixed by the Commission for that municipality. (2) Where a municipality has not complied with sub-section (I) the Commission shall nevertheless allocate to the municipality its 'As-of-Right Entitlement'." The Act also provides that: " 13. The Commission or any member thereof may carry out such inspection, conduct such hearings, take such evidence and generally make such investigations as the Commission thinks necessary for the purpose of properly carrying out its functions under this Act." In relation to proceedings before the Commission the Act stipulates that: " IS. A municipality may be represented in proceedings before the Commission by Councillors or the municipal clerk or the municipal engineer or full-time officers of the municipality and not otherwise." Provision is also made enabling the Minister for local Government to "on his own motion or at the request of the Commission make written submissions to the Commission as to any factors which appear to the Minister to be of special significance in relation to all or any municipalities in the rele\':ant financial year" (section 14). The Minister is required to publish notice of a submission in the Government Gazette. to lay copies of the submission before both Houses of Parliament and make copies of it available to the public. 1.3. In addition, pursuant to section 16 of the Victoria Grants Commission Act 1976, the Commission is required to "enquire into and report upon any other matter relating to local government finances which is referred to it by the Minister." No such matter was referred to the Commission during the year ended 31 August 1979. 1.4 The Commission was formally convened on one hundred and eighteen days during the year ended 31 August 1979 in order to undertake inspections and confer with Council representatives and to consider written submissions and other evidence relevant to the determination of allocations for the 1979-80 financial year. 1.5. During the year visits were made to 63 municipalities throughout the State; for the most part a full day was spent in each. This enabled the Commission to undertake a detailed inspection of each municipality and to set aside time for discussion with Councillors and their officers about the Commission's role and the municipality's submissions (see Appendix 11 for list of municipalities visited). The Commission expects to visit each municipality in the State once in about every three years on this basis. 11 1.6 Much of the Commission's time and resourees has been given over to the examination of methods used for comparing revenue-raising capacity and costs or services, with a view to increasing the use of objective measures and reducing the heavy reliance on judgment that has been an unavoidable aspect of earlier determination&. The greater use of objective measures and improvements to methodology is expected to enhance the equity and predictability of the allocations. 1.7. Central to the development of methodology is the availability of good quality data. The Victoria Grants Commission Act 1976 provides authority for the Commission to require each municipality to provide prescribed information by a date fixed by the Commission. In conformity with section 10 or the Act. 6 December 1978 was the date fixed by notice in the Gowrnmtnt Gazette No. 98 of 25 October 1978 as the date by which the prescribed information for the financial year ended 30 September 1978 should be returned to the Commission. 1.8. As indicated in last year's Report, the Commission has been working closely with the Victorian office of the Australian Bureau of Statistics on the development of a joint return of statistical information to serve the needs of the Commission and the Bureau. The format for the 1978 Return, which related to the year ended 30 September 1978, was designed to cover all of the detail required by the Bureau for its purposes and to meet specific requirements of the Commission. This enabled the Bureau to dispense with its separate collection of financial data from municipalities and has provided the Commission with very much higher quality data than has previously been available. Apart from some minor amendments which are designed to improve the quality of the reporting, the Return for the year ended 30 September 1979 is in the same format as that for 1978. 1.9. The Commission has again emphasised the importance of the timely receipt of accurate statistical information and has sought the co-operation of Councils in supplying the necessary information by the due date. The response on the whole has been satisfactory, about two-thirds of the Returns being lodged on time, with most of the remainder being lodged shortly thereafter. However a disappointing number ignored repeated requests for the Returns to be completed and their eventual late lodgment, coupled with the late lodgment of supporting financial statements, seriously inconvenienced the preparation of data for analysis. Attention is drawn to section I 0, sub-section (2) of the Victoria Grants Commission Act 1976 which provides that where a municipality has not complied with sub-section (I) (i.e. has not supplied the prescribed information by the due date), the Commission ..shall nevertheless allocate to the municipality its 'As-of-Right Entitlement'." The Commission will invoke this provision when a Council persistently ignores requests for the timely lodging of prescribed information. 1.10. As is to be expected. the Commission has come in for criticism by some Councils about the relative size of their allocations, mainly in relation to allocations for so-called •similar municipalities' or the size of the increase in their allocations compared with that for the State as a whole. The latter criticism carries with it the implication that the previous year's relativities were precisely correct, a fact often contested by the municipalities in question. The Commission has, on many occasions, cautioned that no necessary conclusions can be drawn about the allocation to a municipality for a year from the allocations determined in prior years. This is because of the still rather imperfect nature of the data and general information available to the Commission about all aspects of each of the two hundred and eleven municipalities in the State. Consequently, as improvements are made to the data and the Commission's knowledge and understanding of the circumstances or each municipality is extended, adjustments will be effected to the assessments of the relative fiscal needs and disabilities of individual municipalities which will be reflected in rates of increase in allocations for some municipalities that may differ significantly from the overall rate of increase for the State as a whole. 12 1.11: It is apparent that, in many cases. criticism of the allocations arises from a lack ofunderstznding of the Commission's role and the principles and methods it has adopted in determining the allocations. The Commission has again outlined its principles and methods in this Report and has reproduced the basic formulae in Appendix IV. lt is important that local government officers appreciate the significance of this information and that Councillors who will be involved in discussions with the Commission are familiar with the principles and methods underlying the allocations. 1.12. In some instances, Councils have failed to take into account allowances for special factors which are listed in the Allachment to the Delermination. copies of which have been circulated to every municipality. when calculating percentage increases from year to year. As pointed out in the Auachmem. special factors allowances, which mainly relate to natural disaster expenditures. apply for the year in question only. Therefore in making comparisons of allocations between municipalites. or of individual municipalities from year to year. the amounts shown in the schedule of the Attachment. should first be deducted from the total allocations determined for the relevant municipalities. I. 13. It should also be appreciated that with the limitation on the overall allocation of funds for general revenue grants, the allocations can only reflect a partial recognition of the needs and disabilities of individual local government authorities throughout the State.

Board of Review of the Role. Structure and Administration of Local Go1·ernmenr 1.14. As indicated in paragraph 1.3. no other matters relating to local government finances have been referred to the Commission for inquiry and report by the Minister. However, the Commission responded to the request by the Board of Review of the Role. Structure and Administration of Local G01·ernmenr for submissions from interested persons or bodies. A main submission and two supplementary submissions have been made and a substantial amount of statistical and other information has been made available to the Board to assist in its deliberations.

Review of State Shares of Amount of Personal Income Tax for State Government 1.15. On 3 April 1978, the Commonwealth Minister for Administrative Services requested the Commonwealth Grants Commission to inquire and report on: " I. the matter of the principles to be observed and the procedures to be followed by the Commonwealth Grants Commission in future inquiries and reports on the revision of the percentages contained in section 5(2) of the Local Government (Personal Income Tax Sharing) Act 1976 when this matter is referred by the responsible Minister in accordance with that Act: 2. whether any of the principles and procedures deemed appropriate by the Commission should be given effect through their inclusion in the provisions of the legislation." The Victoria Grants Commission assisted in the preparation of the Department of Local Government's submission to the Commonwealth Grants Commission and the Chairman accompanied the Secretary of the Department at the subsequent hearing of the submissions at Canberra on 5 Sep1ember 1978. 1.16. The Commonwealth Grants Commission's Special Report 1979 on Financial Assistance for Local Government was tabled in the Commonwealth Parliament in the current Budget Session. The Commission recommended, inter alia. "that any future inquiries and reports by the Commonwealth Grants Commission on the revision of the percentages contained in section 5 (2) of the Local Government (Persona/Income Tax Sharing) Act 1976 in response to a reference by the Minister should be based •Jpon an equalisation principle ... and that one of the optional methods 13 of equalisation mentioned in paragraph 19 be adopted for this purpose." The options mentioned in paragraph 19 of the Report are: ..Option· A: Distribute in proportion to the respective unweighted populations of the States. Option ·B: Distribute in proportion to State populations weighted on a prescribed basis. Option C: Distribute by first assessing the relative needs of the local government authorities within each State by reference to a standard derived from experience within the State, and then use the aggregate of the resulting needs figures for each State to determine the proportionate distribution of the entitlements between the States. Option D: Treat the local government authorities in each State as a single entity and base the distribution between the States on an interstate comparison of these entities by reference to a common standard for all States. Option E: Proceed as in Option C, but assess the need for each body by reference to a common standard for all States." 1.17. In paragraph 36 of the Report, the Commonwealth Grants Commission recommends "that the Government give consideration to the adoption of Option A • distribution on a population basis- on the grounds of its simplicity and predictability". The adoption by the Commonwealth Government of this recommendation would mean an increase in the share now being allocated to Victoria • 25.45 per cent - to its population share of about 27.5 per cent. At the time of writing this Report, the Commonwealth Government has not announced what action it will take in respect of the recommendations.

Conference of State Grants Commissions 1.18. Representatives of the Grants Commissions of the six States met in Perth on 2-3 October 1978 for discussions on aspects of the various approaches to the distribution of general revenue grants being followed in each of the States. The conference provided a valuable insight into the problems being experienced by the Commissions and the way in which these were being resolved. This meeting and two previous meetings, which were held in ·Adelaide and Melbourne, has furthered the understanding and improvement of methods of inquiry, data collection and handling and (IIC81 equalisation methodology. These meetings, which have the support of the Local Government Ministers' Conference, are expected to be held annually in each State on a rotational basis. (The 1979 Conference was held in Sydney on 17-18 September, 1979).

Other Conferences, Seminars. etc. 1.19. The Chairman of the Commission attended the 49th Congress of the Australian and New Zealand Association for the Advancement of Science in Auckland, New Zealand from 22 to 26 January 1979 and delivered a paper titled Measuring Rewnue-ralslng Capacity of Local Gowrnment. Copies of the paper were later circulated to municipalities in Victoria for comment on the proposals contained therein for a new· approach to the measurement of revenue-raising capacity (see paragraph 2.1S). The Chairman also attended a number of conferences and seminars conducted in auociation with the Municipal Association of Victoria, the Institute of Municipal Administration, Local Government EnJineers Association and other bodies for discussion related to various aspects of the Commission's role. 14 CHAPTER 2

THE BASES OF THE DETERMINA TIONS 2.1 The Commonwealth Local Government (Personal Income Tax Sharing) Act 1976 provides for the payment to the States, for allocation to local government authorities, of an amount determined by the total personal income tax collections for the financial year immediately prior to the year to which the payments apply. For 1976- 77 the amount was $140 million, which was equivalent to 1.52 per cent of the personal income tax collected during 1975-76; this proportion has been used to determine the total allocations for 1977-78 and 1978-79. However, in keeping with undertakings given · in the 1977 elections to increase the proportion to 2 per cent during the life of the current Commonwealth Parliament, the proportion used to determine the total amount for allocation for the 1979-80 financial year was increased to 1.75 per cent. In his Budget Speech of 21 August 1979, the Commonwealth Treasurer stated that "the Government's election promise to increase the share to 2 per cent will be met by the time of the next budget". 2.2. The total amount available for all States for allocation for 1979-80 is $221,739,321, an increase of 23.58 per cent over the amount for 1978-79. The apportionment between the six States is set out in the Commonwealth Act and is based on recommendations by the Commonweath Grants Commission (see Commonweath Grants Commission Special Report 1977 on Financial Assistance for Local Government). The relative State percentages and amounts for 1979-80 are shown below: Percentage Amount($) New South Wales 36.4977 80.929,752 Victoria 25.4513 56.435,540 Queensland 16.8606 37.386.580 South 8.6010 19.071.799 Western Australia 9.3897 20.820.657 Tasmania 3.1997 7,094.993

100.0000 221.739,321

2.3. The Commonwealth Act stipulates that two basic conditions be observed by the States when allocating the grants amongst local authorities: (i) not less than 30 per cent of the total amount for a State for a year shall be allocated on a population basis which may also take into account size, population densities and other agreed matters; and (ii) the remainder of the amount shall be allocated on a general equalisation basis to ensure, as far as practicable, that each local government authority is able to function, by reasonable effort, at a standard not appreciably below the standards of other local government authorities in the State, taking into account differences in the capacities of local authorities to raise revenue and differences in the cost of performing local government functions. 2.4. The above requirements are embodied in section 12 of the Victoria Grants Commission Act 1976 which provides that each municipality in the State shall receive an entitlement 'as-of-right' in accordance with (i) above and that no municipality shall receive an amount that is less than its as-of-right entitlement. Further, section 12(3) of the Act requires the Commission to consider: .. (a) the special needs and disabilities of the particular municipality; 15 (b) the effort made by the municipality to function effectively and provide reasonable services; and (c) any other matters which in the opinion of the Commission, are of special significance in relation to the municipality." 2.5. As indicated earlier, the data available to the Commission was more comprehensive and of a better quality than for previous years. This enabled the Commission to critically examine the methodologies that had been used to date and be far more confident in the results of its ·research than has been hitherto possible. As a consequence, the Commission has made a number of important changes in the methodologies used to derive the basic figures for the allocations. These have confirmed the feeling that the Commission has held about some of the relativities that have been developing and steps have been taken to modify these where appropriate. The Commission stresses that the relativities that have emerged in these initial years are approximate only. They Will be subject to change as a consequence of better data and more detailed knowledge of areas of the State, as well as changed circumstances. 2.6. Because the allocations are determined in relation to the inherent characteristics of each municipality which, for the most part, will not alter, or will alter only imperceptibly in the short term, it should be possible to construct an index of fiscal need, ranking all municipalities in the State in relation to the sum of their relative revenue and expenditure needs and disabilities. This index could be used to allocate any sum that would be available for distribution. The annual task would then be reduced to one of fine-tuning the index in the light of better knowledge and of making adjustments for areas which have experienced significant change. These adjustments would mainly relate to factors such as changes to the rate of population growth, relative cost of construction and reconstruction works (e.g. roads), boundary adjustments and special factor allowances for natural disaster costs.

AS-OF-RIGHT ENTITLEMENT 2. 7. For the 1976-77 allocations the Interim State Grants Committee, following extensive research by the Working Party on Local Government Finance recommended that the as-of-right component be 40 per cent of the State's total allocation and that each municipality's entitlement be determined on the basis of: Population ...... 85 per cent Area ...... 15 per cent The same basis has been used for determining the as-of-right entitlements for all allocations since that time and, because the Commission can see no justification for any change at this stage, has again been used for the 1979-80 calculations. The population and area figures used to calculate each municipality's entitlement were those given in the Australian Bureau of Statistics' publication Estimated Population in Local Government Areas at 30June, /978. 111

2.8. The Commission views the as-of-right entitlement as a means of ensuring that each municipality receives a grant, in contrast to the approach under the previous Commonwealth Government which led to a number of municipalities not receiving a grant. However, the overall thrust of the legislation is towards achieving fiscal equity, within the limit of available funds. The basis upon which the as-of-right entitlement is calculated provides a measure of equalisation because recognition is given to some of the population and area effects on the relative costs of local government services. To the extent that amounts allocated as-of-right exceed those which would be allocated solely on the basis of fiscal equity, distortion of fiscal equity results. Ideally the bases for calculating minimum, or as-of-right entitlements, should be those which produce the minimum distortion of fiscal equity, having regard to the expectations of each municipality to receive a meaningful grant relative to its responsibilities. The 16 (I) Statistics of Victoria, Catalogue No. 3201.2, Acting Deputy Commonwealth Statistician. 30 May. 1979. Commission believes that the current bases for determining the as-of-right entitlement achieve these objectives. 2.9. A common misunderstanding is that the as-of-right entitlement stands apart from the equalisation element; that is, that the equalisation element is calculated without any regard to the as-of-right entitlement. To do this would be to ignore the equalisation effects of the as-of-right entitlement and would result in double counting. As in'dicated in the 1977 Annual Report (see paragraphs 2.6 and 2.7) the Commission's approach is, first, to determine the allocations for each municipality solely upon equalisation principles and, as a second step, to make appropriate adjustments to the allocation for any municipality for which the equalisation allocation falls short of the as-of-right entitlement. To achieve this, the allocations for other municipalities calculated on equalisation principles have to be reduced. thus distorting the equalisation effect of the distribution. 2.10. As a distribution of the amount for 1979-80 determmed solelv on equalisation principles would produce allocations that would be greater than the is-of­ right entitlements for all but two municipalities in the State, the as-of-right entitlement is of no practical significance for the majority of municipalities. Also. it follows from the foregoing that the equalisation allowance for a municipality is, for all but these two municipalities, the total allocation, not simply the difference between the as-of-right amount and the total allocation.

EQUALISATION 2.11. Although the application of general equalisation principles to the distribution of the grants is expressed in somewhat different terms in the State Act to the terms used in the Commonwealth Act, the effect is much the same. As indicated in paragraph 2.4 the Victoria Grants Commission Act 1916 requires the Commission to have regard to special needs and disabilities, the effort made to function effectively and provide reasonable services and any other matters of special significance. 2.12. The Commission this year undertook a full equalisation exercise in order to establish the absolute level of relativities between municipalities. This is to say, the calculations for revenue-raising needs and expenditure needs and disabilities were made on the basis of the amounts required to achieve full fiscal equalisation between municipalities. The allocation for each municipality of the amount available was then determined in relation to its proportionate share of the total amount required to achieve full equalisation. This approach was the first step towards the use of an index of fiscal need, which the Commission hopes to develop in more detail for use in determining the 1980-81 allocations.

Revenue-raising Needs 2.13. The long-established method for assessing needs in relation to revenue­ raising is to compare the capacity of a particular government authority or municipality to raise revenue against a standard. To the extent that the capacity of a particular municipality to raise revenue is greater than the standard then that municipality is said to have negative revenue needs, or an advantage in raising revenue. Conversely, if a municipality's capacity to raise revenue is less than the standard. the municipality is said to have positive revenue needs, or a disability in raising revenue. 2.14. A municipality with negative revenue needs. that is an advantage in raising revenue, is in a relatively better position to meet the costs of services than municipalities with positive revenue needs. Thus, the situation can arise where a municipality may have high costs of municipal services because of the characteristics of the municipality but, at the same time, have a relative advantage in raising revenue and 17 is therefore able to meet a large part of the additional costs from its own resources. It follows that relatively high costs of services within a municipality do not necessarily mean that the municipality should receive a large allocation of general revenue grants. 2.15 In the 1977 Annual Report (see paragraph 2.14) and again in the 1978 Annual Report (see paragraphs 2.14 and 2.19) the Commission adverted to the possibility of substituting property or assessment numbers for population as the basis for measuring revenue-raising capacity. The Commission has previously expressed reservations about the use of population as the parameter for comparing revenue­ raising capacity because it tends to distort the measurement of differences in capacity to raise revenue, particularly where there are significant areas of non-residential property in a municipality. Investigations into alternative methods of measuring revenue-raising capacity culminated in a paper being circulated to all Councils for comment in March 1979, proposing a procedure whereby property or assessment numbers would be substituted for population. Separate calculations would be made to measure each municipality's relative capacity to raise revenue from the three main classes of property, thus avoiding the need to categorise municipalities as has been the practice to date. The proposed new methodology received the concurrence of the overwhelming majority of those who chose to comment. 2.16. The Commission is convinced that relating the tax base of each municipality (the value of its rateable property) to the number of properties or assessments instead of to population, is a more realistic basis for comparing capacity to raise revenue. Clearly the capacity of a municipality to levy a quantum of rates is not dependent upon the number of persons estimated to have been resident in the area on a particular day, but upon the total value of the number of assessable properties within the municipality. 2.17. There are, of course, difficulties in defining precisely what constitutes a 'property' for this purpose and it may be necessary to use the number of rate assessments as a proxy for the number of properties. Nevertheless the belief is that the advantages to be gained from using property numbers instead of population figures outweigh possible deficiencies in the data. Deficiencies also exist in the population data which is an estimate of the number of people in particular areas on a given day in the year. As Census are generally taken mid-week in June of the base year. the estimate thus taken could differ significantly for some areas from one taken at week-end in one of the summer months. 2.18. Difficulty has always been experienced in attempting to categorise municipalities on a realistic basis for the Commission's purposes. This is because many municipal boundaries have their origins in history; others are the product of internecine disputes. It is therefore difficult to produce a logical, working classification of municipalities from the situation which in many respects defies logic. The danger has always existed that the allocation for a municipality could be significantly affected by the category within which it was placed rather than being determined by its real fiscal needs. This was one of the considerations that led to the Commission's avoiding the use of categories in the assessment of expenditure needs and disabilities. 2.19. For these reasons investigations have been made into means of dispensing with the use of categories altogether or at least revising existing categories. However, for some purposes it is useful to be able to group together municipalities with similar general characterisitics. Existing categories have been reviewed in this light and new groupings drawn up. These are given in Appendix Ill. 2.20. In the paper circulated in March 1979, it was suggested that the use of categories in comparisons of revenue-raising capacity could be done away with by making separate calculations for each municipality for the three main classes of property - residential, commercial and industrial, and rural and other property. The comparisons within each class of property would be made on a State-wide basis and the 18 allowance to be made for each municipality for differences in capacity to raise revenue would be the sum of its allowances for each of the classes of property (su Appendix IV for detailed formulae). Such an approach would automatically take account of differences in the mix of properties within a municipality, which obviously bears upon capacity to raise revenue, weighting the contribution of each class of property according to its relative contribution to the municipality's rate base. 2.21. The Commission believes that this method of calculating allowances for capacity to raise revenue would be a significant improvement over the previous method, irrespective of whether the basis of comparison was population or number of properties. Further work since has indicated that confining the comparisons to two classes of property would simplify the procedures and remove some of the apparent anomalies that have become evident from the use of three classes of property. The property classes would be residential and all other, the latter including rural properties as well as commercial and industrial properties. In effect. this would treat rural properties as a form of commercial or industrial undertaking, which they are in reality. 2.22. As a first step towards the proposed change to the use of property or assessment numbers instead of population and the elimination of categories in the measurement of revenue-raising capacity, allowances for capacity to raise revenue were calculated on the same basis as for previous years and then given equal weight with calculations made using three classes of property and number of assessments as the parameter instead of population. In other words, allowances for differences in capacity to raise revenue were based upon a simple average of allowances calculated in relation to per head values of rateable property for four categories and allowances calculated in relation to per assessment values for three classes of property. Population figures used were from the Australian Bureau of Statistic's publication Estimated Population in Local Government Areas at 30 June 1978 and rateable property valuations were estimated values of rateable property at I October 1977, provided on a confidential basis by the Valuer-General. Other data were taken from the Returns for the 1977-78 financial year. 2.23. For some time the Commission has been concerned at the wide difference between residential property values in metropolitan municipalities and the country cities, towns and boroughs. Not all of the difference can be attributed to differences in the quality of residential properties or the financial capacity of residents. Some part is due to differences in demand pressures which exist simply because of the greater availability of residential property relative to demand in country areas. compared with the metropolitan area. The Commission believes that differences in the valuations used for assessing relative capacity to raise revenue, which arise because of differences in availability of residential property as between areas, should not be allowed to influence allowances for differences in capacity to raise revenue. It has undertaken research into this effect using household incomes data from the 1976 Census and data on property sale statistics published by the Valuer-General m 2.24. The following table indicates that the median incomes of households in country towns, cities and boroughs are some 78.6 per cent of those in the metropolitan area, but median dwelling sale prices in country areas are only 70 per cent of those in the metropolitan area: Median Household Income Median Dwelling Sale Price $()()() %Cat 1 $()()() %Cat 1 Category I (Metropolitan area) 11.000 37.500 Category 2 (Country Cities, Towns & Boroughs) 8,642 78.6 26.100 70.0

(I) Pro~rty Sole Statistics Victoria • 1978, Valuer-General's Office. Victoria ( Rer VG 79 • I) 19 The Commission believes that, other things being equal, the difference in dwelling sale prices between the two categories should approximate the difference in household incomes. It has concluded that the greater difference in dwelling sale prices between the two categories than between the household incomes can be attributed to differences in demand pressures because of greater availability of residential property in non-metropolitan areas. As a matter of judgment, it has therefore adjusted valuations of residential property for Category 2 municipalities upwards by I 0 per cent, approximately the margin by which household incomes exceeds dwelling sale prices in Category 2 municipalities.

Expenditure Needs and Disabilities 2.25. The statistical measurement of needs and disabilities in relation to the cost of services was further refined this year with the availability of more detailed and comprehensive data from the expanded Return ofAccounting and Genera/Information for the 1977-78 financial year. The much improved data base permitted allowances incorporated in the 1979-80 grants for individual municipalities to be more objectively determined than has previously been possible. However, a significant use of judgment on the part of the Commission, particularly in relation to disability factors, was still necessary and the Commission will continue to explore the possibility of further expanding the use of objective measures. 2.26. The expenditure component of the allocations is the summation of assessments of relative needs and disabilities over the range of municipal functions, generally following the functional classification of expenditure adopted by the Australian Bureau of Statistics. The broad classifications are given below, along with the subdivisions for each classification that were considered in detail:

General Administration Growth and Planning, Isolation, Sparsity Health Infants and Mothers, Preventative Services, Other Welfare Families and Children, Aged and Disabled, Other Education Pre-schools, Other Housing and Community Amenities Street Cleaning, Urban Drainage, Household Garbage Collection and Disposal, Other Recreation and Culture Public Halls, etc., Swimming Pools, Beaches, etc., Other Recreation and Sport, Libraries, Other Culture (Art Centres, etc) Roads, Streets and Bridges Construction and reconstruction of roads, Construction and reconstruction of bridges, Maintenance of roads, streets, and bridges Economic Services Traffic control, Street lighting, Other Duplication Recreation, Health & Welfare, Other 20 Regional Facilities Recreation and Resorts. Health & Welfare, Historic Buildings. Aerodromes Special Factors Natural Disasters 2.27.Unit costs were established for most of the functions shown under the sub­ headings, except for Special Factors. Where unit costs could not be satisfactorily derived from the data, the Commission exercised its judgment about the allowance to be made. For Special Factors, the allowance was the net cost to the municipality of expenditure approved under Commonwealth/State arrangements for natural disaster repair and restoration work.

Municipal Aerodromes 2.28. In its 1978 Report the Commission took the view that because the operation of municipal aerodromes imposes costs on some rural municipalities which most municipalities, especially those in metropolitan areas. do not have to meet. it was appropriate that the net cost of aerodromes be considered as a special factor. However concern was voiced by the Commission at the growing number of municipalities operating aerodromes which are not recognised by the Commonwealth Department of Transport under the local ownership arrangements. This suggested to the Commission that such aerodromes were mainly used by private aircraft and therefore the costs in relation to them should not be recognised as a special factor. 2.29. During the year an investigation of municipal aerodrome costs and usage was undertaken in an attempt to avoid the open-ended nature of the allowance. The aim was to derive a basis for the recognition of municipal costs in relation to the use of aerodromes for emergency and other official purposes. rather than on the total use which would include commercial and private flying for business and pleasure. As a result of these investigations, the Commission has decided to make allowances only for costs arising from the operation of municipal aerodromes recognised for cost-sharing by the Commonwealth Department of Transport under the local ownership arrangements. Allowances in the 1979-80 allocations were determined in relation to the proportion of emergency and other official use and an amount equivalent to 25 per cent of the Commonwealth grant for aerodrome costs was included where appropriate. Relating the allowance to the Commonwealth grant, rather than to net expenditure by a municipality, avoids penalising municipalities that make the effort to recover some of their costs. These allowances have been included with other allowances for extra costs arising from regional responsibilities and will no longer be identified as a special factor.

STANDARDS

Revenue Needs 2.30. As indicated earlier, revenue needs were assessed in relation to the mean of allowances for capacity to raise revenue calculated on the same basis as for previous years and of allowances calculated on a no-category, State-wide basis (using the number of assessed properties as the parameter and making separate calculations for the three main classes of property - residential property. commercia] and industrial property and rural and other property). For the latter calculations the standard values of rateable property per assessed property were the weighted mean of the values for the State as a whole for each property class. The standard rates for each property class were similarly the weighted means of rates derived from each property class in the State as a whole. (See Appendix IV for further details.) 21 Expenditure Needs and Disabilities 2.31. In its 1978 Report the Commission proposed changing the basis for deriving standard costs from net costs to gross costs, discounting the gross disability assessment so assessed for a function by the proportion that expenditure on that function by a municipality from its own resources bears to its total expenditure on that function from all sources. The approach is predicated on the basis that government programs of assistance have the general aim of setting standards of service and the incidence of such assistance is restricted by the availability of funds. Therefore it is reasonable to include expenditure from all sources when determining standard levels of expenditure; hence this approach is commonly referred to as the inclusion method. The discounting of the gross allowances described above ensures that needs and disability allowances are related to ratepayers' contributions to expenditures and avoids double­ counting in relation to government grants for particular services. This approach was adopted for all functions in determining the 1979-80 allocations. 2.32. In calculating allowances for expenditure needs and disabilities the Commission derived unit costs from the expenditure data supplied in the Return of Accounting and Genera/Information for the financial year ended 30 September 1978. Where practicable, a standard unit cost was then calculated for each of the sub­ functions listed above by taking the mean of the modal, or most commonly occurring, group of unit costs for the State as a whole. The following parameters were used: General Administration Growth and planning - average rate of population growth over past five years. Health Infants and mothers- proportion of population aged less than 5 years. Welfare Families and children - proportion of population aged less than 5 years. Aged and disabled - proportion of persons receiving pensions and supplements. Education Pre-schools - proportion of population aged less than 5 years. Housing and Community Amenities Household garbage- population density in excess of 5,000 persons per square kilometre. Recreation and Culture Other Recreation and Sport - proportion of population aged between 5 years and less than 35 years. Roads, Streets and Bridges Maintenance - length of sealed, formed and surfaced, formed only, unformed roads and lanes per assessment. Construction - main cost components such as earthworks, pavements and sealing: per kilometre; other components actual expenditure (land acquisition and fencing, relocation of services, drainage and erosion). Duplication Number of population centres. 2.33. For the most part, needs allowances were calculated on a per head basis. For example in relation to Health Services for Infants and Mothers. the proportion of persons under 5 years of age in a municipality was compared with the State average 22 proportion. If the proportion in the municipality was greater than the State average. a needs allowance would be made in relation to the above standard proportion. based on the standard per head cost for the State on services related to infants and mothers. 2.34. Expenditure needs allowances can be negative as well as positive in the same way as are revenue needs. For example, developing municipalities have a high proportion of their population in the younger age groups and generally a low proportion receiving pensions. Thus there would be positive needs allowances for functions related to the younger age groups and negative needs allowances for functions related to persons receiving pensions. 2.35. Expenditure disability allowances are made where the unit cost of a service is higher because of special difficulties associated with the provision of the service. In rural areas, for example, administration costs and costs of some services can be higher because of isolation and population sparsity. Road costs may be higher because of the type and intensity of traffic. the terrain and climatic conditions that prevail, availability of road-making materials, number of bridges and similar factors. Recognition is also given to the ethnic characteristics of the population in different areas, which can involve Councils in higher administration costs because of the need to communicate to ratepayers and residents in a number of languages. Library costs may also be higher because of the need to carry multi-lingual book stocks in areas with high concentrations of non-English-speaking people or to provide a larger range of large print books where the proportion of elderly in the population is high. Determining the Individual Allocations 2.36. The total expenditure allowance for a municipality is the sum of the needs and disabilities allowances for each of its functions. To this is added the allowance for revenue needs, bearing in mind that these can be positive or negative. as can be expenditure allowances for various functions. The total fiscal equalisation allowance for a municipality is then the sum of the two components- the revenue needs and the expenditure needs and disabilities. If budget constraints are ignored. the total sum for the 21 I municipalities in the State will exceed the amount available for distribution. Thus the next step in determining the actual allocation for each municipality is to relate its total assessment to the sum of the total assessments for the State and then to use that proportion to determine its share of the amount available. 2.37. The final step is to ensure that no municipality receives an allocation that is less than its share as-of-right. Where a municipality's allocation determined on fiscal equalisation principles falls short of the amount it would receive as-of-right. it is allocated the as-of-right amount. The amount remaining after the as-of-right criteria have been satisfied is then re-apportioned between the remaining municipalities in the proportion that each municipality's fiscal equalisation assessment bears to the total of the fiscal equalisation assessments for the remaining municipalities. 2.38. Technical details of the various methodologies used for calculating revenue and expenditure needs and disabilities are given in Appendix I V. The changes made this year to the method of calculating the various components that make up the assessments of fiscal needs for each municipality, and those foreshadowed for the future, are designed to enhance the equity and predictability of the allocations. As these changes take effect, along with other changes as a result of better data and a better understanding of the features of each municipality, there will be changes to the fiscal relativities between municipalities. This will affect the relative shares of the amount available for distribution each year. lt will be the Commission's endeavour to reduce these changes to a minimum so that in the longer term Councils will be able to predict with reasonable certainty, their municipality's share of the amount available for distribution. 2.39. The Commission would welcome comments and suggestions relevant to any of the matters outlined in this Report. 23 ACKNOWLEDGEMENTS

2.40. The Commission acknowledges the assistance of the Councils and their staff that were involved with the arrangements for the inspections organised for the Commission and expresses its appreciation for the use of facilities and for the many courtesies shown to its members and staff throughout the year. 2.41. The Commission especiaHy acknowledges the assistance of the Finance and Distribution Branch of the Victorian Office of Australian Bureau of Statistics, for their part in the design of the Commission's 1978 Statistical Return and for the detailed verification and collation of the data. Their efforts have contributed much to the high quality of the data available to the Commission. 2.42. We wish also to record our appreciation for the help that the staff of the Commission and the Department of Local Government have given us over the past year, particularly the Valuer-General's office. The processing of the voluminous data would not have been practicable without the co-operation of the Government Computing Service. This assistance is gratefully acknowledged.

24 APPENDIX I

VICTORIA GRANTS COMMISSION The Hon. D.G. Crozier, M.L.C., Minister for Local Government, 480 ·collins Street, MELBOURNE. VIC. 3000.

Determination of A /locations of General Revenue Assistance to Municipal Councils in 1979-80. We have pleasure in submitting to you the Determination of Allocations of general revenue grants to Municipal Councils in Victoria for the I 979-80 financial year. Victoria's share of general revenue grants for local government for 1979-80. being made available under the Commonwealth Local Government I Persona/Income Tax Sharing) Act 1976. is $56,435,540, an increase of 23.58 per cent over the State's share for 1978-79. The increase in local government's share of personal income tax collections from 1.52 per cent to 1.75 per cent accounts for the greater part of this increase. The total amount has been distributed among the 211 municipalities in the State in accordance with the bases laid down in section 12 of the Victoria Grams Commission Act 1976. In determining the grant for each municipality. the Commission has followed broad equalisation principles; it has considered the special needs and disabilities of each municipality and the effort made to function effectively and provide reasonable services. We have also had regard to special factors. such as natural disasters. which affected the expenditures of individual municipalities in the 1977-78 financial year. Because of the effect that allowances for special factors has on comparisons between municipalities, we have attached a table showing the amount of such allowances included in the 1978-79 allocations and in the allocations now determined for 1979-80. In the allocations for 1979-80 the grant determined for each municipality is no less than its entitlement as-of-right. This entitlement has been calculated on the basis of 40 per cent of the total amount for the State, allocated on the basis of: Population ...... 85 per cent Area ...... 15 per cent We see no need to alter this basis, which has applied since the State became responsible for the distribution. During the year, inspections were undertaken of sixty-three municipalities throughout the State in order to extend the knowledge of Members of the Commission of the municipalities and to provide the opportunity for discussion with the respective Councils and their officers about the Commission's work. The Commission anticipates visiting each municipality in the State about once every three years. The Commission this year reviewed a number of its principles and methodologies, with a view to extending the use of objective measures of fiscal need and reducing the heavy reliance on the judgment of its members. The major change relates to the weighting of per head values by values per assessed property for measuring capacity to raise revenue, the latter values being calculated along the lines set out in paper circulated to all Councils and which received the concurrence of the overwhelming majority of those who chose to comment. We believe that this and other changes which will be commented upon in our Annual Report to you have substantially enhanced the equity of the allocations.

25 We wish to express our appreciation to municipalities and government departments for the assistance given to the Commission in the performance of its statutory responsibilities. We also acknowledge the assistance of the Victorian Public Service E.D.P. Centre for programming and processing the Commission's data. We also wish to acknowledge especially the assistance of the officers of the Finance and Distribution Branch of the Victorian Office of Australian Bureau of Statistics, for their part in the design of the Commission's 1978 Statistical Return and for the detailed verification and collation of the data. Their efforts have contributed much to the high quality of the data available to the Commission which has permitted a more thorough ex.amination of the fiscal needs of municipalities throughout the State than has been possible hitherto.

D.V. MOYE, Chairman. F.S. BALES, Member. S.L. COOPER, Member. F.M. THOMAS, Acting Secretary 31 August, 1979

26 APPENDIX I. ·continued VICTORIA GRANTS COMMISSION DETERMINATION OF ALLOCATIONS OF GENERAL REVENUE GRANTS TO MUNICIPAL COUNCILS IN VICTORIA- 1979-80 FINANCIAL YEAR

Municipality $ Municipality $

Alberton (S) ...... 260,000 Colac (S) ...... 214.000 Alexandra (S) ...... 152,000 Collingwood (C) ...... 300.000 Altona (C) ...... 380,000 Corio (S) ...... 620.000 Arapiles (S) ...... 60,000 Cranbourne (S) ...... 350.000 Ararat (C) ...... 230,000 Creswick (S) ...... 116.000 Ararat (S) ...... 225,000 Croydon (C) ...... 455,000 Avoca (S) ...... 111,000 Dandenong (C) ...... 620.000 Avon (S) ...... 131,000 Daylesford &. Glenlyon (S) .... 165,000 Bacchus Marsh (S) ...... 128,000 Deakin (S) ...... 314,000 (T) ...... 244,000 Diamond Valley (S) ...... 605.000 Bairnsdale (S) ...... 165,000 Dimboola (S) ...... 180.000 Ballaarat (C) ...... 666,000 Donald (S) ...... 86.000 Ball an (S) ...... 62,000 Doncaster &. Templestowe (C) . 710.000 Ballarat (S) ...... 400,000 Dundas (S) ...... 137,000 Bannockburn (S) ...... 67,000 Dunmunkle (S) ...... 134,000 Barrabool (S) ...... 69,000 Eaglehawk (B) ...... 151.000 Bass (S) ...... 133,000 East Loddon (S) ...... 107,000 Beechworth (S) ...... 155,000 Echuca (C) ...... 196.000 Belfast (S) ...... 88,000 Eltham (S) ...... 410.000 Bellarine (S) ...... 430,000 Essendon (C) ...... 542.000 Benalla (C) ...... 196,000 Euroa (S) ...... 119,000 Benalla (S) ...... 56,000 Fitzroy (C) ...... 385.000 (C) ...... 610,000 Flinders (S) ...... 265.000 Berwick (C) ...... 448,000 Footscray (C) ...... 820,000 Bet Bet (S) ...... 82,000 Frankston (C) ...... 720,000 Birchip (S) ...... 75,000 Geelong (C) ...... 273.000 Box Hill (C) ...... 410,000 Geelong West (C) ...... 189,000 Bright (S) ...... 185,000 Gisborne (S) ...... 105,000 Brighton (C) ...... 230,000 Glenelg (S) ...... 190,000 Broad ford (S) ...... 55,000 Gordon (S) ...... 141.000 Broad meadows (C) ...... I ,280,000 Goulburn (S) ...... 68,000 Brunswick (C) ...... 515,000 Grenville (S) ...... 103.000 Bulla (S) ...... 220,000 Hamilton (C) ...... 240,000 Buln Buln (S) ...... 255,000 Hampden (S) ...... 215,000 Bungaree (S) ...... 98,000 Hastings (S) ...... 112.000 Buninyong (S) ...... 206,000 Hawthorn (C) ...... 208,000 Camberwell (C) ...... 555,000 Healesville (S) ...... 208,000 Camperdown (T) ...... 93,000 Heidelberg (C) ...... 670,000 Castlemaine (C) ...... 236,000 Heytesbury (S) ...... 340,000 Caul field (C) ...... 503,000 Horsham (C) ...... 312.000 Charlton (S) ...... 65,000 Huntly (S) ...... 80.000 Chelsea (C) ...... 415,000 Kaniva (S) ...... 114.000 Chiltern (S) ...... 41,000 Kara Kara (S) ...... 42,000 Cobram (S) ...... 212,000 Karkarooc (S) ...... 217,000 Coburg (C) ...... 650,000 Keilor (C) ...... 968.000 Cohuna (S) ...... 148,000 (B) ...... 104,000 Colac (C) ...... 203,000 Kerang (S) ...... 216.000 27 APPENDIX I.- continued

M unicipa/ity $ Municipality $

Kew (C) ...... 195,000 Portland (T) ...... 245,000 Kilmore (S) ...... 90,000 Portland (S) ...... 258,000 Knox (C) ...... 835,000 Port Melbourne (C) ...... 136,000 Koroit (B) ...... 38,000 Prahran (C) ...... 400,000 Korong (S) ...... 178,000 Preston (C) ...... 732,000 Korumburra (S) ...... 250,000 Pyalong (S) ...... 17,000 Kowree (S) ...... 153,000 Queenscliffe (B) ...... 56,000 Kyabram (T) ...... 133,000 Richmond (C) ...... 275,000 Kyneton (S) ...... 183,000 Ringwood (C) ...... 360,000 Leigh (S) ...... 61,000 Ripon (S) ...... 102,000 Lex ton (S) ...... 35,000 Roe hest er (S) ...... 325,000 Lillydale (S) ...... 615,000 Rodney (S) ...... 355,540 Lowan (S) ...... 121,000 Romsey (S) ...... 82,000 Mclvor (S) ...... 61,000 Rosedale (S) ...... 111,000 Maffra (S) ...... 248,000 Rutherglen (S) ...... 93,000 Maldon (S) ...... 70,000 St. Arnaud (T) ...... 96,000 Malvern (C) ...... 305,000 St. Kilda (C) ...... 485,000 Mansfield (S) ...... 176,000 Sale (C) ...... 351,000 M arong (S) ...... 200,000 Sandringham (C) ...... 253,000 Maryborough (C) ...... 195,000 Sebastopol (B) ...... 154,000 Melbourne (C) ...... 1,012,000 Seymour (S) ...... 244,000 Me1ton (S) ...... 265,000 Shepparton (C) ...... 406,000 Metcalfe (S) ...... 60,000 Shepparton (S) ...... 276,000 Mildura (C) ...... 332,000 Sherbrooke (S) ...... 470,000 Mildura (S) ...... 480,000 South Barwon (C) ...... 450,000 Minhamite (S) ...... 127,000 South (S) ...... 192,000 Mirboo (S) ...... 69,000 South Melbourne (C) ...... 202,000 Moe (C) ...... 381,000 Springvale (C) ...... 675,000 Moorabbin (C) ...... 545,000 Stawell (T) ...... 181,000 Mordialloc (C) ...... 255,000 Stawell (S) ...... 115,000 Mornington (S) ...... 190,000 Strathfieldsaye (S) ...... 178,000 Mortlake (S) ...... 110,000 Sunshine (C) ...... 1,185,000 Morwell (S) ...... 565,000 Swan Hill (C) ...... 191,000 Mount Rouse (S) ...... 68,000 Swan Hill (S) ...... 418,000 Myrtleford (S) ...... 148,000 Talbot & Clunes (S) ...... 78,000 Narracan (S) ...... 292,000 Tallangatta (S) ...... 195,000 Nathalia (S) ...... 146,000 Tambo (S) ...... 258,000 Newham & Woodend (S) ...... 82,000 Traralgon (C) ...... 387,000 Newstead (S) ...... 55,000 Traralgon (S) ...... 25,000 Newtown (C) ...... 112,000 Tullaroop (S) ...... 50,000 Northcote (C) ...... 678,000 Tungamah (S) ...... 128,000 Numurkah (S) ...... 233,000 Upper Murray (S) ...... 133,000 Nunawading (C) ...... 655,000 Upper Yarra (S) ...... 170,000 Oakleigh (C) ...... 512,000 Violet Town (S) ...... 48,000 Omeo (S) ...... 137,000 Walpeup (S) ...... 184,000 Orbost (S) ...... 263,000 Wangaratta (C) ...... 162,000 Otway (S) ...... 239,000 W angarattta (S) ...... 53,000 Oxley (S) ...... 173,000 Wan non (S) ...... 162,000 Pakenham (S) ...... 300,000 Waranga (S) ...... 230,000 Phillip Island (S) ...... 130,000 Warracknabeal (S) ...... 99,000 Port Fairy (B) ...... 71,000 Warragul (S) ...... 185,000 28 APPENDIX I.- continued

Municipality

Warrnambool (C) ...... 462,000 W arrnambool (S) ...... 235,000 Waverley (C) ...... 765,000 Werribee (S) ...... 595,000 Whittlesea (S) ...... 520,000 Williamstown (C) ...... 475,000 Wimmera (S) ...... 140,000 Winchelsea (S) ...... 156,000 Wodonga (C) ...... 405,000 Wonthaggi (B) ...... 160,000 W oorayl (S) ...... 284,000 Wycheproof (S) ...... 226,000 Yackandandah (S) ...... 110,000 Yarrawonga (S) ...... 132,000 Yea (S) ...... 93,000

TOTAL ...... 56,435,540

D.V. MOVE. Chairman

F.S. BALES, Member

S.L COOPER. Member

29 APPENDIX I.- continued

VICTORIA GRANTS COMMISSION GENERAL REVENUE GRANTS TO MUNICIPALITIES IN VICTORIA

AMOUNTS INCLUDED IN ALLOCATIONS FOR SPECIAL FACTORS 1978-79 AND 1979-80

The Commission has made altowances for the cost of special factors for a number of municipalities. These mainly relate to the net cost of repairing and restoring municipal assets damaged as a result of natural disasters, where such costs are recognised under intergovernment natural disaster assistance arrangements. Costs arising from the operation of municipal aerodromes under the local ownership arrangements have been included in a.llowances made for regional services and will no longer be treated as special factors. These special allowances apply for the year in question only. Therefore in making comparisons of allocations between municipalities, or of individual municipalities from year to year, the relevant amounts shown below should be deducted from the allocations for the respective municipalities.

Amount Included for Special Factors Municipality $000 $000 Natural Disasters Natural Disasters 1978-1979 1979-1980 Alberton Shire ...... I 25 Ararat Shire ...... 6 2 A voca Shire ...... l 1 Avon Shire ...... Nil 3 Bacchus Marsh Shire ...... 2 Nil Bairnsdale Town ...... Nil 5 Bairnsdale Shire ...... Nil 17 Barrabool Shire Nil 4 Beechworth Shire ...... 3 Nil Bulla Shire ...... 3 Nil Buln Buln Shire ...... 15 Nil Cohuna Shire ...... 2 Nil Colac Shire ...... 4 6 Creswick Shire ...... 7 Nil Diamond Valley Shire 2 Nil Donald Shire ...... 4 Nil Dunmunkle Shire ...... 3 Nil East Loddon Shire ...... 5 6 Gordon Shire ...... 13 9 Hampden Shire ...... 3 Nil Kara Kara Shire ...... 3 1 Kerang Borough ...... I Nil Kerang Shire ...... 12 Nil Kilmore Shire ...... 1 Nil Korong Shire ...... 4 2 Kyneton Shire ...... 1 Nil Leigh Shire ...... 1 Nil Mclvor Shire ...... 2 1 Maffra Shire ...... Nil 8 Mansfield Shire ...... Nil I 30 APPENDIX I. (ottrittu«<

Amount Included for Special Factors Municipality sooo sooo Natural Disasters Natural Disasters 1978-1979 1979-1980 Metc::alfe Shire ...... I Nil Minhamite Shire ...... 2 I

Mirboo Shire ...... ~ ...... Nil 4 Mortlake Shire ...... 3 Nil Morwell Shire ...... Nil 25 Mount Rouse Shire ...... 2 Nil Myrtleford Shire ...... 2 Nil Nathalia Shire ...... 6 Nil Newstead Shire ...... I Nil Numurkah Shire ...... s Nil Omeo Shire ...... Nil 19 Otway Shire ...... Nil 23 Orbost Shire ...... 2 Nil Oxley Shire ...... Nil I Portland Town ...... 6 Nil Portland Shire 8 Nil Pyalong Shire ...... 2 5 Rodncy Shire ...... 3 0.54 Romsey Shire ...... 2 Nil Rosedale Shire 2 31 Seymour Shire ...... 9 4 ...... Nil s Stawell Shire ...... 6 I Sunshine City ...... I Nil Swan Hill Ctty ...... I Nil Swan Hill Shire ...... 3 3 Tambo Shire ...... Nil 25 Traralgon City ...... Nil 9 Traralgon Shire ...... I Nil Wangaratta Shire ...... I Nil Werribee Shire ...... 2 Nil Winc::helsea Shire ...... Nil 3 W oorayl Shire ...... 10 12

31 APPENDIX 11. MUNICIPALITIES INSPECTED 1978-79 Date Municipality 1978 14 November ...... City ofHorsham 15 November ...... ShireofWimmera 16 November ...... 21 November ...... 22 November ...... 23 November ...... Shire ofGordon 28 November ...... City of South Melbourne 29 November ...... City of Met bourn~ 11 December ...... City ofGeelong 12 December ...... Shire ofBarrabool 13 December ...... City ofNewtown 14 December ...... City ofGeelong West 1979 6 February ...... 7 February ...... 8 February ...... 13 February ...... City of Caul field 14 February ...... City of Prahran 15 February ...... City of Kew 27 February ...... City of Preston 28 February ...... City of Richmond I March ...... City of Fitzroy 6 March ...... Shire ofTallangatta 7 March ...... 8 March ...... 13 March ...... Shire of Melt on 14 March ...... City of Keilor 15 March ...... City of Essendon 27 March ...... City of Moorabbin 28 March ...... City ofNunawading 29 March ...... City ofWaverley 2 April ...... Town of Bairnsdale 3 April ...... 4 April ...... 5 April ...... 10 April ...... City ofShepparton 11 April ...... 12 April ...... 24 April ...... Shire of Lillydale 26 April ...... City of Doncaster and Templestowe I May ...... City ofWodonga 2 May ...... 3 May ...... Shire ofWangaratta 7 May ...... Town ofCamperdown 8 May ...... 9 May ...... City of Hamilton 10 May ...... City ofWarrnambool 15 May ...... 16 May ...... Shire ofStrathfieldsaye 17 May ...... 32 APPENDIX 11. -continued

Date Municipality 22 May ...... 23 May ...... Shire ofWarragul 24 May ...... Shire of Buln Buln 29 May ...... 30 May ...... 31 May ...... Shire of Lexton 5 June ...... Shire of Healesville 6 June ...... City ofSpringvale 12June ...... CityofTraralgon 13 June ...... Shire ofTraralgon 14 June ...... Shire of Morwell 26 June ...... 27 June ...... Shire ofColac 28 June ...... City ofColac

33 APPENDIX Ill REVISED CATEGORIES OF MUNICIPALITIES CATEGORY I (42 Councils) Altona City Dandenong City Knox City Preston City Box Hill City Diamond Valley Shire Malvern City Richmond City Brighton City Doncaster & Templestowe City Melbourne City Ringwood City Broadmeadows City Essendon City Moorabbin City St. Kilda City Brunswick City Fitzroy City Mordialloc City Sandringham City Camberwell City Footscray City Northcote City South Melbourne City Caulfield City Frankston City Nunawading City Springvale City Chelsea City Hawthorn City Oakleigh City Sunshine City Coburg City Heidelberg City Port Melbourne City Waverley City Collingwood City Keilor City Prahran City Williamstown City Croydon City Kew City

CATEGORY 2 (34 Councils) Ararat City Echuca City Moe City Shepparton City Bairnsdale Town Geelong City Newtown City Stawell Town Ballaarat City Geelong West City Port Fairy Borough Swan Hill City Benalla City Hamilton City Portland Town Traralgon City Bendigo City Horsham City Queenscliffe Borough W angaratta City Camperdown Town Kerang Borough St. Arnaud Town Warrnambool City Castlemaine City Kyabram Town Sale City Wodonga City Colac City Maryborough City Sebastopol Borough Wonthaggi Borough Eaglehawk Borough Mildura City

CATEGORY 3 (23 Councils) Ballarat Shire Eltham Shire M ornington Shire South Barwon City Bellarine Shire Flinders Shire Morwell Shire Strathfieldsaye Shire Berwick City Hastings Shire Pakenham Shire Warragul Shire Bulla Shire Lillydale Shire Rodney Shire Werribee Shire Corio Shire Melton Shire Seymour Shire Whittlesea Shire Cranbourne Shire Mildura Shire Sherbrooke Shire

CATEGORY 4 012 Councils) Alberton Shire Bet Bet Shire Dimboola Shire Kaniva Shire Alexandra Shire Birchip Shire Donald Shire Kara Kara Shire Arapiles Shire Bright Shire Dundas Shire Karkarooc Shire Ararat Shire Broadford Shire Dunmunkle Shire Kerang Shire Avoca Shire Buln Buln Shire East Loddon Shire Kilmore Shire Avon Shire Bungaree Shire Euroa Shire Koroit Borough Bacchus Marsh Shire Buninyong Shire Gisbome Shire Korong Shire Bairnsdale Shire Charlton Shire Glenelg Shire Koromburra Shire Ballan Shire Chiltern Shire Gordon Shire Kowree Shire Bannockburn Shire Cobram Shire Goulburn Shire Kyneton Shire Barrabool Shire Cohuna Shire Grenville Shire Leigh Shire Bass Shire Colac Shire Hampden Shire Lexton Shire Beechworth Shire Creswick Shire Healesville Shire Lowan Shire Belfast Shire Daylesford & Glenlyon Shire Heytesbury Shire Mclvor Shire Benalla Shire Deakin Shire Huntly Shire Maffra Shire

34 APPENDIX Ill.- COnfiiiUl'd

CATEGORY 4 (112 Councils)

Maldon Shire Numurkah Shire Shepparton Shire W alpeup Shire Mansfield Shire Omeo Shire South Gippsland Shire W angaratta Shire Marong Shire Orbost Shire Stawell Shire W ann on Shire Metcalf Shire Otway Shire Swan Hill Shire Waranga Shire Minhamite Shire Oxley Shire Talbot & Clunes Shire Warracknabeal Shire Mirboo Shire Phillip Island Shire Tallangatta Shire Warrnambool Shire Mortlake Shire Portland Shire Tambo Shire Wimmera Shire Mount Rouse Shire Pyalong Shire Traralgon Shire Winchelsea Shire Myrtleford Shire Ripon Shire Tullaroop Shire Woorayl Shire Narracan Shire Rochester Shire Tungamah Shire Wycheproof Shire Nathalia Shire Romsey Shire Upper Murray Shire Yackandandah Shire Newham & Woodend Shire Rosedale Shire Upper Yarra Shire Y arrawonga Shire Newstead Shire Rutherglen Shire Violet Town Shire Yea Shire

35 APPENDIX IV FORMULAE GENERAL FORMULA

Tc) + Es · ~ Where G = grant c = relevant municipality (claimant) = standard p = population, or other parameter as may be relevant t = rate in $ (tax rate) T = revenue base {value of rateable property) per head, or per other parameter as may be relevant E = expenditure g = needs or disability factor applicable to the relevant municipality's cost of providing services This formula combines allowances for differences in capacity to raise revenue with allowances for differences in costs of services.

REVENUE COMPONENT {R) Re = Pc · ts (T, - Tc) Where t, = standard tax rate T, = standard value of rateable property per head or per assessment Tc = individual municipality's value of rateable property per head or per assessment This is the basic formula used by the Commission. As noted in the body of the Report the Commission used the simple mean of a calculation using population as the parameter and a second calculation using number of assessments, to calculate each munic­ ipality's revenue component. The basic formula remains unchanged regardless of the parameter used, only the definition of the variables alters. Where population was used, Ts was the weighted average of the top 25 per cent of municipalities in each category derived as follows: Ts = total value of rateable property of top 25 per cent ; and total population of top 25 per cent total rates collected by top 25 per cent ts = total value of rateable property of top 25 per cent The "top 25 per cent" is obtained by ranking municipalities in order of value of rateable property per head. Where the number of properties or rateable assessments was used, total value of all rateable property in the State . d Ts = total number of properties (or assessments) in the State 'an total rates collected from all property in the State ts = total value of all rateable property in the State The use of property classified by two types residential and other - so that adjustments for differences in capacity to raise revenue can be weighted for the contribution of each of the two property types is accommodated in the formula in the following way: 36 Residential (r) T _ total value of all residential property in the State sr - total number of residential properties in the State tsr = total rates collected from all residential property in the State total value of all rateable property in the State Similarly for 'Other Property' (0), substituting the relevant 'Other Property' figures for the residential property figures. The total allowance for revenue-raising capacity for each municipality is the sum of the allowances calculated for each of the two property classes for each municipality. To make allowances for the contribution that each class of property makes to the rate base for each municipality, it is necessary to weight the calculation for each munici­ pality accordingly. This can be accomplished by adjusting the property numbers for each municipality according to the standard distribution. The standard distribution of the classes of property is obtained by dividing the number of properties for each type of property in the State by the total number of all properties in the State, viz: ~ residential pro~erties (=RES) + ~ other prope~ties (=OTH) ~ all properties ~ all properties i.e. RES + OTH = I The standard distribution is then applied to the total number of properties in each local authority to obtain a standardised property distribution for each authority. Adjusted values per property for each class of property are then obtained for each local authority by dividing the standardised property class number into the actual value for that class of property in the local authority. In terms of the basic formula, for each property class calculation, the relevant figure as derived would enter the equation as Tc.

Adjusted property numbers for ith municipality

= ~ property numbers .RES + ~; property numbers .OTH Then,

~·1 value of residential properties ~r= ;and ~; property numbers .RES

T _ ~i value of other properties eo - ~i property numbers .OTH and Re = ~i property numbers .RES. tsr (Tsr - Tcr) + ~i property numbers .OTH. tso (Tso Tco) = ~i property numbers [RES. tsr (Tsr - Tcr) + OTH. tso (T90

EXPENDITURE COMPONENT (E) Ec=Es·g., This may be expanded to meet the requirements for the various expenditure functions. Some examples follow: ROADS. This year number of assessments was used as the parameter for assessing road needs (i.e. comparing the length of road per assessment against the standard length per assessment) The formula is:

37 Where Ac = municipality's number of assessments Cs = standard cost per kilometre

-;;c-K111c = .mumctpa . . l"t 1 y ' s Iengt h o f roa d per assessment Kms ~ = standard length of road per assessment

Road cost disabilities are calculated by the formula: K111c · C. · g., Where K111c = municipality's road length in kilometres Cs standard cost per kilometre g., muncipality's cost disability factor The full allowance for road needs and disabilities is the sum of the two calculations. However, in order to establish the impact on the ratepayer (as some part of roads expenditure is already being met by government grants) a discount factor is applied, the discount factor being the proportion that the municipality's expenditure from its own resources bears to its total expenditure on roads. The final formula is therefore:

GRc = [ Ac · C. ( ~ ~) + Kl11c · C. · g., JD Where GRc = municipality's grant for road needs and disabilities D discount factor The standard cost per assessment may vary according to whether the road is sealed or unsealed. In this situation separate calculations are made for needs and for disabilities by breaking each municipality's road length into length of sealed road and length of unsealed road and using the appropriate unit costs for each in the above formula. HEALTH AND WELFARE. As for Roads, calculations can be ml!lie to assess needs and disabilities related to particular Health and Welfare functions. For example, for services to the pensionable group, the formula is:

GAc = [Pc · C(A)s ( ~ ~) + Pc · C(A)s · g., JD Where GAc allowance for expenditure needs and disabilities in relation to services for the pensionable group Pc = municipality's population C(A)s = standard cost of services for pensionable group per head Ac = proportion of persons in municipality receiving pensions and supplements

:; standard proportion of pensionable group (e.g. State average proportion)

D = discount factor Similarly, calculations can be made for needs and disabilities in relation to any function where a demographic characteristic is an appropriate parameter by substituting the relevant characteristic for A, the pensionable group. In other areas of local government expenditure, where needs are not a factor, the calculations are simply related to cost disabilities and are based on the general formula: Gc=(Es·g.,)o

38 Where Gc = allowance for the function Es = standard cost of the function ~ = disability factor for the municipality D = discount factor This generally applies to specific services such as garbage, traffic control. street lighting, drainage and the like. It is to be noted that the change in the basis for deriving standard costs from net to gross costs requires a discount factor, equal to the proportion that the municipality's expenditure on a function from its own resources bears to total expenditure on that function, to be applied to all expenditure functions.

DISABILITY FACTORS If a municipality's expenditure on a function reflected no other factor than its cost of providing the function at a level which was no different from the level of service normally provided in other municipalities (i.e. the lel 1el of sen·ice was standard) then its disability factor could be derived simply by:

- ~ ~-Es-1

Where ~ = disability factor Ec = municipality's expenditure per unit on the function Es = standard expenditure per unit on the function

(subtracting 1 from Ec reduces the factor to a fraction). Es However, a municipality's expenditure on a function might reflect factors other than cost disabilities, such as priorities set by the Council which may differ from those set by other Councils, or the level of efficiency in providing the function. Neither of these factors should be allowed to influence the size of a grant to a municipality. For this reason. the fixing of disability factors for each municipality is largely a matter of judgment. based on the evidence submitted to the Conunission and its knowledge of the circumstances of each municipality.

39 APPENDIX V DISTRIBUTION OF RATEABLE PROPERTY, RATE INCOME, RATING AND POPULATION 1975-76 to 1977-78 I. The values of rateable property have been derived from Valuer General estimates of rateable property at the beginning of the local government financial year­ I October. In this respect they differ from the figures used by the Commonwealth Grants Commission which were those applying at the end of the financial year. 2. Statistics for rate income were derived from the "Return of Accounting and General Information" for the relevant financial year. 3. Population figures have been derived from the revised annual estimates of population published by the Australian Bureau of Statistics in Catalogue Number 3201.2, dated 30 May 1979. These are revised inter-censal estimates of population, based on the results of the 1976 Census. 4. Due to changes in the categorisation of municipalities the figures presented below differ from the corresponding figures appearing in the 1978 Report. 5. Minor discrepancies between figures may occur in some instances due to rounding.

Rateable Property Rate Income Year N.A.V. I Implied Population (I October- Rate in$ at 30 September) (cents) 30June $m $per head $m $per head

METROPOLITAN MUNICIPALITIES

1975-76 ...... 1800.0 769.49 164.9 70.41 9.2 2,339,200 1976-77 ...... 2250.1 963.10 178.6 76.43 7.9 2,336,300 1977-78 ...... 2334.0 999.76 197.8 84.73 8.5 2,334,500

I -·····

PROVINCIAL CITIES AND TowNs

1975-76 ...... 156.1 396.34 24.3 61.60 15.5 393,750 1976-77 ...... 235.9 594.68 26.8 67.60 11.4 396,630 1977-78 ...... 272.3 681.16 29.4 73.57 10.8 399,760

40 ALL OTHER MUNICIPALITIES

1975-76 ...... 698.7 692.23 80.0 79.30 11.5 1.009.400 1976-77 ...... 1011.5 966.86 88.4 84.53 8.7 1.046.200 1977-78 ...... 1155.5 1068.47 101.7 94.03 8.8 1.081.410

TOTAL FOR STATE

1975-76 ...... 2654.8 709.39 269.2 71.92 10.1 3.742.350 1976-77 ...... 3497.5 925.48 293.8 77.75 8.4 3.779.130 1977-78 ·...... 3761.7 985.86 328.9 86.20 8.7 3.815.670

NOTE: Statistics relating to the functional distribution of municipal e~penditure ha\·e this year been excluded from the Commission's Report. These statistics will appear in more detail in the Australian Bureau of Statistics local government bulletins.

41

F. D. Atkinson, Government Printer, Melbourne