PARLIAMENT OF VICTORIA Environment, Natural Resources and Regional Development Committee Inquiry into the sustainability and operational challenges of Victoria’s rural and regional councils Final Report Parliament of Victoria Environment, Natural Resources and Regional Development Committee Ordered to be published VICTORIAN GOVERNMENT PRINTER March 2018 PP No 375, Session 2014‑18 ISBN 978 1 925703 30 6 (print version) 978 1 925703 31 3 (PDF version) Committee functions The Environment, Natural Resources and Regional Development Committee is constituted under section 10 of the Parliamentary Committees Act 2003. The Committee’s functions are to inquire into, consider and report to the Parliament on any proposal, matter or thing concerned with: a. the environment b. natural resources c. planning the use, development or protection of land d. the provision of services to rural and regional Victoria e. the development of rural and regional Victoria. ii Environment, Natural Resources and Regional Development Committee Committee membership Mr Josh Bull MP Mr Simon Ramsay MLC Chair (from 23 March 2017) Deputy Chair (from 23 March 2017) Member from 21 March 2017 Western Victoria Sunbury Ms Bronwyn Halfpenny MP Mr Luke O’Sullivan MLC Mr Tim Richardson MP Chair (until 23 March 2017) Member from 22 March 2017 Mordialloc Thomastown Northern Victoria Mr Richard Riordan MP Mr Daniel Young MLC Member from 21 March 2017 Northern Victoria Polwarth Former members Mr Brad Battin MP Mr Tim McCurdy MP Mr Bill Tilley MP Member until 27 May 2015 Deputy Chair (until 20 March 2017) Member from 28 May 2015 until Gembrook Member until 20 March 2017 21 March 2017 Ovens Valley Benambra Ms Vicki Ward MP Member until 21 March 2017 Eltham Inquiry into the sustainability and operational challenges of Victoria’s rural and regional councils — Final Report iii Committee secretariat Staff Dr Christopher Gribbin, Executive Officer Ms Annemarie Burt, Research Officer Ms Sarah Catherall, Administrative Officer Mr Kieran Crowe, Administrative Officer Committee contact details Address Environment, Natural Resources and Regional Development Committee Parliament of Victoria, Spring Street EAST MELBOURNE, VIC 3002 Phone 61 3 8682 2803 Email [email protected] Web www.parliament.vic.gov.au/enrrdc This report is available on the Committee’s website. iv Environment, Natural Resources and Regional Development Committee Contents Preliminaries Committee functions ii Committee membership iii Committee secretariat iv Terms of reference ix Chair’s foreword xi Executive summary xiii Findings xvii Recommendations xxi 1 Introduction 1 1.1 Background to the inquiry 1 1.2 The diversity of regional Victoria 3 1.3 An ongoing problem 5 1.4 The Committee’s approach 7 1.5 Structure of the report 8 2 Building a sustainable local government sector for regional Victoria 9 2.1 Overview 9 2.2 A new funding model 10 2.2.1 Reduce councils’ dependence on rates 10 2.2.2 Changes to grants 12 2.3 Reviewing council responsibilities 14 2.4 A more efficient local government sector 15 2.4.1 Supporting councils to find efficiencies, share services and share resources 15 2.4.2 Growing the population of regional Victoria 16 2.5 Managing community expectations 17 2.5.1 Improving the understanding of what councils do and how much it costs 18 2.5.2 Communicating what is a core expenditure and what is discretionary 18 3 Challenges specific to regional councils 21 3.1 Overview 21 3.2 Demographics 22 3.2.1 Population 22 3.2.2 Age structure 26 3.2.3 Socio‑economic disadvantage 29 3.3 Physical factors 31 3.3.1 Population spread 33 3.3.2 Remoteness 34 Inquiry into the sustainability and operational challenges of Victoria’s rural and regional councils — Final Report v Contents 3.3.3 Population density 36 3.3.4 Population diversity 38 3.3.5 Large asset base 38 3.4 Location factors 43 3.4.1 Market failures 43 3.4.2 Tourism drains 44 3.4.3 Difficulty attracting staff 45 3.5 Raising revenue 45 3.5.1 Capacity to pay 46 3.5.2 Own‑sourced revenue options 47 3.6 Impact of these challenges on sustainability 48 4 The growth of local government expenditure 49 4.1 Overview 49 4.2 Increasing responsibilities 50 4.2.1 Additional responsibilities given to councils by other levels of government 51 4.2.2 Increasing compliance and reporting requirements 57 4.2.3 Changing regulation 59 4.2.4 Council decisions to take on new responsibilities 60 4.2.5 Increasing demand from the community 61 4.3 Senior management salaries and council inefficiencies 63 4.3.1 Senior management salaries and numbers 63 4.3.2 Poor decisions by councils 65 4.4 Defined benefits superannuation scheme calls 66 4.5 Catching up on the infrastructure backlog 67 4.6 Quantifying the impact of these pressures 68 4.7 Clarifying council responsibilities 68 4.8 Building council skills 71 5 Council funding has been changing 73 5.1 Overview 73 5.2 Revenue sources for local government 74 5.2.1 Regional councils’ dependence on grants 75 5.3 Financial Assistance Grants 76 5.3.1 The Financial Assistance Grants freeze 76 5.3.2 The distribution of Financial Assistance Grants 78 5.4 Changes to other grants 80 5.4.1 Cost shifting 83 5.5 Challenges with competitive grants 85 5.5.1 The need for processes that recognise the limitations of rural councils 86 5.6 Difficulties with the indexation of fees 88 5.7 Changes to revenue from rates and charges 89 5.7.1 Rate capping 91 vi Environment, Natural Resources and Regional Development Committee Contents 6 The current rating system 97 6.1 Overview 97 6.2 Victoria’s current rating system 97 6.2.1 Benefits of the rating system 98 6.2.2 Community understanding of the rating system 99 6.3 Inequities in the rating system 101 6.3.1 Property values do not reflect capacity to pay 101 6.3.2 Inequality in rates bills between local councils 104 6.3.3 Consequences of property revaluations for ratepayers 106 6.4 The use of differential rates 108 6.4.1 Farmers 109 6.4.2 Retirement village residents 112 6.5 Changes to the rating system 113 7 Responding to the challenges 119 7.1 Overview 119 7.2 Finding efficiencies 120 7.2.1 Sharing services and resources 121 7.3 Changes to services 125 7.3.1 Reviewing council services 125 7.3.2 The importance of community consultation 128 7.3.3 Passing responsibilities to other levels of government 129 7.3.4 Consequences of service reduction 129 7.4 Reviewing staff structures 133 7.4.1 Reducing staff numbers 133 7.4.2 Reviewing staff wages 134 7.5 Insufficient infrastructure investment 135 7.5.1 Councils’ changing approach to infrastructure investment 136 7.5.2 Resulting asset deterioration 137 7.6 Increasing user charges 138 7.7 Increasing debt 140 7.8 Amalgamations 141 7.9 Growing the population 145 7.10 Conclusion 146 Appendices 1 Inquiry process 149 2 Local council categories 155 Inquiry into the sustainability and operational challenges of Victoria’s rural and regional councils — Final Report vii Terms of reference Inquiry into the sustainability and operational challenges of Victoria’s rural and regional councils Received from the Legislative Council on 6 May 2015: To the Environment, Natural Resources and Regional Development Committee to inquire into, consider and report, no later than 31 March 2016*, on the sustainability and operational challenges of Victoria’s rural and regional councils, including but not limited to the following — (a) local government funding and budgetary pressures; (b) fairness, equity and adequacy of rating systems; (c) impact of rate‑capping policies; (d) capacity for rural and regional councils to meet responsibilities for flood planning and preparation, and maintenance of flood mitigation infrastructure; (e) maintenance of local road and bridge networks; and (f) weed and pest animal control. * The reporting date was extended to 30 March 2018. Inquiry into the sustainability and operational challenges of Victoria’s rural and regional councils — Final Report ix Chair’s foreword Victoria’s rural and regional councils provide critical support to their local communities and maintain vital local infrastructure. They play an important role in making regional Victoria a great place to live and work. It is crucial that councils have the financial capacity to fulfil their core responsibilities. This inquiry explored the current situation in Victoria’s rural and regional councils. The Committee sought to understand the pressures these councils are facing, how they are responding and the impacts of council decisions on communities. The Committee heard many positive things about rural and regional councils (as well as a number of areas for improvement). The Committee also heard that some councils face serious challenges when it comes to financial sustainability. In particular, rural municipalities with small populations and large areas can have high costs but limited capacity to raise revenue to cover those costs. A number of grants programs recognise this situation and partly address it. However, the Committee found that more needs to be done to ensure that all Victorians receive the level of service from local government that they deserve. The introduction of rate capping has been an important step towards making sure that ratepayers are not excessively burdened. It was generally agreed by submitters and witnesses to this inquiry that large rates increases were not an appropriate or practicable solution to councils’ financial challenges, but rate capping is not the solution by itself. The inequities of the rating system for some ratepayers need to be addressed.