Monday, September 15, 2014
And the other big question on the election trail....
If there is one thing that people get feisty about, it’s the rates bill. Why is it so high? Why does it never go down? And why do people try to get elected by saying they’ll vote for lower rates and then we never hear from them again once they’re occupying the comfy chairs around the Council table?
I’m tempted to answer that you’re living in a Western capitalist economy predicated on growth and if you want the benefits you’ll have put up with paradigm of exponential increase. But I suspect that won’t win much in the way of plaudits, and it is a bit politically philosophical when you’re trying to put bread on the table and pay off the mortgage.
What I can say is that historically, things might have been different if we’d elected accountants, rather than politicians. When elected people have avoided increasing rates or increased municipal debt, later generations have had to stump up.
And this is the nub of it. You have to go back to where it all started, and for this, have a look at the history books. Tasmania (or Van Diemen’s Land as it was then) wasn’t settled for any economic reasons. It was settled to stop the French from taking possession.
So there wasn’t any business case for the English government of the day to fund the prison camp from the Colonial Chest – other than just barely meeting the costs of running a dumping ground for the surplus population who tried to make a living any way they could outside the punitive property laws of the day.
When word got out the island was highly suitable for farming and grazing, we had all sorts coming here to make a fortune by taking up the land from the Palawa/Pakana by force, and being subsidised with free land and convict labour.
And when the Napoleonic Wars were finally ceased, guess what? England did the usual trick of saying, stand on your own two feet, we can’t afford to subsidise you anymore. So when Tasmania the colony did in 1856, it then got successive colonial governments that were excellent at running up large debts with overseas banks, but useless at providing the services a growing population demanded. Let a form of local government do it, they said.
And local government did.
Albeit very reluctantly, because while the carrot of local control (for which read those land owners and magistrates who got to impose their ideas of moral behaviour on the free, convict and ex-convict population) was tempting, no money came with it. Sound familiar?
(Cost-shifting is a time-honoured practice where central and local governments are concerned. Local government get the responsibility to provide the services that everyone expects central government to do, but bad luck bunnies, you’ll also have to find the funds. Don’t get me started on this today – perhaps another post another time.)
Nonetheless, by the end of the century, there was a proliferation of Councils, Town Boards, Road Trusts, schools, cemeteries, various agricultural pest control boards, jetties, marine boards, libraries, water trusts, and so on. By the time the Colonial parliamentarian, Dr John McCall, got all the Mayors of the day into a room well away from the press to discuss the delicate matter of reform, there were over three hundred various types of authority that came under the wing of local government.
You have to remember also that once was, most of the population of the island effectively lived, worked and died in the same locality, and rarely, if ever, left it. Local councils diversified to the extent their ratepayers wanted various services within their municipal boundaries – hence the diversity. And still there wasn’t sufficient money to go around because the Tasmanian population just wasn’t there.
(It’s a policy problem I’ll be writing more on – the lack of population impacting on local government.)
Reform was needed, and reform followed throughout the 20th century.
Yet still, money is the nub of it. The 49 Councils existing up to 1993 relied on State and Federal funding to cover activities the ratebase could not. Years of not wanting to incur debt, or incurring debt without sufficient raising the rates, or simply just not raising the rates because it was politically unpopular, set the scene for more financial reforms in the noughties. And life got more complex too, with increased State and Federal legislation and improvements concerning water, sewerage, planning, building, plumbing, health, parks, recreation, roads and rubbish management.
Anyone who said (and continues to say) amalgamation of Councils should lower rates is either ignorant of the changes in local government practice or just wishing out loud wistfully.
As one recent example, take water and sewerage. Okay, so it’s operation was taken off local government just recently but it still owns the asset. Why? The big Councils were able to sort out their problems, but for smaller ones, provision of clean water and adequate sewerage was just beyond their financial ratebase ability, and neither could they reasonably service the level of debt needed to get the job done to the high level of health and safety legislation. It’s been argued that the problems of water and sewerage were being sorted out at the local government level, but for State parliamentarians, particularly some of those in the seat of Lyons and Braddon, progress weren’t fast enough when people flooded their offices with complaints over water alerts. Hence, TasWater’s accelerated program of water and sewerage reform outside of Hobart and Launceston today. And this isn’t to say we shouldn’t all have clean water and adequate sewerage – we should. But how it has been gone about is not exactly creating less cost to the consumer.
Another big complexity is financial reform. Simple accounting is now replaced with accrual accounting and Councils now have to take into account asset depreciation, equity, debt repayment, on-costs, annual operating costs, long term 20 year budgets and financial plans, asset renewal programs, auditing, financial probity, etc. etc. Now the impact of decisions can be tracked across the whole organisation and into the future in the modelling of setting rates. (And we can see the impact on ratepayers today of past decisions where Aldermen refused to raise rates in election years.)
Okay, now I start to sound like an accountant, but bear with me. Here’s a plain English example of how things have got more complex in the last 50 years.
The people want a BBQ in the local park. Council either has the money to pay for building up front or it raises a loan to do it, say $2000 for a simply concrete slab, brick and steel plate BBQ, labour costs included, and some donated bricks and cement from the local businesses. And as people wanted to boil a billy to go with the sausages, a tap was provided that anyone could turn off and on. And a simple wood slab table and bench set were sat beside the BBQ. We’re talking about 20-50 years ago.
The BBQ is built, and lots of families and their friends used it, especially in the summer months when everyone visited in the holidays. So many people from out of town in fact, that Council ends up cleaning the BBQ and making sure there is a wood supply because of the complaints about cleanliness and people using the park’s trees for the BBQ. Have to encourage the visitors – good for local business.
And as the hole in the ozone layer got bigger and the Slip! Slop! Slap! campaign took hold, the local people asked for a cover shelter. And then for more chairs and tables for families to use, and they had to be under cover too. Eventually everyone uses the asset so much, it wears out and vandals have their way tagging the park furniture on bored winter afternoons, and for some reason, people keep nicking the tap fittings and firewood.
So then the local people ask for an electric BBQ replacement. As Council neither has the up-front cash or wants to raise the full loan to do it, it works with the local community group to raise the funds and eventually makes up the shortfall with a grant sourced from the local parliamentarian who is due for re-election. The shortfall is added to the rates budget.
Voila! A new BBQ with a renewed cover shelter and upgraded, vandal proof chairs and tables and shelters, and because we all wanted it to look good, some landscaping with trees and shrubs that provides wind shelter and a form of privacy between the tables of the many families now using the BBQ area. And the tap has been converted to an in ground sprinkler system, with a more secure drinks fountain with a dog bowl attached at the base. There is no longer worn out lawn under the tables but a lovely mulch soft-fall. New cost, say very little change out of $300,000, because of the grant, but actual bill of say $550,000.
The community and the elected members all get to enjoy a celebratory community BBQ when the power is switched on and have their picture in the paper. Everyone’s happy, it’s a wonderful place and the older folks reminisce about using the last one when they were kids, and how they’d like to form the same sorts of memories for their grand-kids.
So what’s the problem?
The asset was built either with a loan that had to be repaid, as well as interest and charges, and/or rates that have to be raised. So the initial cost of $2000 may well have been more as interest rates shifted around or Councillors didn’t want to raise the rates that year to finally pay off the loan.
The cost of cleaning and wood supply has to be added to the Council’s budget, as well as the increase in manpower needed to service the BBQ on a regular basis.
No money was put aside for replacement for the BBQ, tables and chairs or the nicked taps, so when the new electric BBQ with the new park furniture was provided, no money was there to pay for it. A lot of Council officer time (time equals wages costs here) was spent designing the new asset, engaging with the local community and consulting about it, as well as the planning, building and plumbing costs and requirements. The cost of providing water from a vandal proof tap has to also be factored in, as today water has to be paid for, and there is the added cost of maintaining the new landscaping. And there was the officer time spent in trying to source the funds through the grant process, and reporting the whole shebang to the Council for discussion and, finally, a decision.
In terms of asset management, there was no asset depreciation or replacement put aside for the old BBQ. Further, the cost of the new equipment was much, much higher as it had to meet Australian Standards requirements, let alone the fact that Councils now have to meet planning, building and plumbing rules just like everyone else. These are hidden costs no one really had to contend with in the past and now have become mainstream in local government practice because State and Federal governments demand it, and risk management decisions in the Courts have created them.
So now the Council, under 21st century accounting rules, has to put money aside for replacement/depreciation, asset development and annual operating costs, and it has to meet various health and safety obligations and Australian Standards in replacing the old BBQ. This is the financial iceberg under the upfront cost of the BBQ. You not only have to pay for building, you also have to budget for maintenance, depreciation and replacement.
All in all, while this is a somewhat potted explanation, it should explain why a rates bill continues to grow.
So in answer to the questions, why are rates always rising? The real cost of local government is like a financial iceberg. At some time, the elected members are taken into a budget workshop and get to see the full horror of the finances as the iceberg of electoral promises rolls over. We get to see there’s more than just the tip. The real cost has become a hazard to political shipping when you least expect it. And so rates are raised, after careful noting of CPI, and a sounding of the electorate’s mood. In Hobart City Council, the Aldermen are fully aware of the finances, and get to find out the real costs and impacts.
And that is why rates bills never get lower. The community demands more, it pays more. More complex local government processes cost more. We could cut the rates to zero, but at some stage, someone has pay for replacement of what we all use. If not you, then your children and grandchildren in a disproportionate amount if we won’t foot part of the bill today. We could cut the rates to zero, but would you then be satisfied with the loss of services?
Carefully spent taxes bring civilisation – not political promises to cut rates.
Authorised by Eva Ruzicka, 10 Congress Street, South Hobart.