Communique #3

The CRG met on 3 September 2024 to discuss the issues it proposed the Tribunal consider for the 2025‑26 rate peg. This was the last meeting before the Tribunal sets the 2025-26 rate peg.

The CRG considered 7 issues as set out below.

  • Effects of cost shifting[1]: The CRG considered the results of the recent LGNSW cost shifting survey showing the impact on ratepayers and providing examples. It was noted that cost shifting impacts councils differently. One suggestion was that IPART consider a 10-year recovery for cost shifting in the rate peg. The CRG will revisit this issue for consideration in future rate pegs and will not make a recommendation to the Tribunal for the 2025-26 rate peg. It also raised the need for an intergovernmental agreement between the State and local governments to address cost shifting.

     

    • Dams Safety Levy: The CRG discussed the dams safety levy that IPART has been asked to recommend, and noted this as an example of a cost shift[2] . Concerns were raised about councils paying for this levy, arguing that dams safety is a public good, that the benefits are shared and not restricted to a single local government area. Therefore, ratepayers in one area shouldn’t bear the costs, where others outside the area benefit. However, in some cases, it was noted that benefits can be contained within one council area. The CRG discussed options for funding the levy through water charges for councils that manage local water utilities, where dams are for water supply and storage, or through rates where the dams are for flood mitigation. The CRG did not make a recommendation to the Tribunal for the 2025-26 rate peg, noting that IPART is yet to make a final recommendation on the dams safety levy and the NSW Government is to make the final decision on the levy. 

       

  • Other costs: The CRG discussed ‘other operating costs’ which are currently captured in the rate peg methodology’s Base Cost Change (BCC) model. It was suggested that some costs that affect all councils (such as audit, election and land valuation costs) could be considered as additional components to the BCC. It was noted that the BCC is forward looking and including other costs may reintroduce a lag. It was also noted that the rate peg has been simplified to reduce components and can instead have separate factors that could be better tailored to individual councils or groups of councils. The CRG did not make a recommendation to the Tribunal for the 2025-26 rate peg, noting changes to the BCC could be considered in the future.

     

  • Population factor: The population factor captures year-on-year population growth. It allows a council’s income to be increased when population rises but does not reduce council income when populations fall. 

    The CRG discussed the issue of large population fluctuations for some councils due to a post COVID-19 population rebound. The group considered the IPART proposal of a population factor adjustment for impacted populations so that affected councils are not overcompensated for large year-on-year growth when their net population growth since before COVID-19 was lower. The proposed adjustment would capture the effective population growth since 2019. There was a mixed response to this adjustment. Some members raised concerns about population data, the time frame for measuring growth and the impacts of a negative adjustment. Others considered an adjustment would be reasonable as councils would not be worse off. 

    After the discussion, there was a general level of support for a population adjustment to be made for the 2025-26 rate peg. Other issues raised included keeping the 0% floor in the population factor to maintain income when populations decline, including prisoner populations in the population measure and impacts of secondary dwellings.

     

  • Emergency Services Levy (ESL) factor: The CRG previously raised issues around the methodology capturing ESL changes with a one-year lag. The CRG made no further comments and will not make a recommendation to the Tribunal for the 2025-26 rate peg on the ESL factor. 

     

  • Productivity factor: The CRG mostly supported removing the productivity factor from the rate peg formula or maintaining it at 0% for the 2025-26 rate peg and going forward. It was raised that productivity could not be accurately measured across the sector due to the diversity of council services and productivity improvements would occur on an individual council basis. It was also noted that the take up of technology to enable councils to generate efficiencies varies across councils. The CRG presented a view that any productivity gains are reinvested in the council’s operations.

     

  • Capital improved values (CIV): The CRG discussed its qualified support for CIV in calculating land values for rates as it betters aligns with the ability to pay and would improve equity, but that it should be a choice for councils depending on whether they would be better off. For example, there was greater support among metropolitan councils than regional/rural councils. It was also noted that some councils consider CIV would disincentivise investment. The CRG acknowledged the costs of transitioning to CIV as a barrier and noted that the issue is part of a broader long-term policy rather than something which can be addressed under the current rate peg. 

     

  • Rating structures: The CRG shared knowledge about how councils can improve rating structures such as using special rates which can help ratepayers understand what they are contributing to. The CRG did not make a recommendation to the Tribunal for the 2025-26 rate peg.

     

The CRG will meet again at a date to be determined to workshop the priorities for the 2026-27 rate peg and discuss other issues it proposed at the CRG’s inception.

See the agenda here

Council Reference Group members

In attendance at the Council Reference Group meeting on 3 September 2024:

  • Andrew Butcher, President, NSW Revenue Professionals 
  • David Reynolds, Chief Executive Officer, Local Government NSW
  • George Cowan, General Manager, Narrandera Shire Council
  • Ian Clayton, Manager Property and Revenue, Mid-Western Regional Council
  • Michael Chorlton, Manager Financial Services, Tweed Shire Council
  • Richard Sheridan, Chair of the Local Government Finance Professionals Network, and Director City Performance, Bayside Council
  • Seon Millsteed, Revenue Accountant, Tamworth Regional Council, NSW Revenue Professional
  • Shaun McBride, Chief Economist, LGNSW
  • Tina Baldock, Principal Projects Officer, Office of Local Government
  • Vicki Mayo, CEO, Local Government Professionals
  • Wayne Rogers, Director Corporate Services, Blacktown City Council 
  • Wendy Forrester, Acting Manager, Policy, Office of Local Government

 

[1]      Cost shifting can be defined as occurring when State and Federal governments force councils to assume responsibility for infrastructure, services or regulatory functions without providing sufficient supporting funding. 

[2]      IPART has been asked to investigate the efficient costs of Dams Safety NSW (DSNSW) carrying out its functions under the Dams Safety Act 2015, and recommend a methodology for recovering these costs from declared dam owners. IPART is currently reviewing this and will recommend a levy that ensures declared dam owners pay for the services DSNSW provides in a clear, cost-effective and efficient way. At this time, IPART is yet to make final recommendations to the NSW Government. For more information, see our website.