The Rate Debate

By Jason Smith

Well, really there's not a lot of debating going on. Basically the city's council has voted on what they propose to increase the rates by this year (7.2% or around $2.83 per week for an average home), and everybody has had a fit.

So why would anyone working at the city or a member of the council feel the need to put rates up after last year's massive increase? I can remember the bill shock from last year as well as anyone else.

It's easy to run a headline that announces an increase in rates and incite a large amount of disgust and vitriol toward the city, but we wanted to look into the finer details of the matter, and let you, the people of Geraldton, know exactly what's going on. 

First, perspective

Some people would have you believe that Geraldton now has the highest rates in Western Australia. This is not the case. 

Certainly Geraldton is not the cheapest, but it is far from the most expensive in terms of rates in the state of Western Australia.

Here's a little chart to give you some indication.

How much is inflation?

It would be nice to say rates only needed to go up by the CPI each year. But unfortunately, the state Government who sets the prices for things like electricity and water, doesn't agree.

You might have noticed your own power bill going up somewhat in the last couple of years. Well, the bill for running all the city's services has spiked too. You also might have noticed a little thing happening in WA called a mining boom. This has put upward pressure on the cost of wages across the state, with the cost to hire staff rising quicker than the CPI. Good for wage earners, bad for rate payers. Most people are both though.

No one is entirely sure how much Mr Barnett and friends are going to raise the prices of services this year, but WALGA (WA Local Government Association) has estimated that  inflationary impacts on local governments will be about 3.2%.

This means: Each local government needs to put rates up by 3.2% JUST to stay level with were they were last year, and continue to provide the same services as last year. No more.

Now this of course begs the question "Why don't they just put rates up by 3.2% then?"

Good question. Hang in there.

Yesterday's mistakes

Have you ever bought a second hand car? One thing people will tell you when buying a second hand car is to check the service history. Many people like to drive as nice a car as they can afford but unfortunately stretch themselves so far with the car repayments, they don't leave any money in the bank for servicing and fixing the thing.

As you know, in the last 10 years the city has undergone some drastic changes and improvements to infrastructure and services at many levels. And Geraldton is SO much better for it. No one complains about how wonderful the foreshore is. Tourists are starting to become pleasantly surprised with how nice Geraldton is. The people of Geraldton are prouder of their city. And Geraldton is losing it's stigma of a backwater nothing town.

But in 2008 some well meaning councillors decided to "reduce" the rate in the dollar we were all charged for our rates. Popular move at the time. But now we look at forward estimates to maintain and replace the infrastructure we've all come to love and the reality is there just isn't the money in the bank.

The '08 rate drop wasn't the only problem to be honest. An accounting method of valuing our assets used to be used that didn't actually accurately reflect how much something cost to be replaced, giving us a false sense of security. For example, a swing at a park might be valued on paper as being worth $100. We estimate that it would need to be replaced in five years. We do the sums and think "sweet, we can afford that." Except in reality a new swing costs $400. Oops. 

So we were budgeting for a $100 swing in five years, but really should have been budgeting for a $400 swing.

Multiply this across every asset the city needs to maintain and one day replace, and you can see the problem.

Keep in mind this is not just a Geraldton problem. Geraldton is just one of the first councils to recognise it and try and fix it.

We will call this the ASSET RENEWAL problem.

So how do we fix the asset renewal problem?

Clearly the asset renewal problem is bigger than can be fixed in one year. So it was decided back in 2012 to aim to have the "gap" plugged by 2023. Ten years - ish. And to do this in 10 years meant that a 2.5% rate increase needed to happen each year until then.

The public was notified as normal, and while there was disagreement as always, ultimately it was decided that in addition to inflationary increases we would have a minimum 2.5% increase in rates for the next ten years.

Ok. So now you're asking "Well why don't council just put rates up by 5.7% (3.2% + 2.5%) ?"

We're nearly there.

Working Capital

Working Capital is just accounting lingo for "money in the bank you can do stuff with". While sometimes the city's finances might look passable on paper, like your own personal finances or a business's finances cash flow can be an issue.

Again, partly owing to the '08 "rate in the dollar" decrease, the city has found itself in a position of not having enough cash in the bank should an emergency happen (like a flood or massive storm damage).

But don't worry. It's not going to take 10 years to fix this one. It is estimated that 1.5% increase per year until 2015/16 will fix the "working capital" gap.

So now you can see how the city came to the figure of a 7.2% rate increase.

3.2% (inflation)
2.5% (asset renewal)
1.5% (working capital)

Total = 7.2%

Can't we just skip the asset renewal gap and working capital gap problem for a few years?

Sure. But the problem will just get bigger. And the longer it is left, the more expensive it will be for future generations to plug. But the rise is up for debate. And half the councillors did not agree with raising the rates by 7.2%. 

Can't we cut costs or reduce services to save some money?

Here we arrive at the point of debate. If you feel there are services you would like the council to stop providing in order to reduce rates, then you should definitely contact your local councillor and discuss the matter.  

Some members of the public are of the opinion that the city is grossly over staffed. But here is the actual staffing levels since 07. As you can see, not much of an increase.

Interestingly, rates only make up 43.5% of the entire revenue for the city. Some people are under the impression that the bulk of the money to run the city comes from rates, but it is actually less than half. 

So do we have to have a rate rise?

No. But there's no point in just saying "don't raise the rates" unless we are willing to suggest what it is exactly we are willing to see pared back, or we have other income suggestions for the city (toll booths, anyone?). The reality is that we have all been demanding more and better services from the local government, and they come at a cost.

And it's not like we can just demand the councillors all stop getting paid. Because they don't. (They get about $6000 a year to cover their expenses.)

How much will my rates go up by?

If the 7.2% increase goes through:

A cheaper home will have its rates increased by $2.12 per week.

A mid priced home will have its rates increased by $2.83 per week.

A higher priced home will have its rates increased by $4.24 per week

Who do I talk to?

Get in touch with your councillor to have a chat. Find out what ward you are in based on where you live. Here is a map laying out the wards:

And here is the contact information for the councillors: 

If you have our smartphone app, the councillor's information is on there. Select "Important" then choose "Councillors" from the top menu.

Nobody enjoys paying rate increases. Nobody. Sadly, they're one of the begrudged expenses in life like bank fees and petrol. And the city has a big public relations job in front of it trying to explain in layman's terms why exactly it needs even more money than last year. And again next year too. $2.83 a week does add up.

But I don't want my children and grandchildren to miss out on the same level of services that I have enjoyed, just because I begrudged paying extra to have those assets maintained.

The council votes whether or not to raise the rates and by how much in June.