By Paul Hemsley and Julian Bajkowski

The Municipal Association of Victoria (MAV) has blamed unpopular rate hikes averaging 4.8 per cent or $76 on growing ‘critical’ cost pressures arising from the need to top-up $396.9 million worth of unpaid liabilities for the Defined Benefit Superannuation Shortfall, a yawning infrastructure backlog and pervasive cost shifting to councils.

The above-inflation rate rises come after Melbourne and Canberra denied (respectively) Victorian councils access to options to help neutralise the troublesome debt by accessing cheaper lending rates through the state’s Treasury Corporation of Victoria or the ability to run the debt as an unfunded superannuation liability the same way other jurisdictions do.

The rates hike is the latest bout of financial reflux to bubble-up from the shortfall in funding for the Defined Benefit Plan under which councils risk having to pay 7.5 per cent interest if the top-up deadline of 1st July 2013 was not met.

The President of MAV, Bill McArthur, was keen to stress that costs shifted by the state and federal governments during economically challenged times ultimately came out of the pockets of the community.

“Generally people rely more on free and low cost council services when household budgets are strained,” Mr McArthur said.

“Many services for families, children and youth; aged care and public libraries are jointly funded by either state or federal governments. However the trend has been for ratepayers to cover a bit more each year because government funding has not kept pace with the cost of delivering these services.”

Mr McArthur said that some councils had “directly asked communities to identify potential service cuts”.

“However, people don’t generally want service cuts – they want more done at a lower cost, and a greater focus on capital works,” he said.

The troublesome Defined Benefit Plan causing the heartburn operated compulsorily in 1982 but was closed to new members in 1993 and has persistently haunted council budgets ever since returns on investments started falling short after the global financial crisis.

The rub for local governments is that they are being forced to both cut community services, capital works and projects and raise additional revenue to meet regulatory obligations that deliver little visible benefit to the community.

A survey conducted by the MAV claims that councils across the state will be forced into pushing-up their rates to address rising costs including replacement and maintenance of decaying infrastructure and the surging demand for services.

In December 2012 a Defined Benefit Superannuation Taskforce set up by the MAV recommended in December the peak local government body consider funding options including borrowing, redirecting operational or capital expenditure towards payment of the shortfall or accessing cash holdings or creating a payment plan through industry fund Vision Super.

Slashing council costs has always been the most unpopular of options because of the real risk of exacerbating infrastructure backlogs.

The MAV has since called on commercial lenders through a tender for a financial institution to provide the money required to bridge the shortfall as a backstop after the Treasury Corporation’s rebuff.

Rate rises are a well-trodden path in terms of additional revenue but present councils with difficult value proposition to sell to residents.

MAV President Bill McArthur said it was never easy to strike the right balance between affordability and meeting widespread community expectations.

“Local government must also maintain a ‘fully funded’ superannuation scheme for people who were part of the compulsory defined benefit plan that closed in 1993,” Mr McArthur said.

He said the total amount owed by Victorian councils is in “direct contrast” to similar state and federal schemes, which remain unfunded to the tune of $28.7 billion and $69 billion “respectively”.

“While many councils have saved millions of dollars in interest by paying their super shortfall before the 1 July deadline, this challenge has not been without pain,” he said.

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