46 – Labor’s rate cap to hurt services and infrastructure, ratings agency warns’. The Age, 27 February 2015.

Posted by Colin Weatherby                                                         900 words

 slices of cake
Image from http://www.that-is-good-crap.com

This article follows an earlier piece in The Age,  ‘Plan to cap council rates at inflation could lead to service cuts and job losses in Victoria’ on 23 February 2015. Both articles are about the planned legislation in Victoria to restrict councils to rate increases at or below the Consumer Price Index from 2016 unless they seek an exemption from the Essential Service Commission. Some councils have already started to cut jobs to reduce expenditure ahead of rate capping. Others are forecasting cuts to their services and reduced maintenance or renewal of community infrastructure.

This is occurring at the same time that the State government is shifting more costs onto councils and national grants to councils are being frozen. I have previously posted on rate capping (see here , here and here). As you can imagine, rate capping is dominating talk within local government circles. Every CEO briefing begins with an update. The focus at the moment is on influencing the legislation to provide some flexibility to allow for special circumstances. Fair enough.

The negativity that pervades every discussion is premised on the need to cut expenditures which will inevitably mean cuts to services and jobs. Networks are being activated to find out how each council is defining their ‘core’ services (see here and here). The intention seems to be that ‘non-core’ services will bear the brunt of forced cuts.

I think that the real challenge is going to be demonstrating value for money in services provided. If the focus remains on costs, councils are on a hiding to nothing. Everyone wants to pay less tax. Even our current national government is telling us that it is essential for our economy. For some reason, councils have been reluctant to articulate the value people receive for the taxes paid. Even within councils, there is very little discussion about ‘value’ except in the context of the ‘best value’ legislation, which doesn’t really focus on value in the way that is required.

Part of the reason for this is the ease in which expenditures can be seen and understood. The rigorous financial systems and controls in most councils enable close examination of expenditure. However, the revenue side of the ledger doesn’t help to understand value. In the private sector the revenue received from customers willingly paying for services is a ready reckoner of value. If people don’t get value, they simply go elsewhere and pay someone else of the service. Without sufficient revenue a business will become insolvent. Our ability to force people to pay for what we provide creates a special situation that needs a more sophisticated approach to understanding value. And we haven’t developed it.

There have been a number of posts on value. Public value. The Public Value Scorecard. Customer value in general. The ‘degrees of publicness’ concept illustrated in this diagram modified from Mark H. Moore’s book Recognising Public Value provides a basis for understanding the complexity of value in local government.

Moore degrees of publicness

At the upper right hand is the value typically in mind when policy decisions are made by the Council. At that point they are acting on behalf of the whole community to provide value through equity of access, fair allocation of costs, and achieving outcomes that are equitable across the community. Good public policy achieves all of these. At the lower left hand is the essentially private value that people expect when they interact with their Council. They have individual requirements and expectations that they want to have satisfied. The outcome is usually important to their well being or the well being of their family or community group or neighbourhood. They expect to be dealt with respectfully and in a timely manner that is consistent with the Council’s customer service charter. Good customer service will meet that expectation.

You can probably see the potential for conflict in the arrangement. The value expectations of people acting as citizens can be quite different to when they are acting as customers. It is up to the Council to understand the context and help people understand it as well. When an individual wants services to be customised to meet their specific needs and the Council has set a standard service level that is equitable and affordable for the whole community, should they get what they want? I suppose it depends. If it gives them an equal outcome the answer may be yes. The question is how do you decide on what type of value is to be provided?

Research in the UK has shown that people are prepared to accept that others will get more of a service if they really need it but not if they are simply influential enough to get more than their fair share. You can have a bigger slice of the cake if you need it but not just because you want it.

I am concerned that simply telling the community that we no longer have enough money to provide all services or to maintain service levels, therefore they will lose services, is not going to work. The recipients of ‘non-core’ services (for example, many aged and disability services) are often small in number but high in need. Will the community think that it is fair to cut their services? Preparing to demonstrate value, whether it is to the community or the Essential Services Commission, would seem to be a prudent and positive thing to do.

2020 Public Services Trust, March 2010. What do people want, need and expect from public services?

Moore, Mark H. 2013. Recognising Public Value.

The Age, 27 February 2015.  Labor’s rate cap to hurt services and infrastructure, ratings agency warns’http://www.theage.com.au/victoria/labors-rate-cap-to-hurt-services-and-infrastructure-ratings-agency-warns-20150227-13qkq8.html