Posted by Colin Weatherby 800 words
The pressure is on. The Essential Services Commission has released its draft report on the proposed rate capping for councils in Victoria. It has a number of interesting elements and some significant implications for local government. The report sets out which revenues are proposed to be capped, how the rate cap could be calculated, the current forecast for rate increases to 2018/19 under the proposed system (see below), and the impact of the application of an ‘efficiency factor’ to provide an incentive to pursue efficiencies.
The article in The Age describes the major impacts.
“Victoria’s 79 councils had an average rate increase of 3.8 per cent this year. Several councils increased their rates by more than 6 per cent.
The draft report includes indicative forecasts for an annual rate cap of 3.05 per cent in 2016-17, dropping to 2.85 per cent in 2017-18 and 2.8 per cent in 2018-19.
In addition to the cap, the review calls for a new “efficiency” deduction to be introduced from 2017-18 where councils would need to reduce their rates bill by 0.05 per cent because of efficiencies (increasing by 0.05 percentage points each year). Jason Dowling, The Age, 31 July 2015.
So, what are the likely implications for councils?
There have been some previous posts on this topic (see ‘Council rates capped from mid-2016’, The Age, 21 January 2015 and ‘Labor’s rate cap to hurt services and infrastructure, ratings agency warns’, The Age, 27 February 2015.). That thinking still stands. Councils will have to say ‘no’ louder and more often. Difficult choices will need to be made about what services to offer or not offer, and what the levels of service will be. Some people will no longer be eligible for services as councils start to distinguish more strongly between those who are or are not customers. Expect much more customer segmentation for services delivery. All of this will be difficult for our politicians who succeed by pleasing their constituents.
In many ways this is the easy bit Continue reading
Posted by Whistler 360 words
There are various metaphors for organisational strategy in circulation. The idea that it is a road map for a journey to a predetermined destination undertaken in a car while watching the dashboard (to know the car is working properly) is popular. One I was less familiar with is Norton and Kaplan’s cooking metaphor.
They describe an on organisation is an assemblage of ingredients brought together to make a meal. Making the meal requires raw materials (ingredients), tangible capital and assets (cooking implements, an oven), and intangible human assets (the chef). A great meal requires a recipe to take advantage of these tangible and intangible assets. The recipe transforms assets that each has standalone value into a great meal with greater combined value. The recipe corresponds to an organisational strategy that combines resources and capabilities to create unique value.
Another metaphor that I relate to is the game plan. Continue reading
Posted by Colin Weatherby 1000 words
Image from The Age, 11 March 2015
On the 11 March 2015 there were three articles in the Melbourne Age newspaper on different topics that each held a message of potential relevance for local government.
The first was ‘Welcome to the barista economy’. The article is based on a speech by Christopher Kent from the Reserve Bank of Australia (RBA) who looked at changes in household expenditure patterns over the past 30 years.
One thing is clear: we are spending a lot more on ‘services’ than we are on ‘stuff’. The share of household spending on services is up from 53 per cent to 65 per cent of household consumption.
The RBA explains the increased spending on services as a result of cheaper goods because of better productivity and more goods coming from ‘emerging economies’. The world has become better at producing goods and people now have more money to buy services, which in effect is buying time. We can afford to employ someone to perform tasks when our time is better spent on other activities, we don’t have the skills, or it improves our quality of life (e.g. leisure).
The barista connection highlights the growth in service industry jobs. Coffee shops are everywhere. Having a coffee has become part of every outing.
I think that the significance for local government is twofold. Continue reading
Posted by Whistler 320 words
Image from http://serendip.brynmawr.edu
All the talk about rate capping and the impact on local government services has started me thinking about what happens every time there are legislated changes to the way councils operate. We find workarounds. Rather than putting our efforts into being better at providing the services that communities expect, we put our energy into workarounds to protect the status quo.
Workaround number 1. Service lives for assets will be pushed out unrealistically to reduce the annual depreciation cost. Instead of depreciating assets over 50 years they will be depreciated over 100 years, effectively halving the depreciation cost.
Workaround number 2. Staff numbers will be cut to make budget and agency staff and consultancy costs will rise significantly. A lower cost but permanent part of the workforce will be replaced with a much more expensive but temporary workforce. The over expenditure will be offset by workaround number 1.
Workaround number 3. Asset sales will be included in the budget. This will usually be land determined to be surplus to requirements (probably used as open space at the moment) or the vehicle fleet (which will then be leased). It is unlikely that the land will actually be sold and this will be explained in notes to the annual report as an unforseen problem. Never mind, put them in again next year. I worked at a council that successfully did this for a decade. Selling assets like the fleet will probably realise a loss but provide some short term cash while increasing long term costs.
Workaround number 4. CEO and Executive salaries will be frozen. No Consumer Price Index or ‘performance’ increases. This sounds fine and could be an example of leadership from the front to control wage increases across the organisation. But keep an eye on their contract renewals. Typically this is where top management makes up for any lack of annual increase and the details are usually confidential. No increases for several years and then a big increase on rehiring.
Posted by Lancing Farrell 560 words
In an earlier post I discussed local government services and how they can be defined. This post discusses the concept of ‘core’ services delivered by councils, particularly in relation to the potential impact of rate capping (see here, here, here and here). Councils will be looking to reduce the rate of growth in expenditure and many will have to reduce current levels of expenditure. It will not be possible to maintain delivery of all services at current service levels. The starting point is likely to be a discussion about what makes a service a ‘core’ service.
A working definition of a core service is anything the council does that it is compelled to do under legislation. For example, hold elections and form a council, make and enforce local laws, provide a town planning service, control building development, inspect food premises, ensure there is a road to every property. Councils have no choice but to provide these services. Councils also have to prepare some statutory plans, for example the Public Health Plan. The State government has passed legislation to ensure that they do. The council is an authority.
The next category of ‘core’ service are the universal services provided to all citizens. Continue reading
Posted by Colin Weatherby 900 words
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. Continue reading
Posted by Colin Weatherby 950 words
In the previous post, I discussed economies of scale and the cost savings possible through shared services. This post continues the discussion, starting with the implications of front and back office separation.
The history of ‘back office’ and ‘front office’ separation is worth some discussion. According to Seddon, it began with an article by Richard Chase in the Harvard Business Review in 1978. In the article, Chase recommends separating the ‘high customer contact’ and ‘low customer contact’ elements of the service system because of the different operations involved. Low customer contact operations are more efficient and, as a result, have lower costs and it makes sense to isolate them from the disruptive effects of customer interactions if it can be done without sacrificing service effectiveness. However, service effectiveness is exactly what Seddon believes has been lost in many of the cases he cites. Continue reading