AT A recent Bass Coast Council meeting, when the draft budget was being discussed, a councillor asked how much the rates exemption for the Wonthaggi desalination plant costs the shire.
When the council’s economic director, Steven Piasente, replied “About $9 million dollars”, there was an audible gasp from the gallery.
That's a big whack of money missing from a total council budget of about $67 million a year. Add in another $9 million and we’d be able to double our capital works budget for a start.
Every year power companies in the Latrobe Valley pay millions of dollars to the council in lieu of rates, while AquaSure, the multinational company that built and operates the $3.5 billion desalination plant, pays nothing.
Why is AquaSure treated so differently from other private utility companies?
In an unpublished interview in 2010, former council CEO Alan Bawden said there was an element of dishonesty about the arrangement. In short, Bass Coast was shafted. He revealed that AquaSure’s rates exemption was contrary to the government’s initial assurance to the council when it first announced the desalination project in 2007.
“[Then premier] Steve Bracks made a commitment that it would pay rates but when we finally got to see the contract, AquaSure had basically contracted with the government that any government taxes and charges just get passed straight onto the government, and the government is then claiming it doesn’t pay rates.
“Any other private business pays rates. It’s on private land, it’s privately owned, privately operated and they’re selling all their product to the state government. It passes all my tests to make it rateable but we’ve got to this point where we couldn’t agree. They were pushing one bit of legal advice, we were pushing another.
“I think we’ve been poorly dealt with in the rating issue. Part of the problem is that this is a precedent. There’s no other water infrastructure in the state that is privately owned so the mindset is that this is public water infrastructure. If you look at the electricity industry, every private generating plant is rateable, wind turbines are rateable. The gas plant at Lang Lang is fully rateable. It’s just that they haven’t turned their mind to how to deal with private water infrastructure."
In 2010, when Mr Bawden was speaking, the Labor Government was still stringing the council along with vague talk about a contribution to a legacy project for the shire, such as an education or cultural precinct in Wonthaggi. The council of the day was always reluctant to speak out publicly on the rates issue for fear of offending the government and jeopardising the legacy project.
As we all know, the project never eventuated. Those who were responsible for the desalination plant are long gone and the Liberal Government that succeeded them accepts no responsibility for the plant or its rating status.
Clearly the time for diplomacy has passed and there is no cultural precinct to jeopardise. The Post asked the council’s current CEO, Paul Buckley, if there was any realistic prospect of getting Aquasure to contribute to the shire’s operating costs like everyone else.
“Given the legal advice that’s been received from more than one legal firm, the risk is that you throw good money after bad,” Mr Buckley said.
As CEO of Latrobe Valley Shire for 20 years, he has experience of dealing with the operators of the coal-fired power stations in the valley.
“There is a clause in the Local Government Act that talks about property used for public purposes being exempt from rates, eg. if a public hospital is operated by a private company it remains exempt from rates. Essentially it’s a publically owned facility to provide a public service.”
He says power generation facilities are in fact exempt from local government rates but required to pay a base amount, plus so much based on their generation capacity. “It’s less than they would pay if they were rated but it’s a significant amount, millions of dollars.
So what about AquaSure paying goodwill payments to the shire in lieu of rates?
“There were significant funds made available for the council for infrastructure upgrades such as roads,” Mr Buckley said.
While he’s dubious that the council will make progress on the desal plant, he is optimistic that the council could increase its rating base in other areas.
The Municipal Association of Victoria recently adopted a motion put up by the council to review the non-rateable status of organisations such as churches that operate ancillary businesses such as adventure parks in competition with private operators who do pay rates.
Mr Buckley said widening the rates base was imperative with state and federal governments steadily cost-shifting onto local government.
An MAV comparison of 2014-15 budgets for Victoria’s 78 councils shows that rates make up almost 70 per cent of Bass Coast’s $67 million budget, compared with just 57 per cent in neighbouring South Gippsland Shire and 54 per cent in Baw Baw Shire.
Part of the difference is that most government grants are based on resident populations and a large proportion of Bass Coast ratepayers aren’t resident. Also, our council doesn’t run pre-school services or maternal and child health services, as many councils do.
Asked if we’ve been getting our fair share of state and federal government funding, Mr Buckley replies “Probably”. Is there an opportunity to improve? “Probably.”
“One of the challenges is to ensure we make the most of government grants for capital projects.”
He agrees that some of the dissatisfaction with the local council may come from the fact that people don’t see “new stuff” being built and hence wonder what value they get for their rates.
At the moment 90 per cent of rates revenue goes to delivering programs and services and just 10 per cent goes to capital works – and the great bulk of that to maintaining roads and drains, not the kind of stuff to raise the pulse rate.
Our problem is that as a large rural shire with a small population and ageing infrastructure, we haven’t had much money left after doing the essentials.
One of Mr Buckley’s priorities is to establish a 10-year financial plan to identify ways to shift the focus of the financial plan where possible to redistribute funding between operations and capital works.
“It’s a big challenge for all councils and probably more so here because of the status of roads and drains. You have to allocate sufficient to maintain the asset base before you start to build new infrastructure.
“We need a financial strategy for the next 10 years that looks at how we might finance those facilities. My view is that we shouldn’t borrow to maintain existing assets but, providing the financial position remains strong, debt is a good tool to fund new assets that are going to last a long time.”
He says the community has to decide what services and infrastructure it wants, how much it’s prepared to pay and how it wants to finance them.
“Part of the process is to talk to the community about our options for distributing the rate burden. The first part is to give clarity to people about where our rates sit compared with similar councils. It’s no good comparing us to Bendigo or Ballarat. How do we compare with Surf Coast? How do we demonstrate value for money?
“We have to be really transparent with the community. There’s a genuine recognition by the councillors that we need to revise our communication strategy, to make sure we have a good relationship with the community and that they understand what we’re trying to achieve.”