January 27, 2015
Interface Secretariat
Level 4, 140 Bourke Street
Melbourne VIC 3000
Mr Colin Morrison
Executive Officer
Victorian Grants Commission
GPO Box 2392v
Melbourne VIC 3001
via: colin.morrison@dpcd.vic.qov.au
Dear Mr Morrison,
On behalf of Interface Councils, I would like to thank you for meeting with us in December. Following
our conversation we have reviewed our case and would like to present you with some of the key
concerns of the Interface Councils group in relation to the Victorian Grants Commission allocation
process.
As per your suggestion, we would like to arrange a time to meet with yourself, John Watson, Michael
Ulbrick and Julie Eisenbise to discuss how we can move forward and achieve a more equitable
distribution of grants for 2015/16.
As a group of councils that comprise of high growth urban, regional and rural municipalities, we feel
the allocation of grants in the past has not reflected the unique needs of our communities and this
letter intends to provide you with an overview of the key reasons we believe the imbalance of grants
funding needs to change.
Over the past number of years the allocation of grants has been based on historical data that are
retrospectively inaccurate. Over time, this has meant that the calculations that are made to distribute
grants across the state have consistently underestimated the requirements of Interface Councils
relative to other municipalities to deliver essential services and infrastructure for our communities.
Unless this information is improved, the formula used to assess the relative needs of Interface
Councils will continue to unequally distribute the grant funding and the under-allocation of funds will
simply grow larger. It is important to note that this shortcoming is not based on an assessment of what
is fair and not fair but based what we now know is misleading data.
Additionally, the formula that is being used to distribute grants, written in 2001 is based on the number
of dwellings within a council’s boundaries rather than on the number of people that live in the area.
This methodology does not reflect the reality that the household size is often greater in outer
suburban areas compared to inner metropolitan Melbourne. For example the average number of
persons living in one dwelling in the City of Yarra in 2011 was 2.15 compared to the City of Melton at
2.90. Interface Councils believe that is crucial that this formula is re-assessed to accurately assess
the need of all councils.
The above matters have placed Interface councils in a poor position to meet the needs of their
communities. From the allocations that we have received, the focus of the Victorian Grants
Commission has solely been on recurrent spending requirements rather than capital necessities. In
rapidly growing communities such as ours, there is a relentless need to build, upgrade and maintain
the capital that comes with growth, yet this is rarely recognised in grant allocations.
 City of Casey  Cardinia Shire Council  Hume City Council  Melton City Council 
Mornington Peninsula Shire Council  Mitchell Shire Council  Nillumbik Shire Council
 Whittlesea City Council  Wyndham City Council  Yarra Ranges Shire Council 
The consequences of these issues include dramatically underfunded Precinct Structural Plans in
Interface Councils to the tune of $1 billion. It is important to note that those plans have been approved
by the State Government. Precinct Structural Plans have provided our councils with the confidence
that our rapidly growing populations will be met with adequate infrastructure and services, however,
the capital funding allocated to support these plans is not met. As a result communities in growth
councils have significantly reduced access to basic living necessities such as roads, schools and
hospitals.
Furthermore, while Interface Councils are 10 per cent urban and 90 per cent rural and accommodated
46 per cent of the state’s population growth from 2008-2013 they are often ineligible for grant
programs specifically targeted to assist rural and regional councils such as the Regional Growth
Fund. It is for this reason that the culmination of years of under-allocation for Interface Councils has
significantly disadvantaged our ability to develop and maintain liveable communities.
The importance and immediacy of this issue is heightened by the impending rate capping legislation
that the Victorian Government are intending on implementing. It will significantly increase the pressure
that Interface councils are already bearing as a result of underfunding and under allocation of
government. Without recognition of the unique characteristics of Interface municipalities, the capacity
for our councils to fulfil our function is considerably reduced.
We understand and acknowledge the distribution of grants must be fair and meet the needs of 79
councils across Victoria, and therefore would greatly appreciate the opportunity to discuss the issues
we are facing and how we can collaborate on ensuring that the process of allocation is fair for all of
Victoria in 2015/16.
Our secretariat will be in contact in the near future to arrange a time that is suitable to meet. If in the
meantime you have any questions contact David Hawkins on 8317 0111 or via
davidh@socom.com.au.
Yours sincerely,
Garry McQuillan
CEO, Cardinia Shire Council
Interface Councils
 City of Casey  Cardinia Shire Council  Hume City Council  Melton City Council 
Mornington Peninsula Shire Council  Mitchell Shire Council  Nillumbik Shire Council
 Whittlesea City Council  Wyndham City Council  Yarra Ranges Shire Council 
Interface Councils
Briefing paper for the Victorian Grants Commission
March 2015
 City of Casey  Cardinia Shire Council  Hume City Council  Melton City Council 
Mornington Peninsula Shire Council  Mitchell Shire Council  Nillumbik Shire Council
 Whittlesea City Council  Wyndham City Council  Yarra Ranges Shire Council 
Introduction
Interface Councils welcome the opportunity to provide a submission to the Victorian Grants
Commission to outline in further detail our concerns regarding the grant allocation process which is
contributing to the significant inequity facing Interface communities.
The Interface acknowledges that the current fiscal situation in Victoria is extremely tight with revenue
streams under pressure. Locally generated revenue has decreased and the amount of GST revenue
from the Commonwealth has also been reduced. For its part local governments’ capacity to raise
revenue is very limited, notwithstanding it has looked to maximise its funding sources as much as
possible.
This briefing paper intends to provide the Victorian Grants Commission with greater detail of the
reasons Interface Councils feel a review of the grant allocation process is required. It does so by
answering the following key questions:
1.
2.
3.
4.
Why has past grant allocation not reflected the unique needs of Interface areas?
What is the key issue with data used in the grant allocation process?
How does the distribution of grants under estimate the requirements of Interface
Councils?
How has the grant allocation over the last three years disadvantaged Interface
communities?
Interface Councils conclude this briefing paper by stipulating the key aspects of the allocation
methodology that should be revisited and some subsequent suggestions for changes to the formula
that would ensure a fairer distribution of grants for all 79 states across Victoria.
2
1.
Why has past grant allocation not reflected the unique needs of Interface
Councils?
Over the past decade Interface Councils have been responsible for 46 per cent of the state’s
population growth and 53% of metropolitan Melbourne’s population growth. Although the grant
allocation formula considers population growth as a factor in achieving an equitable distribution it
does not consider some of the diverse and complex characteristics that Interface Councils possess,
and when combined with rapid growth, creates greater financial pressures compared to non-Interface
councils.
Interface areas are 90 per cent rural yet 90 per cent of the population live in the 10 per cent of
Interface areas that are urban
Despite 90 per cent of Interface areas being rural, 90 per cent of the Interface population live in the 10
percent of Interface areas that are urban. This means that Interface Councils must service both large
populations and significant areas with unique townships. This characteristic is not recognised by any
of the population cost adjustors stipulated in the grant allocation process. Population density adjustor
indicates that more concentrated populations may require greater council expenditure to service, for
example, the waste management function is weighted 20 per cent by this cost adjustor. There is
however, little evidence to support this. Interface Councils would suggest that there are in fact higher
costs associated with servicing higher than average household sizes as is the case in Interface
municipalities, despite these large households being dispersed across larger areas.
The need to manage 90 per cent of Melbourne’s Green Wedges
The non-urban green wedge areas located within Interface municipalities represent some of
Melbourne’s most important assets in terms of the liveability, sustainability and prosperity of the entire
Melbourne region. Yet, the Commission does not acknowledge the wider community benefit of Green
Wedges, meaning the costs of preserving them becomes a financial burden that rests with Interface
Councils. Interface Councils recognise that the Commission has recently incorporated an
environmental risk adjustor which recognises the additional expenditure some councils face
associated with flood mitigation, land erosion and fire control and management, however Green
Wedges are neglected. It is important to note that Green Wedges encompass remnant vegetation,
smaller areas of agricultural production and larger properties with very limited development potential
under current planning legislation, which limits the capacity of Interface Councils to generate revenue.
Commercial/Industrial land
Interface Councils rely predominantly on residential rates, with only a small proportion of industrial
and/or commercial properties and activities (e.g. parking) to generate revenue. Consequently, the
ability of Interface Councils to raise revenue compared to other metropolitan councils is significantly
reduced and keeps the rating burden on residential properties.
Ineligibility for other grants
Due to the geographical makeup of Interface Councils, grant programs that specifically target regional
and rural municipalities such as the previous government’s Regional Growth Fund are inaccessible.
This ineligibility compounds the ongoing underfunding of critical infrastructure in government budgets.
The lack of access to funding programs consequently means that Interface communities must bear
the costs, through increased rates and/or reduced access to infrastructure and services, below that of
the rest of Victoria.
3
2.
What is the key issue with data used in the grant allocation process?
The formula that establishes the distribution of grants across the state is backwards looking. There is
a lag that means that rather than predicting the need for increased expenditure to implement
infrastructure and services in advance, Interface Councils are always a year behind.
Precinct Structure Plans, Strategic Resource plans, structure plans and other council strategies are
vital to all councils to identify critical infrastructure and services to adequately fufil their local
government function. The ability to implement projects that are identified as crucial to the liveability of
communities in accordance and in advance of growth is fundamental to reducing the gap that already
exists.
It is imperative for Interface Councils that the Commission recognise the need for the formula to
consider the future requirements of councils, particularly in respect to those that are the fastest
growing municipalities in the state.
3.
How has the distribution of grants across the state underestimated the
requirements of Interface Councils?
Recurrent expenditure to capital necessities
With population growth comes a subsequent need to build, expand, upgrade and maintain capital
infrastructure. However, the Victorian Grants Commission states:
“Under the Commission's general purpose grants methodology, standardised expenditure is
calculated for each council on the basis of nine expenditure functions. Between them, these
expenditure functions include virtually all council recurrent expenditure.”
Thus, the nine functions that calculate the standardised expenditure of councils do not reflect the
need for capital necessities, which significantly underestimates the requirements of Interface
Councils. Although several cost adjusters do account for several facets of growth as well as in relation
to specific demographics, it does not account for the need to invest in new infrastructure to
accommodate our rapidly growing populations. For example, the Commission recognises the
increased recurrent expenditure associated with high populations under six years of age. However, it
does not recognise that this adjustor becomes redundant if the existing infrastructure to provide the
required services is at capacity. Similarily, although the standardised expenditure is adjusted if
councils must cater for greater numbers of aged pensioners, being more likely to access council
services, it does not consider the expenditure associated with the subsequent aged care and
community facilities that are required to accommodate the higher ageing populations in Interface
areas.
Unfunded liabilities in Precinct Structure Plans
Precinct structure planning is fundamental to making Victoria’s growth areas liveable, both today and
in the future. PSPs lay out roads, shopping centres, schools, parks, housing, employment the
connections to transport and generally resolve the complex issues of biodiversity, cultural heritage,
infrastructure provision and council charges. The distribution of grants across the state
underestimates the funding required in order to implement approved plans, and the fact that without
implementation the functionality of these communities is significantly limited. As stated by The
Parliamentary Inquiry in Liveability Options in the Outer Suburbs (December 2012):
“By decreasing and delaying investment in infrastructure, an infrastructure gap is emerging that
will significantly hurt the quality of life of people living and working in Melbourne’s outer
suburbs.”
4
Table 1 in appendix 1 outlines the unfunded liabilities in the current precinct structure plans for
Interface Councils, amounting to $779,273,468. When a PSP is approved by the Department and the
Minister, it allows for development to occur, subject to a planning permit. Unfortunately, while a
precinct becomes populated, the developers’ contribution and Council investment does not cover the
amount required to construct all the essential infrastructure. Without State Government support,
precincts are left without essential services and infrastructure.
It should be noted that currently, developer contributions only cover approximately 25 per cent of the
infrastructure costs incurred for new residents. An unintended consequence of the foreshadowed
changes to the Development Contributions legislation will be a further reduction of the share of
infrastructure costs paid for by Development Contributions with a greater share to be funded by
ratepayers in general. Interface Councils are accommodating over 46 per cent of the state’s
population growth, with which comes significant costs. The present system of local government
funding, through rate revenue, developer contributions and one-off grants, fails address critical
community infrastructure or services such as youth services, home and community care, maternal
and child health and mental health.
Impact of rate capping
In addition, the impending rate capping legislation that the new government intends to enact this year
will increase the pressure on Interface Councils’ ability to meet estimated recurrent expenditure, let
alone their capacity to invest in capital necessities to accommodate the diverse and growing
communities that define them, that are otherwise go unfunded.
Rates are a key source of local government revenue and are in essence a tax based on asset value,
rather than a direct fee for service. Nonetheless, for most Councils, and in particular Interface
Councils, they represent the largest proportion of our budgets, and as a result there is a direct
correlation between rating revenue generated and services and infrastructure delivered. Access to
alternative sources of revenue is limited. An initial assessment of the impact of capping rates at CPI
rather than at levels forecast in Strategic Resource Plans for Interface Councils indicates a loss of
revenue of at least $220 million over the 4 years.
4.
How has the grant allocation over the last three years disadvantaged
Interface communities?
Over the last decade the Interface has grown by 434,000 people whereas the rural and regional
Councils have grown by 155,000. However, previously rural and regional Councils have received
funding in the order of $1 billion over eight years to accommodate an anticipated population growth of
410,000 to 2036. Their growth equates to less than 20,000 people per year across all 42
rural/regional Councils. During that same timeframe the seven outer metropolitan growth area
Councils, which form part of the broader Interface Group, will expand by 740,000 people.
The underallocation of the General Purpose Financial Assistance Grants compounds an existing
problem with government funding. The 2012/13, 2013/14 and 2014/15 budget scorecards prepared by
Interface Councils demonstrate the significant gaps created by ongoing underfunding for Interface
Councils’ infrastructure and services in government budgets. In 2014/15 there was an estimated
shortfall of $810 million which proceeded a shortfall of approximately $895 million in 2013/14 and
$955 million in 2012/13. Tables 2,3 and 4 in appendix 2 demonstrate the short falls within key
infrastructure and servicing areas in real terms.
5
Disadvantaged communities
The significant gap in funding from state government, combined with the underestimation of Interface
Councils’ requirements has meant that Interface communities are disadvantaged on a number of
indicators. The term "community disadvantage" represents a complex cluster of factors that make it
difficult for people living in certain areas, such as the Interface, to achieve positive life outcomes and
therefore make a positive and productive contribution to the community.
The socio-economic profiling and benchmarking analysis in the “One Melbourne or Two?” report
(Essential Economics, 2013) shows that compared to the Metropolitan Melbourne averages, the
Interface Council area is characterised by:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Relatively high level of socio-economic disadvantage, as highlighted through SEIFA and
VAMPIRE
Relatively low average incomes
Relatively low educational outcomes
Evidence of poorer health outcomes
Relatively high level of youth disengagement with regard to higher education and
workforce participation
Significant deficits in the provision of local employment opportunities
Relatively low provision of professional jobs
Relatively high unemployment rates
Relatively low provision of higher order services (hospitals, TAFEs, Courts etc.)
Relatively low provision of arts and cultural services (libraries, arts centres etc.)
Poor provision of public transport options
Heavy reliance on vehicle-based travel
Community disadvantage emerges out of the interplay between the characteristics of the residents in
a community (e.g., employment, education levels, drug and alcohol use) and, over and above this, the
effects of the social and environmental context in which they exist (i.e., "place effects" or
"neighbourhood effects", such as weak social networks, poor role models and a relative lack of
opportunity) (Edwards, 2005; Vinson, 2007).
6
Recommendations for changes to the grants allocation process



Ensure a more equitable distribution of funds based on needs
Use population (instead of the number of dwellings) as the major cost driver for the
waste management expenditure function – household numbers determine waste
production, not property numbers.
Reduce the level of the minimum grant – large metropolitan councils with access to other
revenue sources (car parking fees etc.) with sizeable populations and able to achieve
economies of scale have an automatic entitlement to the minimum grant – regardless of
need. This reduces the pool of funds available to those councils with high need for
funding assistance.
Conclusion
Interface Councils look forward to meeting with you to discuss the issues outlined in this paper on
Wednesday 11 March, 2015.
7
Appendix 1- Precinct Structure Plan Liability Analysis - All Growth Area Councils
Approved PSPs
Council
Cardinia
Casey
Hume
Melton
Mitchell
Whittlesea
Wyndham**
PSP Name
Cardinia Road
Officer
Cranbourne
Fountain Gate Narre Warren
Cranbourne East (DCP010)
Cranbourne North
Cranbourne West
Clyde North
Botanic Ridge
Clyde
Greenvale North
Craigieburn
Greenvale West
Greenval Central
Lockerbie*
Merrifield West
Melton North
Taylors Hill West
Toolern
Diggers Rest
Rockbank North
Lockerbie*
Lockerbie North
Mernda-Doreen-Sth Morang
Epping North
Lockerbie*
East Werrribee Employment
Manor Lakes
Truganina South
Ballan Road
Black Forest Road North
Black Forest Road South
Alfred Road
Westbrook
Quandong
Bayview
Oakbank
Tarneit North
Truganina
Riverdale
Total
* PSP includes Hume, Whittlesea and Mitchell Councils
** The Wyndham data is currently confined solely to Community infrastructure
8
Total Unfunded
Liability
$27,467,942
$56,657,301
$20,000,000
$5,000,000
$8,918,761
$4,608,303
$3,270,420
$5,018,371
$7,848,330
$25,551,412
$6,771,000
$21,431,000
$3,901,000
$4,435,000
$65,690,000
$119,989,000
$12,295,121
$3,819,402
$7,790,872
$5,722,938
$18,710,114
$2,489,000
$16,208,964
$160,350,000
$104,650,000
$6,200,000
$1,103,494
$2,705,424
$1,485,650
$5,895,178
$5,454,813
$5,563,159
$990,931
$6,518,957
$1,752,624
$3,311,142
$4,838,886
$4,874,814
$4,916,051
$5,068,093
$779,273,468
Appendix 2: Disadvantage in funding for Interface Councils over the past three budget cylces
Table 2: Budget Cyclical Interface Funding Estimates v Estimated Interface Requirements 2012/13
Est. 4-Year
Funding Total
Estimated
Investment (1)
Estimated 4- year
Requirement
(All funding
sources) (2)
Funding Surplus/
Deficit
(All funding sources)
Potential under provision
(if required funding from
all sources is not
secured)
TBC
Early
Childhood/
Kindegarten
$9.2m
$20.8m
-$12.4m
(note further annual
grants are available over
the 4-yeear cycle)
Primary School
$12.7m
$180.4m
-$167.7m
19,520/ 78 primary schools
2,220 places/3-4 secondary
schools
Secondary School/
all ages schools
$76.6m
$96.5m
-$19.9m
Special Education
$27.8m
$0
-$27.8m
n/a
TAFE
$26.0m
$94.8m
-$68.8m
11,610 places/2 TAFE
campuses
Health
$71.7m
$288.3m
-$216.6m
510 beds/6-7 hospitals
$0
$405.6m
-$405.6m
50 aged care
facilities/3,000 beds
$0.4m
$5.2m
-$4.8m
(note further annual
grants are available over
the 4-yeear cycle)
TBC
$968.4m
$1,440.0
-$471.60m
Unable to cater for 9,320
new public service users
$1,192.80m
$1830.8m
-$1334.80
Aged Care
Library
Public Transport
Total
Source: Victorian Budget Papers 2012/13; One Melbourne or Two – Implications of Population Growth for Infrastructure and
Services in Interface Area, Essential Economics 2011
Table 3: Budget Cyclical Interface Funding Estimates v Estimated Interface Requirements 2013/14
Est. 4-Year
Funding Total
Estimated
Investment (1)
Estimated 4- year
Requirement
(All funding
sources) (2)
Funding Surplus/
Deficit
(All funding sources)
Potential under provision
(if required funding from
all sources is not
secured)
Early
Childhood/
Kindegarten
$14.2m
$17.1m
-$2.9m
340 places/3-4 buildings
Primary School
$22.5m
$165.1m
-$142.6m
16,740/ 67 primary schools
Secondary School
$29.4m
$132.3m
-$102.9m
10,380 places/20
secondary schools
Further Education
$26.0m
$97.1m
-$71.1m
11,990 places/2-3 TAFE
campuses
Health
$113.2m
$291.5m
-$178.3m
420 beds/4-5 hospitals
Public Transport
$732.8m
$1,127.7m
-$394.9m
Unable to cater for 8,010
new public service users
Total
$938.1m
$1830.8m
- $892.7m
–
Source: Victorian Budget Papers 2013/14, Children’s Facilities Capital Program Recipients 2012/13; (2) One Melbourne or Two
– Implications of Population Growth for Infrastructure and Services in Interface Area, Essential Economics 2012.
9
Table 4: Budget Clclical Interface Funding Estimates v Estimated Inteface Requirements 2014/15
Est. 4-Year
Funding Total
Estimated
Investment (1)
Estimated 4- year
Requirement
(All funding
sources) (2)
Funding Surplus/
Deficit
(All funding sources)
Potential under provision
(if required funding from
all sources is not
secured)
Early
Childhood/
Kindegarten
$14.2m
$17.1m
-$2.9m
340 places/3-4 buildings
Primary School
$194.3m
$165.1m
+29.2m
Adequately funded over
this 4 year cycle
Secondary School
$82.4m
$132.3m
-$49.9m
5,040 places/10 secondary
schools
Further Education
$20.8m
$97.1m
-$76.3m
12,870 places/3 TAFE
campuses
Health
$26.0m
$291.5m
-$265.5m
625 beds/5 hospitals
Public Transport
Total
$683.5m
$1,127.7m
-$444.2m
Unable to cater for 9,010
new public service users
$1,021.2m
$1830.8m
-$809.6m
–
Source: (1) Victorian Budget Papers 2014/15, Children’s Facilities Capital Program Recipients 2012/13; (2) One Melbourne or
Two – Implications of Population Growth for Infrastructure and Services in Interface Area, Essential Economics 2012.
10