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Situation Appraisal
We are as advised by WCC staff in a challenging situation - ie we need to balance expenditure and income ... no secret there This means that we must control expenditure and/or increase revenue Mike Hyde and John Shepherd have focused on controlling expenditure yesterday - as one side of the equation
But in the long term we need to also address the revenue side of the equation, because it is never going to be enough, because one of our traditional sources of revenue, and mechanism of providing a subsidy to residential ratepayers is in decline - the relative contribution of business rates to our organisational revenues has continued to be eroded in real terms over the last 6 years.
As returns on business properties have been so low - there has been a move by owners to redevelop some of these for residential developments - we have seen this in both Industrial and 3C Regional properties. This has the effect of increasing the no. of residential rateable properties but reducing the business rateable land stock, and hences changes the balance of the business rates subsidy to residential properties.
Total rates have grown from $54.39million in 1995 to $67.855 million in 2001 - a total growth of 25%
Hence Residential Rates have increased from $32.458 million in 1995 to $42.904 million in 2001 - this represents a total growth of 32%, or 12% in real terms
Residential rates have grown from being 60% of the total rates collected in 1995 to 63% of total rates collected in 2001
Business Rates, excluding mining, have increased have increased from 20.703 million in 1995 to $22.939 million in 2001 - this represents a total growth of 11%, or a decline of the order of -6% in real terms.
Business Rates have declined from providing 38% of the total rates collected in 1995 to 34% of the total rates collected in 2001.
So we are constrained in how we can increase revenue - ie due to rate pegging legislation and also there is a limit to how many extra charges that can be increased or introduced
Our dependency upon rates and annual charges for revenue has been growing over the last 6 years
Our dependency upon the residential component of rates, compared with business rates, for revenue has been growing over the last 6 years
Local Government authorities have undertaken entrepreneurial activities to break out of this cycle
However Local Government has been at risk at performing poorly in entrepreneurial activities eg Gateway, although I understand that the net returns that we have been getting from our Tourist Parks has been favourable
We have sought to develop land for sale in order to supplement our traditional sources of revenue
We have also sought to sell off "surplus" council land to supplement our traditional sources of revenue
There is a finite limit to the amount of "surplus" land to be sold and the amount of land that can be developed and sold
We have sought to supplement residential rates by charging business rates at a higher Cents/Dollar.
However the relative contribution of this subsidy provided by business rates is not sustainable and has been falling over the last 6 years.
We have been adding to our stock of rateable residential land by about 1000 properties each year for the last 6 years
Total residential property valuation for the whole city has been growing by about 10.5%pa over the last 6 years
This growth in total city residential property valuation has been due to an increase in the no. of properties and also an increase in average property values - it is well in excess of an annual inflation rate of about 2.45%pa over the last 6 years.
The growth in total city residential property valuation has been outstripping our total city business property valuation over the last 6 years.
Total city business property valuation has been growing by about 0.6%pa over the last 6 years - this is well below an annual inflation rate of about 2.45%pa over the last 6 years - and so is in fact a decline in total valuation in real terms over this period
This low annual growth and decline in real terms may be attributable to changes in the average business property valuation and/or a reduction in the number of business properties.
This decline in real terms has been across all business property sectors - Commercial, 3C Regional Business & Industrial
The decline in business property valuations is most marked in 3C Regional Business and Business Heavy 1 Activity 1
Given the international steel situation there is the concern at the potential for erosion of its contribution to the city's valuations and revenues, as well as employment opportunities
We need to decide what we are going to do about Regional 3C Business - do we adopt a laissez faire approach and simply allow these to continue to deteoriate, posing a public liability injury risk and allow business revenue opportunities to be captured by other competing regions outside WCC
- do we adopt a laissez faire approach and simply allow property owners to seek residential redevelopments with the ensuing controversies associated with greater maximum height levels and density/floor space ratios compared with nearby residential properties
- do we attempt to rejuvenate selected sites in a strategic fashion - given that our city stock of residential properties has been increasing each year it would tend to suggest that there should be a commensurate increase in consumers/customers, and hence associated potential revenues if they are sufficiently attractive to compete with other localities
- do we recognise that such sites need to be refurbished, and facilitate this as part of the "public good" provided by government
- do we accept that there will be some residential redevelopment of some of these 3C Regional Business areas and develop a set of guidelines to manage the process and reduce community controversy and the consuming of organisational energy/focus
The business areas showing the lowest declines in total valuations are Commercial, Business Heavy Industrial and Business Light Industrial - this is interesting - suggesting that the perceived withering of the vine in Industrial activity need not be seen as inevitable, and perhaps worthy of some support, along with our support for the stars such as LendLease, ie making the most of what we have, as well as pursuing new opportunities
The low growth, and in fact decline in real terms, of Total Business Property valuations is of deep concern - given that it could be seen as one of the indicators of the economic health of our city - ie the value of a business property reflects its potential capability to contribute to income generation - inferring concerns about our ability as a city to generate business income as a whole region.
As an organisation, Wollongong Council has committed large amounts of resource and energy to addressing concerns about residential property development in controversial areas.
We have not applied as much resource and energy to economic development in a planned and strategic manner - we have tended to resource Tourism Wollongong and the Innovation City Imaging Campaign - but there is some question as to we have done detailed econometric modelling to assess the impacts of the application of scarce financial resources to these initiatives, and indeed to assess whether other forms of economic activity should be promoted, albeit that we have given a limited amount of organisational energy to the Retail/Commercial, IT and Education sectors, and in recent years very little strategically to the Industrial (non Heavy Activity 1) arena. We need to be wary of "sacred cows", "turf wars" and the dangers, as well as potential opportunities, associated with cliques and "special relationships".
We have recognised that there is a need to rethink this and to that end, the Innovation City Imaging Campaign is being reviewed and the proposal for an Economic Development Officer is being pursued, as well as support for the AIG's Business Cluster Network, similar to HunterNet is being given a very limited amount of organisational energy.
So in order to address our current and medium/longterm situation we need
to not only address the issue of reigning in the expenditure side of the equation - but we also have a potential increasing concern on the revenue side with the reducing subsidy that business rates are providing to our residential rates.
We need to support business activity, not only for revenue for WCC, but for revenue generation for the whole city, and employment generation.
Crucial to this is a carefully targetted approach to strategic planning in the economic development arena on a "whole of city economy" basis, rather than simply picking winners.
In approaching such a "whole of city economy" focus there is a need to assess what sort of opportunities are available, that may be sustainably located in our region, from both economic and environmental perspectives.
There is a need to recognise our existing strategic and competitive advantages, as well as our existing civil infrastructure, existing business capital investment in infrastructure, as well as the Intellectual Property embedded in our city workforce across all levels of employment - in recent times we have tended to ignore some of these existing assets - but have been listening to the examples of HunterNet and also Rodin Genoff - Playford Council, South Australia.
We need to target what infrastructure needs to be upgraded - eg road, rail, IT Broadband/Wideband, as well as pursuing cultural change in the city in terms of lifelong learning, ie Learning Cities, as the traditional dependency of a job for life at the steel mill or coal mine is on the skids, and so people need to have the opportunity and encouragement to undergo progressive additional training beyond their initial employment qualifications. We need to deal with the self limiting threats personality conflicts, turf wars, sacred cows, silo mentalities and encourage a collaborative/inclusive environment
Yes - we are in a challenging situation - and we do need to balance both sides of the equation, both expenditure and revenue - because unless we can offset the declining relative contribution of business rates to WCC's total revenues, simply cutting our expenditure is never to be enough - we need to undertake a targeted approach to a "whole of city economy" strategic planning to increase business activities and revenues
Cr Kerrie Christian
Ward 1 Wollongong City Council
4.03.02
Authorised Kerrie Christian
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