IT’S the 1940’s superannuation fund that is now sinking council plans for infrastructure development.
First published in Issue 7 of The Warragul Citizen. Page 8, 5 October 2012.
The Local Authorities Superannuation Fund (LASF) is unusual. Closed in 1993 by then-Victorian Premier Jeff Kennett, legislation requires councils to keep the scheme fully funded through payments every three years if required.
It was expected to die quietly, but its unique structure meant it was more susceptible than most funds to the effects of the Global Financial Crisis. Liabilities went up and this year the Baw Baw Shire Council was told it had to pay close to $4 million by July next year to meet requirements.
Sinking feeling: The Baw Baw Shire Council has to cut expenditure, including delaying funding for a new outdoor pool, after a four million dollar superannuation call threw budgets into disarray. Photo: Author.
The council had been told by fund manager Vision Super to expect much less, and the scheme abandoned two decades ago is now limiting the abilities of councils across the state to work on planned projects.
When the bill hit the desks of the Baw Baw Shire Council, it crossed paths with a review sanctioned by councillors in March to investigate the financial impact of a planned new outdoor pool in Warragul.
The package of a 50m x 25m outdoor pool and refurbishments to present indoor pool had been allocated $2 million in borrowings to pay for early stages of development, but last month councillors agreed to council officer reccomendations to reconsider this funding in light of the unexpected debt.
For Warragul Outdoor Pool Lobby spokesperson Kerry Elliott, the delay is understandable but frustrating.
“There’s no doubt council has to live within its means and those means aren’t great at the moment,” says Ms Elliott.
“The proposed monies are going to be diverted to the superannuation; again, unavoidable, but that’s the second lot of major amount of money we have lost that was provided for the outdoor pool.”
The pool funding deferral is the only policy change recommended by council staff to cover the costs of the superannuation top-up so far, with decisions on more expenditure cuts to be presented to the new council shortly after it is elected next month.
“I think we’ll brief the new council on it relatively early, give them the options for payment which aren’t fully laid out at the moment,” Baw Baw Shire Director of Compliance and Corporate Services Tim Frederico told The Warragul Citizen.
“At the moment the options we’ve got are; borrow the money, severely cut back on the capital program or look at an instalment payment, but we don’t know at what interest rate that’ll be charged at.”
A rate rise is “not on the table.”
“Councils need to raise revenue and one of the major area of revenue is rates, but I’d like to think we’d explore every other option first.”
Mr Frederico says the new council will have to determine how long to delay projects like the outdoor pool as this might not be the last large payment asked of councils.
“The biggest issue we face is that this isn’t the last call.
“This is going to be an ongoing issue for quite a few years yet, I understand that the youngest member of the scheme is in their mid-thirties.”
But this is not the only way out for councils; the Municipal Association of Victoria (MAV) has formed a working group to address the issue. Although Baw Baw is not a member, it is watching closely.
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“I think the biggest problem is it’s a legacy that’s been left to us and the legislation around that legacy is quite difficult to work around,” says MAV President Councillor Bill McArthur.
“What the taskforce is trying to do is examine options to assist local government to minimise the current liability and also look for longer-term opportunities to shield councils from future shortfalls.
“It requires a change in legislation for the fund to go back into a typical public sector fund.
“That is not an easy task, it needs agreement of the state and it then needs to be agreed to by the commonwealth at the same time.
“We’re advocating for that to happen. It’s early days and I won’t pre-empt the outcome, but we are in discussion with both levels of government.”
Cr McArthur says there is no popular approach councils are taking to this issue, but most will have to revisit their budgets.
“They (councils) will have to review what they’re delivering service-wise [and] what they’re delivering capital improvement-wise.
“They’ll also have to look at their buying capacity and as councils move into caretaker this week (at time of interview); this will be a decision for councils after the elections and it’ll entail a budget review process which is quite detailed.
The State Government seems to be on the same page.
“The Minister for Local Government (Jeanette Powell) has written to the federal minister, Simon Crean, asking him to consider options to limit the effect of the superannuation shortfall on councils and discussions with the federal minister are ongoing,” says spokesperson for Ms Powell Greg Charter.
“The Victorian Government is considering a number of other courses of action, but no decisions have yet been taken. When decisions are made, they will be communicated to the relevant stakeholders.”
Mr Charter is playing down the role of State Government in helping councils.
“The Defined Benefits Superannuation Scheme operates under federal legislation and is regulated by the Australian Prudential Regulatory Authority. As a consequence, any changes would have to be made by the federal government.”
Baw Baw Shire Council Mayor Diane Blackwood says the size of the call is comparable to the funds required for the unexpected closure of the Trafalgar Landfill last year, which was one of the reasons for the shire imposing the largest rate rise in the state.
“It is a huge impact on a council the size of us.
“This council decided to
increase the rates to be able to fund the five million dollars of the Trafalgar Landfill rehabilitation, so that’s the size of the rate rise to deal with money of that calibre.
“Certainly there wouldn’t be support from the ratepayers to say that they’re able to pay another hit that’s almost the same size within the twelve month period.
“We certainly are in a bit of a dilemma, because four million dollars isn’t lying around just to be paid.”
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Cr Blackwood said it would be “logical… to think we’re borrowing those funds,” and the new council will have to reconsider projects.
“The next council will have to make the final decision how we progress with any capital works because it’s certainly making an impact on that.
“Our infrastructure gap is growing by the day and we’re not able to put significant funds to the types of projects to make any headway… so it’s really difficult to explain that we’re dealing with something we really have no control over.”
Cr Blackwood said the $4 million call was a shock.
“The call had been made in previous years and we had made allowances in budgets for about $750,000, which is a bit more than we had been asked to pay at the last call in 2010.
“So we thought we had it covered, but certainly the four million dollars was a bit of a shock.
As council looks for cuts, Councillor Julie Grant, whose motion to reverse the construction of the outdoor pool was only narrowly defeated in late March, says the council could find long-term savings by investing elsewhere, if it had the money to invest.
“Council is spending a small fortune renting and continually upgrading space for its library, service centre and offices,” says Cr Grant.
“I believe it’s time to construct a multi-purpose building on the Civic Centre site that we own and that will serve the community and save money long into the future.
“Council’s financial obligations for superannuation mean this important project will not even get past first stage in the foreseeable future.”
Cr Grant says facilities in Drouin should provide what those looking for outdoor swimming need.
The sense of defeat is not only felt by councillors; some in the Outdoor Pool Lobby are not expecting action to be taken any time soon.
“Everybody says you’ll never get an outdoor pool, you’ll never get it. Well maybe they’re right,” says Ms Elliott.
Vision Super could not be reached for public comment.
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