VGC Financial Assistance Grants

2016-17 Financial Assistance Grants

The Financial Assistance Grants allocation to Victorian councils comprises:

Both grants are untied, which means that the Commonwealth cannot direct how they are spent by councils.

General purpose grants

General purpose grants are one of the two components of the financial assistance grants (along with local roads grants) provided by the Commonwealth Government to local government. 

The Local Government (Financial Assistance) Act 1995 (PDF, 50.6 KB, 21 pp.) provides that the grants are untied; that is, the Victoria Grants Commission is unable to direct councils as to how the funds allocated are to be spent. General purpose grants are allocated between Australian states and territories on a population basis.

The Victoria Grants Commission's methodology for allocating general purpose grants takes into account each council's assessed relative expenditure needs and relative capacity to raise revenue.

For each council, a raw grant is obtained, calculated by subtracting the council's standardised revenue from its standardised expenditure.

The available general purpose grants pool is then allocated in proportion to each council's raw grant, taking into account the requirement in the Commonwealth legislation and associated national distribution principles to provide a minimum grant to each council.

Expenditure

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.

Nine expenditure functions are:

  • Governance
  • Family & Community Services 
  • Aged & Disabled Services
  • Recreation & Culture
  • Waste Management
  • Traffic & Street Management 
  • Environmental Protection Services
  • Business & Economic Services
  • Local Roads & Bridges

Cost adjustors

A key element of the general purpose grants methodology is a set of cost adjustors, which allow the Commission to take account of the characteristics of individual councils and the impact those characteristics have on the relative expenditure needs of councils.

A number of cost adjustors are used in various combinations against each function. These allow the Commission to take account of the particular characteristics of individual councils which impact on the cost of service provision on a comparable basis. 

Information on each cost adjustor, and spreadsheets showing the calculation of each cost adjustor are provided below, as well as two general documents relating to cost adjustors.

Revenue

A councils standardised rate revenue, is calculated for each council by multiplying its valuation base by the average rate across all Victorian councils over three years. Revenue raising capacity is calculated separately for each of the three major property classes (residential, commercial/industrial/other and farm) using a three year average of valuation data. Revenue in lieu of rates received by some councils, is added to the calculation.

A council's relative capacity to raise revenue from user fees and charges, or standardised fees and charges revenue, also forms part of the calculation of standardised revenue.

A set of revenue adjustors is used in the formula and are designed to reflect differences between councils and take account of factors that impact on a council's relative capacity to raise revenue from user fees and charges.

To find out more about revenue adjustors, the following documents are available:

Local roads grants

This formula is designed to reflect the relative needs of Victorian councils in relation to local roads funding in accordance with the national principle relating to the allocation of local roads funding.

The local roads grant allocation model includes the calculation of a 'network cost' which draws on each council's road length (for all surface types) and traffic volumes, using average annual asset preservation costs for given traffic volume ranges.

Average annual preservation costs for each traffic volume range are used in the allocation model to reflect the cost of local road maintenance and renewal. 

The methodology also includes a series of cost modifiers for freight loading, climate, materials, sub-grade conditions and strategic routes and takes account of the deck area of bridges on local roads.

Cost modifiers

Five cost modifiers – freight loading, climate, materials, sub-grades and strategic routes – are used in the local roads model to take account of local conditions. The current information sheets for each of the cost modifiers, as well as a Local Roads Grants Model are available below.

The actual local roads grant is then determined by applying the available funds in proportion to each council's calculated network cost.

Additional information on the calculation of general purpose grant and local roads grants is available in the Commission's annual report.

Page last reviewed on 26 October 2016

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