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Wednesday, January 26, 2011

Council compels residents to subsidise a developer

City of Greater Geelong councillors voted unanimously last night to compel residents in the Central Road area of Drysdale to subsidise the costs of Melbourne-based property developer Pinnacle Holdings.

This extraordinary decision is the latest stage in an eleven month argument between the council and residents. The council wants the residents to pay $1,149,476 (77%) of the cost of a new drain to service Pinnacle Holdings' planned retirement village in the area. Last night, councillors voted unanimously to levy a 'Special Charge' compelling each household in the area to pay between $2,000 and $250,000 for the Pinnacle Living drain. Just under half the households in the area now face a bill for more than $10,000 each.

The residents - many of them retirees on fixed incomes - have argued that since the drain enables Pinnacle Living to build and profit from its retirement village, Pinnacle Living should pay for it. The council has responded that while the drain's primary purpose is to service the proposed retirement village, its presence will enable nearby residents to sub-divide and sell their properties at a profit - a 'special benefit' as the council calls it. From that perspective, the 'Special Charge' is a way to recoup the cost of the drain from the people who will benefit (profit) from it.

The Drysdale & Clifton Springs Community Association (DCSCA) has supported local residents in their argument. DCSCA has argued that the councils' position is flawed on two counts:
  • The council has guessed how much 'special benefit' (profit) will accrue to local households from the drain's installation. It has admitted that it has no evidence that the subdivision and/or sale of any block of land in the area will even cover the 'Special Charge' levied on the owner of that land, let alone generate any profit.
  • The council's guesstimated 'special benefit' is a phantom value. Households gain a 'special benefit' only when they subdivide and/or sell their land. Until then, they gain nothing. In public and private meetings about the proposal, many households in the Central Road area have said that they don't want to subdivide and/or sell their properties, because, 'This is our home, not an asset'.
'Question Time' at the council meetings on 14 December 2010 and 25 January 2011 revealed further flaws in the council's position:
  • The council changed the legal basis of its proposed ‘Special Charge’ for households in the Central Road area after it was exhibited for public comment and after councillors were due to discuss it. In Question Time on 14 December 2010, councillors were asked how the proposed 'Special Charge' on households in the Central Road area could proceed, when Section 163B (6.1) of the Local Government Act prevents it from doing so if a majority of landowners object to it (which they do). Officers replied that under Section 163B (6.2) of the Local Government Act, the council can levy a 'Special Charge' to protect public health. That was the first time that the proposed 'Special Charge' had been related to public health. Public health considerations were absent from the documentation about the proposal that was exhibited for public comment; and they were absent from the officers' report on the proposal that councillors were due to discuss at that council meeting on 14 December 2010. Perhaps this is why councillors Richardson and Macdonald acted swiftly at that meeting to ask the council to postpone discussion of the report until the 25 January 2011.
  • The council has no evidence to support its claim that the drain is a public health issue. In Question Time on 25 January 2011, councillors were asked whether the council had investigated whether there were any specific risks to public health if the drain wasn't installed. Officers replied that council had conducted no such investigation, but that 'drains and public health often go together'.
  • The council changed the operation of its proposed ‘Special Charge’ for households in the Central Road area after it was exhibited for public comment. The council responded to the public outcry over its proposed 'Special Charge' by allowing households to defer payment until they subdivide and/or sell their property. However, if a household decides to defer paying its 'Special Charge', the council will charge it 5% p.a. compound interest. For example, if a household defers a 'Special Charge' of $10,000 for five years, it owes $12,762; and if it defers for ten years, it owes $16,288. Further, the officers' report of 25 January states that that interest will accrue quarterly, not annually, which will increase the debt still further. The deferral option is a major change in the council's ‘Special Charge’ policy and sets a precedent for the future operation of that scheme; and the council introduced it after it exhibited the original proposal for public scrutiny and comment. Nonetheless, it has refused to exhibit an amended version of the original proposal that includes the deferral option. In Question Time on 14 December 2010 and on 25 January 2011, councillors were asked why the council wasn't seeking public comment on this change of policy; on each occasion, officers replied that it wasn't a change of policy, so council didn't need to seek public comment on it.
  • The council has entered a legal agreement to share the drain's cost without budgeting for it. In Question Time on 14 December 2010, councillors were asked whether and how the council has budgeted for its (legally binding) share of the cost of the drain. Officers and councillors replied that there isn't a specific budget item for this cost. Instead, the council intends to pay for it with a loan, then levy the 'Special Charge' to get landowners to pay off that loan and any associated interest.
  • The council doesn't know how it will recover any money outstanding from deferred 'Special Charges'. Under the deferral option, when the council is due to pay its share of the drain's cost (in five years), it may not have received all the money that the 'Special Charge' is meant to deliver. In Question Time on 25 January 2011, councillors were asked how the council intended to raise the outstanding amount. Officers replied that the council had no idea how it would do so.

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