Focus on Finance - Summer 2017
Effective Management of Overdue Rates
From time to time, some ratepayers experience financial hardship and have difficulty in paying their Council rates on time. There are a wide range of reasons why the ratepayer might be experiencing hardship but common reasons include:
- Loss of employment;
- Change in family situation;
- Economic downturn;
- Prolonged illness.
While these situations are unfortunate for the ratepayer, Councils have an obligation to all ratepayers to collect rates in a timely manner to ensure that adequate services and high quality public infrastructure are provided to the whole community for their benefit and enjoyment. It is for this reason that Councils simply cannot elect to allow ratepayers to drift in meeting their payment obligations and must take a pro-active role in monitoring that rates are paid on time.
Section 182(1) of the Local Government Act 1999 (the Act) provides Councils with the opportunity to take a flexible approach to the collection of rates. Where a ratepayer has encountered financial difficulty, pursuant to this Section of the Act, the ratepayer can enter into an arrangement with the Council which provides for the reduction of the ratepayer’s debt in a timeframe that the ratepayer is capable of meeting having regard to their overall circumstances. Importantly, however, the arrangement must be mutually satisfactory to both the Council and the ratepayer. The Council could act fairly and equitably, and decide to decline a ratepayer’s request to postpone their obligation to pay rates.
It is important Councils have an overdue rate collection policy with clear expectations for Council staff that are responsible for monitoring compliance with payment obligations and instructing an external debt collection agency. A clear and well structured policy provides the relevant officer with guidance on decision making which allows them to make decisions on applications for extensions in a timely manner.
Further, as it is a discretionary power, it is important that Councils have a very clear policy on when the discretion should be exercised to ensure that Councils work with ratepayers in a uniform manner. From a governance perspective, it also provides the officer with comfort in that in exercising their discretion to grant an extension of time to pay outstanding rates, that they are discharging their duties in accordance with the Council’s authority and approval. This also reduces the likelihood of the officer’s decision becoming the subject of any complaint or investigation. For example, it is very important for all ratepayers to be treated equally and fairly. If a community member feels they have not been treated fairly by the Council and lodges a complaint, or an application for review, if the officer can demonstrate their application was considered in accordance with the Council’s policy, the complaint can be dealt with expeditiously and therefore minimise the time occupied by Council management in considering and responding to the complaint. Equally, if an officer decides that it is appropriate to decline an application for an extension of time to pay their outstanding rates and enforcement action is taken, the officer will have the confidence that their decision making process has been in accordance with the Council’s preferred method of dealing with ratepayers’ applications for relief from payment obligations. Irrespective of the outcome of the Council employee’s decision, it is sound practice for the employee to make a brief written record of the reasons for the decision that was made.
We have a long history of acting for Councils to successfully recover outstanding rates. In our experience, Councils are often perceived to be a ‘soft’ creditor because Councils are slower to take recovery action than other commercial creditors, such as credit card providers or ‘pay day’ lenders, and are less aggressive in their stance on collections. It is for this reason that ratepayers who are experiencing financial hardship may prioritise payment to other, more aggressive, creditors leaving the Council towards the end, or last, on the list of creditors they pay. A detrimental consequence for the Council is that it has to bear the cost of funding the shortfall in revenue while the rates are outstanding. The flow-on effect for all ratepayers is that Council’s ability to deliver services is diminished.
Councils are often at the frontline of providing services to those suffering financial hardship and are exposed to the difficulties that some ratepayers face on a daily basis. It is for this reason it is preferable for Councils to work with, rather than against, ratepayers to assist them in meeting their obligations. For example, referring ratepayers to financial counsellors and gaining assistance from the counsellor, can provide the ratepayer with the advice and skills they need to better manage their circumstances to pay all their debts. Another example is that the Council may elect, pursuant to Section 181(9) of the Act, to remit the fine and interest which is automatically payable on overdue rates pursuant to Section 181(8) of the Act. It is steps such as this which help maintain a sound relationship between the Council and the ratepayer.