Councillors say Newcastle ratepayers are not a "bottomless pit" as proposed changes to the way federal grants are handed out threaten to strip more than $108 million from City of Newcastle over the next decade.
The NSW Local Government Grants Commission is reviewing the method used to distribute Financial Assistance Grants to NSW councils to ensure they have the same capacity to provide public services and that funds provided reflect the current climate.
On Tuesday, Newcastle councillors unanimously backed a submission condemning the proposed method, which would see the city's kitty slashed by more than half from $15.5 million to $6 million each year.
Labor councillor Declan Clausen said he rejects the idea that the solution to the financial sustainability crisis facing rural and regional councils is for them to manufacture a new one in Newcastle, Lake Macquarie, the Central Coast and Wollongong.
"The modelling in front of us tonight shows that would push our council into an operating deficit every single year," Cr Clausen said.
"That is real money that is used by our council and our communities to maintain our roads, our footpaths, our pools, libraries, parks and community facilities, and I really think there's a fundamental flaw in the logic that's being applied here in the City of Newcastle.
"The answer cannot be to set rural councils, coastal councils and regional cities up against one another and ask them to fight it out over the same limited pool of Commowealth revenue."
Newcastle and Lake Macquarie councils have joined forces with Central Coast and Mid Coast councils calling on the state government to pause the proposed changes, warning the four councils face a combined hit of almost half a billion dollars.
The NSW Local Government Grants Commission argues its current funding formula has become too complex and unreliable to trust.
The proposed method places weight on household income as an indicator of a council's capacity to raise revenue.
City of Newcastle argues that is inconsistent with the NSW local government funding framework because councils cannot levy rates based on household income and are constrained by rate pegging.
The submission argues Newcastle provides facilities and services that benefit people across the Hunter, including museums, art galleries, libraries and sports venues.
Those facilities are mostly funded by Newcastle ratepayers despite being used by people from outside the city.
The council believes the method should factor in other challenges facing coastal councils around hazard assessments, coastal protection and long-term adaptation planning.
Independent lord mayor Gavin Morris said Newcastle, Lake Macquarie, the Central Coast and Mid Coast councils face a loss of $41.6 million each year combined if the new method is used.
"The proposed model assumes Novocastrians can simply pay more in rates to make up the difference, I don't accept that. Our ratepayers are not a bottomless pit," Cr Morris said.
"So let me be clear: we're not saying rural and remote councils don't need help, they absolutely do. But you don't fix one council's problem by creating another for our residents to carry.
"That's robbing Peter to pay Paul, and in this case, Peter is every ratepayer in Newcastle."
Last month, Newcastle councillors welcomed the Australian Labor Party's commitment to develop a five-year Federation Compact with local government.
While it is not legislation yet, the Federation Compact would increase federal funding assistance to help local government with service delivery and allow Roads to Recovery funding to be used to buy plant and equipment.
City of Newcastle could pocket an extra $17 million a year to spend on roads and community infrastructure if the federal government restores funding to councils.
The council wants the methodology consultation process to be paused until Federation Compact legislation has been debated and will request a reasonable timeframe for councils to consider the proposal once the outcome of the legislation is known.
The council will write to local MPs asking them to make their position clear on the proposed methodology and the capacity of ratepayers to pay more to maintain services.
