Newcastle and Lake Macquarie ratepayers could be left footing the bill with cut services or steeper rates after the two councils revealed they stood to lose a combined $193 million in state funding over the next decade under proposed changes to how grants are carved up.
City of Newcastle and Lake Macquarie City Council have joined with Central Coast Council and Mid Coast Council in calling on the NSW Government to pause proposed changes to 2027 Financial Assistance Grants, warning the four councils face a combined hit of almost half a billion dollars.
Newcastle faces the sharpest cut.
The council currently receives about $15.5 million a year but, under the proposed methodology, that would more than halve, leaving a shortfall of at least $9.4 million a year and more than $108 million over the decade.
Lake Macquarie, which receives almost $21 million annually, faces a reduction of at least $7.2 million a year, an estimated $85 million over the next decade.
The council's say the NSW Grants Commission wants to reallocate the funding to councils whose residents can less afford higher rates.
The Local Government Grants Commission (LGGC) is consulting on proposed changes to the methodology.
The LGGC is conducting a roadshow of in person and online stakeholder consultation sessions in Sydney and regional locations to outline the proposed methodology and provide councils with an opportunity to offer feedback.
Details of the proposed methodology have now been published online, and councils are encouraged to review these details, attend a consultation session and make a submission to the LGGC.
City of Newcastle chief executive Jeremy Bath said the cuts would threaten services relied on well beyond the council's boundaries.
"We fund regional assets such as the Civic Theatre, the Newcastle Art Gallery, the Newcastle Ocean Baths, the Newcastle Museum and even our swimming pools, which are majority used by people who don't pay their rates in Newcastle," Mr Bath said.
"Robbing Peter to pay Paul isn't a solution that makes councils sustainable."
Lake Macquarie chief executive David Hughes said the cuts would hit hardest in a council area growing faster than almost anywhere else in regional NSW.
"With our population expected to grow by more than 50,000 people to reach 277,000 by 2066, councils like ours need funding models that recognise and support the challenges of growth," Mr Hughes said.
"A recurring reduction of this scale would place significant pressure on council's ability to continue delivering the infrastructure and services our community expects and deserves."
The four councils argue the proposed model unfairly assumes ratepayers can absorb higher rates than residents elsewhere in the Hunter, and say the model counts income from Newcastle Airport, despite the airport being a separate legal entity that reinvests its earnings into its own operations.
Central Coast Council faces a hit of up to $20 million a year.
Councillor Jared Wright said the change would compound an existing squeeze on ratepayers.
"The NSW Government already slugs Central Coast ratepayers with more than $600 in costs every year through cost shifting. This year they have also doubled the annual cost of the emergency services levy," Cr Wright said.
"Every council has already adopted long-term financial plans with their expected contributions baked in.
"Let me be very clear, if the NSW Government changes the methodology as proposed in October, it will have catastrophic impacts on our larger regional councils."
Mid Coast Council, still recovering from a one-in-500-year flood last year, faces a $5 million annual cut.
The NSW Local Government Grants Commission argues its current funding formula has become too complex and unreliable to trust.
In presentations to councils, the commission says the calculation's complexity undermines transparency and confidence that grants are being allocated fairly, and that key data feeding into it, including council-reported expenditure figures and road length data, lacks independent validation.
The commission also points to significant year-on-year swings in the costs councils report, and says several of the factors used to judge a council's relative disadvantage, such as rainfall, topography, drainage and environmental land area, rely on data that is now outdated or invalid.
Separately, the commission says the changes are about better meeting its legal obligations under the Commonwealth Local Government (Financial Assistance) Act 1995, which requires grants to be distributed according to councils' revenue-raising capacity and expenditure needs, giving all councils similar capacity to deliver services regardless of their ability to raise revenue locally.
In practice, that means comparing each council's average property values to the state average: those above the average, including Newcastle, Lake Macquarie and Central Coast, are judged to have greater capacity to raise revenue through rates and receive a reduced allowance as a result.
The four councils say they support fairer funding for struggling rural and regional councils, but argue any redistribution should wait until the state government knows how much extra funding will flow from a July agreement between the federal government and the Australian Local Government Association to boost untied council funding.
"No council in NSW should be worse off simply to prop up another council who is struggling financially," the councils said in a joint statement.
The Office of Local Government was contacted for comment.
