Understanding Postponed Rates in Local Government

Postponed rates play a crucial role in the financial ecosystem of local governments, particularly in supporting ratepayers who find themselves in financial distress. This system enables property owners to defer the payment of their council rates, providing relief when immediate payment is not feasible. While not all councils are mandated to offer this service, it can be a lifeline for those struggling to meet their financial obligations.

What are Postponed Rates?

Postponed rates are essentially a deferral of council rate payments. Instead of paying the full amount of rates on their due date, eligible property owners can apply to have a portion or all of their rates postponed. This means that the debt accumulates over time and is usually paid when the property is sold or transferred.

Why Are Postponed Rates Important?

For many ratepayers, especially those who are asset-rich but cash-poor, such as elderly homeowners on fixed incomes, paying annual rates can be a significant burden. Postponed rates provide a way for these individuals to remain in their homes without the immediate pressure of large rate bills. This system is particularly vital in cases where property values and thus rates increase dramatically, such as when a residential property is rezoned for commercial use.

Mandated Postponed Rates

In some parts of Australia, like South Australia, councils are mandated to offer postponed rates. This ensures that all eligible ratepayers have access to this form of financial assistance. Other councils across the country have the discretion to offer this service and can tailor it to meet the needs of their communities.

Real-World Example

I once encountered a situation involving an elderly pensioner whose home was rezoned to commercial, causing her rates to spike significantly. Her house was located in the centre of the main town, and while the value of her property increased, so did her rates—without any additional services provided. Each year, this particular council would manually adjust her rates, writing off the difference. However, they could have postponed the rates instead, allowing the debt to grow at a manageable interest rate until the property was sold, at which point the debt would be paid from the sale proceeds.

The Complexity of Postponed Rates

While the concept of postponing rates is straightforward, the implementation can be complex for people such as me who are daft enough to try and tackle things such as this in computer software. Let's break down a hypothetical example to illustrate how something so simple can get so complex rather quickly:

How Can It Get Complicated?

Well, let's imagine you own a house and your yearly council rates are $2,000. And your council decides to let you postpone paying $1,500 (75%) of that amount because you're having trouble paying right now for whatever reason. You can pay the rest, $500, over four smaller payments throughout the year.

But the rates are not just $2,000 as they are for multiple things, for ease of understanding let's say that it includes two parts:

• $1,800 for general services
• $200 for waste services

If we divide these by four because you pay in four instalments (rates are often not this clean cut), you would normally pay:

• $450 every three months for general services
• $50 every three months for waste services

But since you're postponing $1,500 of the total $2,000, each instalment would look like this:

• You pay $112.50 for general services ($450 - $337.50 postponed)
• You pay $12.50 for waste services ($50 - $37.50 postponed)

So every three months, instead of paying $500 total, you only pay $125, and the remaining $375 is postponed.

Ah but then you get interest, and that can be calculated at different percentages so lets say they are:

• General services might have an 8% interest rate.
• Waste services might have a 10% interest rate.
• Postponed rates might have a 2.75% interest rate.

And now let's say that you don’t pay the non-postponed part, for whatever reason. The unpaid amount will also accumulate interest throughout the year as normal. But not only this when the next financial year comes and rates are raised again you'll now have arrears rates * interest. So now you have 4-5 different debts with different interest rates all calculated daily for one property. This seems like a whole heap of headache for one property but I assure you situations such as these happen far more often than you would think.

Managing Postponed Rates

Understandably handling postponed rates can be a data management challenge for councils depending on their setup. For our customers less so because they just enable the feature and essentially set and forget but that comes from our extensive experience in local government operations giving us the ability to develop software that automates these processes. But we would not be the only ones doing this, and I'm sure others have taken on the gargantuan task of setting this up in such a way to make it easy for their users. I mean, we did it, and we're small,.. so surely the others have as well.

Conclusion

We are not the only software vendors offering these features - but if your's is not, you need to start looking. This feature can provide significant relief to ratepayers, ultimately benefiting the community you are there to serve. Realistically, it's not as if the council will not get the money at some point as it is property-based debt. Next time the situation comes up (and it will!), keep in mind that this may be something you can explore.