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Freeze on local government grants to dominate annual assembly -

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CHRIS UHLMANN: And staying with the Federal Budget, the Australian Local Government Association says councils are "shell-shocked" by it.

The group claims that a three-year freeze on the indexation of Financial Assistance Grants will result in a total loss of $925 million.

And it's warning that rates in some areas may have to increase.

It's a decision that's expected to dominate discussions at the National General Assembly of Local Government in Canberra that starts today, involving almost 900 delegates.

Thomas Oriti reports.

THOMAS ORITI: This financial year, the Federal Government paid more than $2 billion in Financial Assistance Grants to councils.

That funding was expected to increase from July.

But a decision to freeze the indexation of the grants for three years has left mayors in a state of panic.

FELICITY-ANN LEWIS: I think our councils have come to Canberra, you know, somewhat shell-shocked, trying to prepare their own budgets.

THOMAS ORITI: Felicity-Ann Lewis is the President of the Australian Local Government Association.

She's also the Mayor of the City of Marion in South Australia.

FELICITY-ANN LEWIS: For some of the smaller councils who have a very small number of ratepayers, this could make the difference between whether or not they can be viable or sustainable into the future. So maybe we could sustain this for one year, but we would certainly want to see if there was recovery in the budget.

THOMAS ORITI: She says the funding was never meant to be static.

Local government had budgeted for a boost, in line with CPI and population increases.

The Association predicts councils will now lose a total of $925 million by 2018.

The Mayor of the East Gippsland Shire Council in regional Victoria, Mark Reeves, says the decision came as a shock.

His shire received a Financial Assistance Grant of more than $12 million this financial year.

MARK REEVES: This is a million-dollar plus cut every year for the next three years, and we have to recover that through residents who have already paid taxes and already paid that money. And furthermore, there is a change in the way those grants are delivered. So in the past, those grants have been delivered upfront and now they've been delayed, so the cash flow challenges for us are significant.

THOMAS ORITI: The issue is high on the agenda at the National General Assembly of Local Government in Canberra.

Mark Reeves says tough decisions have to be made, and fast.

MARK REEVES: We have a commitment to continue our current level of services but on a large shire like ours with a small rating base, this is a significant impost.

THOMAS ORITI: The impact of the freeze varies depending on where you live.

Ian Carpenter is the Mayor of Greater Geraldton in Western Australia.

He's concerned about the 15 small local government areas outside Geraldton, saying some of those councils depend on the grants to fund half of their total budget.

IAN CARPENTER: They'll become unsustainable. It's a very, very serious problem and I can't stress that enough. To take away the indexation is just crazy.

THOMAS ORITI: Felicity-Ann Lewis says ratepayers may have to foot the bill.

FELICITY-ANN LEWIS: Those people have already paid their taxes. It seems a bit harsh now for us to turn around and expect local government to raise their rates and therefore tax the same people again.

CHRIS UHLMANN: The President of the Australian Local Government Association, Felicity-Ann Lewis, ending that report from Thomas Oriti.

And AM contacted the office of the Regional Development Minister Warren Truss, but we haven't yet received a response.