I hereby give notice that an ordinary meeting of the Budget Committee will be held on:

 

Date:††††††††††††††††††††††

Time:

Meeting Room:

Venue:

 

Tuesday, 18 November 2014

1.30 pm

Reception Lounge
Auckland Town Hall
301-305 Queen Street
Auckland

 

Budget Committee

 

OPEN ADDENDUM AGENDA

 

 

MEMBERSHIP

 

Chairperson

Mayor Len Brown, JP

 

Deputy Chairperson

Cr Penny Webster

 

Members

Cr Anae Arthur Anae

Cr Calum Penrose

 

Cr Cameron Brewer

Cr Dick Quax

 

Cr Dr Cathy Casey

Cr Sharon Stewart, QSM

 

Cr Bill Cashmore

Member David Taipari

 

Cr Ross Clow

Member John Tamihere

 

Cr Linda Cooper, JP

Cr Sir John Walker, KNZM, CBE

 

Cr Chris Darby

Cr Wayne Walker

 

Cr Alf Filipaina

Cr John Watson

 

Cr Hon Christine Fletcher, QSO

Cr George Wood, CNZM

 

Deputy Mayor Penny Hulse

 

 

Cr Denise Krum

 

 

Cr Mike Lee

 

 

(Quorum 11 members)

 

 

 

Mike Giddey

Democracy Advisor

 

17 November 2014

 

Contact Telephone: (09) 307 7565

Email: mike.giddey@aucklandcouncil.govt.nz

Website: www.aucklandcouncil.govt.nz

 

 


Budget Committee

18 November 2014

 

ITEM†† TABLE OF CONTENTS††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††† PAGE

11††††††† Rates transition management option††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††† 5 ††

††


Budget Committee

18 November 2014

 

Rates transition management option

 

File No.: CP2014/27028

 

††

 

 

Purpose

1.†††††† This report sets out options for a rates transition policy for the Long-term Plan 2015- 2025.

Executive Summary

2.†††††† The advice in this report is based on the rating policy adopted by the Governing Body at its meeting on 6 November to be consulted on as part of the Long-term Plan 2015-2025.† There are two key factors driving changes in rates for 2015/2016:

∑††† revaluation impacts

∑††† remaining transition for residential ratepayers.

3.†††††† For 2015/2016 135,000 ratepayers will face increases over 10 per cent.† Of this number around 30,000 are still transitioning towards the rates set under the regionally consistent rating policy adopted in 2012.† A further 160,000 ratepayers are facing decreases 7,000 of whom are still to move to their rates under the regionally consistent rating policy.

4.†††††† Large and sudden changes in rates may cause affordability issues for some ratepayers. However, adopting a transition policy requires some ratepayers to pay more rates than they otherwise would in order to reduce rates for other ratepayers. This results in properties of the same value paying different rates which raises fairness issues. When considering a rates transition management policy a balance needs to be struck between how much rates are allowed to increase each year verses how much it costs other ratepayers, which ratepayers pay and how long it would take to fully transition.

5.†††††† Most of the changes in rates that will occur in 2015/2016 are due to the revaluation. If insufficient change is allowed to happen over the next three years then there would still be ratepayers facing changes when the next revaluation occurs.

6.†††††† Four options have been developed and are assessed below.

Option 1: No transition

7.†††††† While a large number of ratepayers would face increases over 10 per cent for the majority of residential ratepayers the change would be less than 15 per cent and under $375 per year, or less than $7 per week.† However, 6 per cent of residential ratepayers would still face increases of over $500 per year or $10 per week.† Many of those ratepayers facing the largest changes are yet to fully move to their new rates under the new rating policy or have seen major increases in the value of their properties.

8.†††††† All ratepayers with similar value properties would pay the same rates irrespective of their location in the region. Those ratepayers facing the largest increases would be brought into line with all other ratepayers from day one. Changes in rates in future years would then be driven by the proposed overall rates increases set out in the Long-term Plan 2015-2025 and the long-term differential strategy (the gradual reduction in business rates).† There are no costs to other ratepayers.

9.†††††† Staff recommend this option as all ratepayers on similar value properties would pay the same rates and that most change is now being driven by the revaluation, which is a regular part of any councilís rates system.

Option 2: Remission for increases above 10 per cent

10.†††† This would continue to cap annual rates increases at 10 per cent.† However, as a result there would be many ratepayers with rates increases less than 10 per cent who would pay more rates than those with similar value properties whose annual increases were capped at 10 per cent.† To fund the lost revenue all other ratepayers would face additional increases of 3.7 per cent.† As a result, the average residential rates increase would be 9.3 per cent.† Many ratepayers would face rates in excess of the underlying rates requirements in the Long-term Plan 2015-2025 in the 2016/2017 and 2017/2018 years.

Option 3: Remission for residential increases above 20 percent for 2015/2016 only

11.†††† While 105,000 ratepayers would face increases between 10 and 20 per cent in 2015/2016 the impact on those facing increases above 20 per cent would be reduced.† To fund this option all others ratepayers would face an additional increase of 0.6 per cent.† Only 5,000 ratepayers would face increases above 20 per cent in 2016/2017 at which time all ratepayers would be paying the same rates for similar value properties.

Option 4: Increases capped at 10 per cent and decreases capped at -2.1 per cent

12.†††† This option would not change the average rates increase as it funds a cap on increases by slowing the decrease in rates for 120,000 ratepayers.† Many ratepayers would pay either more or less rates than similar valued properties in other parts of the region. Many ratepayers having increases capped would continue to face increases in excess of the underlying rates increase for the next three years and some would still facing large increases after the end of this period.

13.†††† The council could implement the first three options. However, the fourth option cannot be implemented without a change to legislation and would therefore require central government support.

 

Recommendation/s

That for the purposes of developing the draft Long-term Plan 2015-2025 for consultation, the Budget Committee:

a)††††† agree not to adopt a rates transition management policy.

 

 

Discussion

Rating policy for consultation as part of the Long-term Plan 2015-2025

14.†††† At its meeting on 6 November the Governing Body made the following key decisions on the rating policy for consultation as part of the Long-term Plan 2015-2025:

∑††† Uniform Annual General Charge (UAGC) of $385

∑††† proportion of general rates collected from business ratepayers of 32.8 per cent for 2015/2016 falling to 25.8 per cent by 2025/2026 in equal steps and that the

differential ratio for business be set annually to reflect this

∑††† Franklin business differential be set at a level that will align with the overall

business sector in 2016/17.

15.†††† The council also proposed a rates increase for 2015/2016 of 3.5 per cent.† The average rates increase for residential ratepayers is estimated to be 5.6 per cent being:

∑††† 3.5 per cent overall rates increase

∑††† plus 1.0 per cent to fund the reduction in rates to be collected from the business sector

∑††† plus 1.1 per cent arising from the shift in rates from the farm/lifestyle sector to the residential sector as a result of the revaluation.

2012-2022 rates transition management policy

16.†††† The Long-term Plan 2012-2022 moved ratepayers from 8 legacy rating policies to one regionally consistent rating policy.† This led to major changes in rates for many ratepayers.† To manage the impact of this change the council took advantage of the provisions in the Local Government (Auckland Transitional Provisions) Act 2010 that provided for rates transition.† The council asked the government to make some amendments to these provisions to allow it to manage transition more effectively.† The government made those changes by Order-in-Council as provided for in the legislation.† The legislation that allowed for this transition was only available until 2014/2015 and it has now expired.

17.†††† The rates transition management policy adopted by council provided for:

∑††† business to move to their new rates over a three year period in roughly equal steps (all businesses are on their new rates for the 2014/2015 year)

∑††† residential and farm/lifestyle ratepayers to have their rates increases capped at 10 per cent with this to be funded by a cap on decreases of -5.6, -2.5 and -3.0 per cent respectively for the last three years.

18.†††† Under this transition, staff estimated that 25,000 residential and farm/lifestyle ratepayers would still not be fully transitioned to their new rates by 2014/2015 and would face increases of more than 10 per cent in 2015/2016.† Due to revaluation the estimate of those not fully transitioned to their new rates and facing increases over 10 per cent in 2015/2016 has increased to around 30,000.

Changes in rates for 2015/2016 including revaluation impacts

19.†††† Changes in rates for 2015/2016 are much more tightly focused around the average than the change arising from the move to a regionally consistent rating policy in 2012/2013.† This is because most of the ratepayers have already fully transitioned. The following table illustrates this by comparing the number of ratepayers facing large increases and decreases in 2012/2013 and 2015/2016.

Rates change

2015/2016

2012/2013

Increases > 15%

57,000

98,000

Decreases < -10%

43,000

116,000

 

20.†††† Most of the changes faced in 2015/2016 (85 per cent) are no more than plus or minus 15 per cent (or within plus or minus $375).† There are 11 per cent of ratepayers facing increases over 15 per cent and 6 per cent of residential ratepayers facing increases over $500 per year.† Conversely 7 per cent of ratepayers would receive decreases of more than 10 per cent with 2.5 per cent of residential ratepayers facing decreases of more than $500 per year.

 

21.†††† The following table shows the number of ratepayers facing change in percentage bands.

Category

Percentage change in total rates

<-15%

-15% to
-10%

-10% to
-5%

-5% to
0%

0% to
5%

5% to
10%

10% to
15%

>15%

Business

2,402

2,453

5,363

7,901

8,682

5,200

2,621

4,669

Residential

11,511

11,937

27,219

67,275

113,810

97,749

74,866

51,178

Farm/lifestyle

6,464

8,247

5,876

3,682

1,627

554

300

1,446

Total

20,377

22,637

38,458

78,858

124,119

103,503

77,787

57,293

 

22.†††† This table shows the number of residential ratepayers facing change in dollar bands.

Dollar change in total rates

<-$500

-$500 to
-$375

-$375 to
-$250

-$250 to
-$125

-$125 to
$0

$0 to
$125

$125 to
$250

$250 to
$375

$375 to
$500

>$500

6,941

4,034

8,769

22,081

76,113

147,740

101,212

42,212

19,561

26,882

 

23.††††
The bubble diagram below shows the combined percentage and dollar change in rates for residential properties. The size of the bubble indicates the number of ratepayers facing changes in rates around the central point. A large bubble indicates a large number of ratepayers and conversely a small bubble indicates a small number of ratepayers.

24.†††† The chart below also shows changes in rates by percentage change bands.

25.†††† More detailed analysis of changes in rates by local board is set out in the attached appendices.

26.†††† The majority of ratepayers are facing changes in rates within plus or minus $7 per week.† While capping rates increases may make a difference for some ratepayers with low incomes, requiring other ratepayers to pay more may equally make a difference to those facing reductions in rates.

 

 

Revaluation

27.†††† The purpose of the triennial revaluation is to ensure that rates are set based on the latest property values.† Rates are not set on values fixed at a point in history e.g. when a house was constructed.† They are determined set every three years and change as property values change in the same way as income tax changes with income over time.† If changes to rates are not made in response to the revaluation, then properties whose valuation has risen would pay less, rates than similar value properties.

28.†††† Property values do not determine the total rates collected.† Property values, along with differentials and the UAGC, are used to share the rates requirement among ratepayers.† An increase in property valuation does not necessarily mean an increase in rates for individual ratepayers.† However, if the value of a property rises by more than the average increase in value, then its share of the rates would also rise.† An example of the impact is set out in the table below and compared to income tax.

Rates revaluation impact

Average property value

Percentage capital value increase

Annual rates increase

Weekly rates increase

a)         $550,000

b)         34%

c)          $6

d)         $0.12

e)         $550,000

f)          50%

g)         $219

h)         $4.20

Income tax comparison

Average household income of Auckland home owners

Pay rise

Annual tax increase[1]

Weekly tax increase

i)           $112,000

j)           0.7%

k)          $230

l)           $4.40

29.†††† The revaluation shows the largest value increases for residential properties are in the medium value locations adjoining the central suburbs. This follows the pattern of larger increases starting in the central suburbs and rippling out over time. It also shows that business properties have only increased in value by 16 per cent and farm/lifestyle properties by 17 per cent whereas residential properties have increased by 34 per cent. The changes in property values have introduced further changes in rates with 135,000 ratepayers now estimated to face increases over 10 per cent in 2015/2016.

Discussion

30.†††† Staff have developed four options for rates transition management.† These have been assessed against the following criteria:

∑††† fairness in two dimensions

-†††† affordability of change in rates

-†††† similar value properties paying similar rates

∑††† change in rates in future years.

∑††† cost to other ratepayers

∑††† implementation.

31.†††† Large and sudden changes in rates may cause affordability issues for some ratepayers. However, adopting a transition policy requires some ratepayers to pay more rates to reduce rates for other ratepayers. This results in properties of the same value paying different rates which raises fairness issues. When considering a rates transition management policy the key trade-offs are how much rates are allowed to increase each year balanced against how much it costs other ratepayers, which ratepayers pay and how long it would take to fully transition.

32.†††† As noted above, most of the changes in rates that will occur in 2015/2016 are due to the revaluation. If insufficient change is allowed to happen over the next three years then there would still be ratepayers facing changes when the next revaluation occurs.

33.†††† Staff recommend that transition is not made available to properties where values have changed due to sub-division or had a new house built on them. Change in rates for these properties is primarily caused by the actions of the owner and not a result of revaluation or the move to a regionally consistent rating policy. Where minor improvements have been made to the property then transition management would still be available for the proportion of the rates change not attributable to the improvements.

34.†††† The transition calculation would also exclude all targeted rates as they are either:

∑††† for specific services to the property such as solid waste

∑††† where the ratepayer has entered into an agreement with the council for repaying financial assistance such as the retro-fit your home targeted rate

∑††† funding activities where the ratepayer determines the rates charged such as Business Improvement District rates.

Option 1: No transition

35.†††† Staff recommend this option on balance as it moves ratepayers onto regionally consistent rates which reflect their property valuations and avoids further major change in subsequent years.† In 2015/2016 all ratepayers would be paying the same rates as other similar value properties in other parts of the region.

36.†††† While a large number of ratepayers would face increases over 10 per cent, for the majority of residential ratepayers the change would be within 15 per cent and under $375 per year, or less than $7 per week.† However, 6 per cent of residential ratepayers would still face increases of over $500 per year or $10 per week.

37.†††† Many of those ratepayers facing the largest changes are yet to move to their new rates from the move to the regionally consistent rating policy or have seen major increases in the value of their properties.† With no transition they would pay the same rates as similar value properties.† Where this presents affordability issues residential ratepayers can access the governmentís rates rebate or take advantage of the councilís rates postponement scheme.

38.†††† There are no costs to other ratepayers, no implementation issues and no ongoing transition issues.

 

Option 2: Remission for increases over 10 per cent

39.†††† This would cap rates increases by remitting rates increases above 10 per cent.† It would result in many ratepayers with rates increases less than 10 per cent paying more rates than those with similar value properties whose increases have been capped at 10 per cent.

40.†††† Using remissions to cap rates increases at 10 per cent reduces revenue from those properties by $50 million. Rates for other ratepayers would need to increase by an additional 3.7 per cent to cover the cost of the increase cap.† On average residential ratepayers would face increases of 9.3 per cent, up from 5.6 per cent.† 302,000 residential ratepayers would have increases between 5 and 10 per cent.

41.†††† The table below shows the number of ratepayers facing changes in rates in 2015/2016 by percentage band under this option.

Category

Percentage change in total rates

<-15%

-15% to

-10% to

-5% to

0% to

5% to

10% to

>15%

-10%

-5%

0%

5%

10%

15%

Business

1,823

808

3,504

6,810

7,408

18,938

0

0

Non-business

13,063

12,885

25,027

45,190

85,898

301,679

0

0

Total

14,886

13,693

28,531

52,000

93,306

320,617

0

0

42.†††† Remitting rates by capping increases at 10 per cent would result in many ratepayers facing increases in excess of the underlying rates increase in subsequent years. There would also be some ratepayers who would face increases above 10 per cent in four years time at the next revaluation.

43.†††† This policy can be implemented without any major impediments or administration costs.

Option 3: Remission for non-business increases over 20 per cent for one year

44.†††† This option eliminates the largest increases for non-business ratepayers for 2015/2016 and manages the rates changes that may present the greatest affordability issues.† This approach would help around 40,000 ratepayers.† The dollar increases for this group are primarily greater than $500 and on average $1,377.† This provides no relief for business ratepayers.

45.†††† While there is no transition for business ratepayers they will benefit from the reduction in business rates and face and average increase in rates of 1.6 per cent in 2015/2016. Businesses will also receive further benefits in future years.† Rates are a pre-tax expense for business and they can claim back the GST.† In addition a significant proportion of the average rates change for businesses is made up by two large changes for utilities.

46.†††† The table below shows the number of ratepayers facing changes in rates in 2015/2016 by percentage band under this option.

Category

Percentage change in total rates

<-20%

-20% to

-10%

-10% to

-5%

-5% to

0%

0% to

5%

5% to

10%

10% to

20%

>20%

Business

1,392

2,936

5,073

7,577

8,099

5,988

4,843

3,383

Non-business

9,574

26,632

31,019

64,582

103,316

102,236

146,383

0

Total

10,966

29,568

36,092

72,159

111,415

108,224

151,226

3,383

47.†††† While 146,000 non-business ratepayers would face increases between 10 and 20 per cent the increase for most properties would be around $375 per year, or $7 per week.

48.†††† Using remissions to cap rates increases at 20 per cent for non-business properties reduces revenue from those properties by $8.9 million in revenue. To fund this option all others ratepayers would face an additional increase of 0.6 per cent in their rates taking the average residential rates increase to 6.2 per cent.

49.†††† An estimated 5,000 ratepayers would face increases in excess of 20 percent in 2016/2017.† At this point all ratepayers would be on a level playing field.

50.†††† This policy can be implemented without any major impediments or administration costs.

Option 4: Increases capped at 10 per cent funded by a cap on decreases at 2.1 per cent

51.†††† This option does not change the average rates increase as the cap on increases is funded by slowing the decrease in rates. The decrease cap is set each year to ensure that the transition is cost neutral.

52.†††† Many ratepayers would end up paying either more or less rates than similar valued properties in other parts of the region. There would be 120,000 ratepayers who would otherwise have rates decreases of more than -2.1 per cent paying more rates than those with similar value properties.† Some of these ratepayers facing decreases would have been doing so for the last three years.† Their higher rates would continue to fund a cap on increases for other ratepayers with similar value properties.

53.†††† The table below shows the number of ratepayers facing changes in rates in 2015/2016 by percentage band under this option.

Category

Percentage change in total rates

-20%<

-20% to
-10%

-10% to
-2.1%

0 to
-2.1%

0 to
5%

5% to
10%

10% to
20%

>20%

Business

0

0

0

18,119

8,682

12,490

0

0

Residential

0

0

0

142,211

115,437

226,093

0

0

Total

0

0

0

160,330

124,119

238,583

0

0

 

54.†††† Capping increases at 10 per cent would require off-setting this by capping decreases in subsequent years. The decrease cap would need to be set each year and would depend how many ratepayers face increase and decreases. There would also be some ratepayers who would still face increases above 10 per cent in four years time at the next revaluation.

55.†††† This option would require new legislation to implement. The council cannot implement this policy as a rates remission as a remission can only reduce rates and a rate cannot be set on the basis of how much property rates decline (required for setting a decrease cap).†

56.†††† If the council wished to pursue this option it would need to seek the support of the government to pass legislation.

57.†††† The council cannot propose this option as it is unable to be implemented at this time. If the council wishes to consult on this option it would need to propose one of the other options and note that it was seeking legislative change to allow it to proceed with an increase cap and decrease cap.† This approach that was taken for consultation on the Long-term Plan 2012-2022.

Consideration

Local Board Views and Implications

58.†††† This advice was produced following the Governing Bodyís decision on 6 November on the rating policy for consultation as part of the Long-term Plan 2015-2025.† Given the short timeframe to develop advice on rates transition Local boards have not been briefed on the issues addressed in this report.

Maori Impact Statement

59.†††† The council does not hold information on the ethnicity of individual ratepayers.† It is therefore not possible to advise on the impact that options for rates transition may have on Maori.

Significance

60.†††† The recommendations made in this report are not significant. However, if a decision is made to consult on a rates transition management policy this would be a significant decision and would be consulted on as part of the Long-term Plan 2015-2025.

Implementation Issues

61.†††† Issues associated with implementing the options presented in this report have been included for consideration.

 

Attachments

No.

Title

Page

aView

Analysis of changes in rates

13

† ††††

Signatories

Authors

Aaron Matich - Principal Advisor

Andrew Duncan - Manager Financial Policy

Authorisers

Matthew Walker - Manager Financial Plan Policy and Budgeting

Kevin Ramsay - Chief Financial Officer


Budget Committee

18 November 2014

 



Budget Committee

18 November 2014

 



††



[1] Conservatively assumes a marginal tax rate of 30 per cent.