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Budget
Committee
18 November
2014
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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 council’s 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.
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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.
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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.
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Rates change
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2015/2016
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2012/2013
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Increases > 15%
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57,000
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98,000
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Decreases < -10%
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43,000
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116,000
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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
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Percentage change in total rates
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<-15%
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-15% to
-10%
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-10% to
-5%
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-5% to
0%
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0% to
5%
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5% to
10%
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10% to
15%
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>15%
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Business
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2,402
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2,453
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5,363
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7,901
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8,682
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5,200
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2,621
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4,669
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Residential
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11,511
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11,937
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27,219
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67,275
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113,810
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97,749
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74,866
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51,178
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Farm/lifestyle
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6,464
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8,247
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5,876
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3,682
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1,627
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554
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300
|
1,446
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Total
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20,377
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22,637
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38,458
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78,858
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124,119
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103,503
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77,787
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57,293
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22. This table shows the number of
residential ratepayers facing change in dollar bands.
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Dollar change in total rates
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<-$500
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-$500 to
-$375
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-$375 to
-$250
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-$250 to
-$125
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-$125 to
$0
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$0 to
$125
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$125 to
$250
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$250 to
$375
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$375 to
$500
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>$500
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|
6,941
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4,034
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8,769
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22,081
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76,113
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147,740
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101,212
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42,212
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19,561
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26,882
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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.
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Rates revaluation impact
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Average property value
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Percentage
capital value increase
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Annual
rates increase
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Weekly
rates increase
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a)
$550,000
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b)
34%
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c)
$6
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d)
$0.12
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|
e)
$550,000
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f)
50%
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g)
$219
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h)
$4.20
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Income tax comparison
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Average household income of Auckland
home owners
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Pay rise
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Annual tax
increase[1]
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Weekly tax
increase
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i)
$112,000
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j)
0.7%
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k)
$230
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l)
$4.40
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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 government’s rates rebate or take advantage of the
council’s 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 Body’s 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
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No.
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Title
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Page
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aView
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Analysis of changes in rates
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13
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Signatories
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Authors
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Aaron Matich - Principal Advisor
Andrew Duncan - Manager Financial Policy
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Authorisers
|
Matthew Walker - Manager Financial Plan Policy and
Budgeting
Kevin Ramsay - Chief Financial Officer
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