Agenda of Finance and Performance Committee

Finance and Performance Committee

28 October 2015

Māori Land Rates

File No.: CP2015/18462

Purpose

1. This report recommends consultation on an amendment to the Rates remission and postponement policy for Māori freehold land and the general Rates remission and postponement policy at the same time as the Annual Plan 2016/2017 process.

Executive Summary

2. Māori land is defined by the Te Ture Whenua Act 1993 and includes Māori customary land, Māori freehold land (MFL), crown land reserved for Māori, and general land owned by more than four Māori owners. For the purposes of the discussion in this report, Māori land^{^[1]} is rateable MFL and crown land reserved for Māori. For the application of rates remission and postponement, as per the current policy for Māori freehold land, Māori land will:

· exclude any land not in Māori ownership, commercial leased out, returned for commercial redress or not held in accordance with tikanga Māori values

· may include general land owned by Māori (such as settlement land or land converted from MFL under the Māori Affairs Act 1967) that has similar characteristics to MFL, and where the council considers it just and equitable to do so.

3. Māori land often has multiple owners and other impediments that make it difficult to achieve the highest and best use of the land. During consultation on the LTP concern was raised that the valuation of Māori land for rating purposes did not reflect the limitations on use and the special status of land that had never been alienated from its current ownership. In response the council directed officers to report on rating options for Māori land.

4. Staff considered three options for rating Māori land. The development of these options was informed by some initial engagement undertaken by staff with Mana Whenua and those with expertise in issues relating to Māori land. Feedback from the initial engagement is included in this report.

5. Staff recommend that the council consult alongside the Annual Plan 2016/2017 on amendments to the Māori freehold land rates remission and postponement policy and the general rates remission and postponement policy to address issues with the valuation of MFL and issues with its management. Consultation on this proposal would also allow submitters to comment on the alternatives that are considered and rejected in this report:

· retaining status quo i.e. the current remissions policy – which are the most extensive in New Zealand

· remitting all rates on MFL.

Recommendation/s

That the Finance and Performance Committee agree that it’s preference is to consult alongside the Annual Plan 2016/2017 on an amendment to the:

a) Māori freehold land rates remission and postponement policy to:

i) remit rates for marae that exceed the 2 hectare limit for non-rateability

ii) increase the adjustment for the number of owners up to the 10 per cent maximum, where properties have significant barriers to development such as owners being deceased or not succeeded to

iii) adjust rates to the equivalent of those that would have been charged, had the property been valued excluding any potential use that is unlikely to be achieved within Māori ownership; and

b) Rates remission and postponement policy (remission scheme for fixed charges) to:

i) remit fixed rates where the land would otherwise be treated as a single rating unit except they are in separate ownership.

Comments

Background

6. The 7 May 2015 Budget committee directed staff to report back on rating options for Māori Land. This was in response to the submission to the council’s Long-term Plan 2015-2025 from Olivia Haddon and the Haddon Whānau. The submission sought a review of how the council rates Māori Freehold Land, with respect to land that is viewed by its owners as Whenua tuku iho, land that has never been alienated. It is the view of the submitters that such land should not be rateable and that council fails to meet its obligations under the Treaty of Waitangi with its current rating policy. The submission also raised concerns about how Māori land is valued for rating purposes.

Legal and historical context

7. Māori land is most often held in multiple ownership. When an owner passes away the land must be legally transferred to their successors. This requires a formal legal process. As most owners only hold a small share in the land this process is often not implemented effectively and many ownership transfers have not taken place extended back decades. As a result many blocks of Māori land are very difficult to manage, develop or sell as the agreement of 75 per cent owners is required for significant decisions. This makes it very difficult for Māori land to be used to its full economic potential, should the owners wish to do so. In addition Māori land cannot be sold to meet debt obligations making it very difficult to raise capital for development.

8. As part of engagement with Māori in the development of the advice in this report concern was expressed about land taken:

· by government and passed to the council

· under the Public Works Act

· in rating sales.

Auckland council obligations and objectives for Māori land and rating policy principles

9. The Local Government Act 2002 (LGA) requires council to adopt a policy on the provision of the remission or postponement of rates for Māori freehold land. Council must consider a range of objectives set out under the act when developing such a policy. The key matters include:

· recognising the relationship of Māori with their ancestral lands

· facilitating development for economic use

· supporting the development of the land for non-commercial use like papakāinga housing.

10. Under the Auckland Plan the council has a strategic direction to enable Māori aspirations through recognition of Te Tiriti O Waitangi/the Treaty of Waitangi and Customary Rights. It sets targets relevant to Māori Land including:

· establishment of papakāinga

· protection of wāhi tapu sites

· encouraging thriving and self-sustaining marae

· incorporation of Māori values, culture and beliefs into Auckland-related policies.

11. Māori identify their connection to the land as being at the core of their values, culture and beliefs.

12. When developing rating policy options consideration is given to the principles in the Revenue and financing policy and matters set out in sections 101 and 103 of the Local Government Act 2002. The key elements relevant to this policy decision are:

· aligning rates to the level of benefit received (through an analysis of the distribution of benefits)

· affordability

· administrative simplicity.

Māori Land in Auckland

13. The council has created a register of Māori land in Auckland. This identifies:

· 271 Māori Freehold Land properties

· 14 Māori Customary Land properties

· 3 Crown Land Reserved for Māori properties.

14. An additional 582 properties have been identified as being of importance to Māori and/or are General Land in Māori ownership. 46 sites of significance have been identified across the region for valuation purposes. The rating status of Māori Land is:

· 91 Non-rateable (marae, urupā,parks)

· 74 qualify for remission for vacant/unused land

· 3 qualify for remission of land value portion of rates (community use).

15. The total value of remissions for 2015/2016 is $100,000.

16. The remaining 119 properties are predominately rural, with a mix of farming and residential use. A quarter of the properties are urban, and include car yards and a major retirement village.

17. A few rateable Māori land properties are not in Māori ownership, and others are leased out. Total rates for Māori land, excluding remissions are $650,000 for 2015/2016. However, $360,000 of these rates are from 11 properties.

18. A full description of Māori land and how it is rated can be found in Attachment A to this report.

Current rates remission policy

19. The council reviewed its rates remission and postponement policy for Māori freehold land in 2012. The council’s current remission policy for Māori Freehold Land aims to support Māori to:

· retain ownership of land in accordance with tikanga Māori values

· use the land in a manner that aligns with their spiritual and cultural values.

20. The key features of the policy adopted by the council:

· the remission of rates for MFL that is unused or undeveloped, which may also be apportioned if part of a property qualifies

· a partial remission for MFL that is used for the benefit of the community

· remission of rates arrears if current rates are paid for three years.

21. This remission policy is also available to Māori Land not in Māori Freehold Land title, where such land is similar to Māori Freehold Land, and the council considers it just and equitable to do so.

Engagement with Mana Whenua

22. Two hui were held for Mana Whenua representatives. Staff also visited Ngāti Te Ata whose representatives couldn’t travel to the hui. These meetings were an opportunity for Mana Whenua to provide their views on the rating of Māori Land. Feedback from these meetings is reflected in the report. (Attachment C to this report provides a full summary of the feedback received.) Key feedback received from these meetings is set out in the table following.

Issue	Comment
Redress	Auckland Council and the people of Auckland have benefited from land confiscated by the Crown or later taken for public works. Land has also been forcibly sold through rating sales.
Whenua tuko iho	Rating and valuations should recognise the importance of whenua tuku iho, land that has never been alienated. This land is central to the identity of Mana Whenua. Only a small amount left in Auckland.
Valuations	Valuations are not a true reflection of the value of Māori land, particularly for properties such as whenua tuku iho that will never sell.
Administrative issues	· Inability to apportion rates between owners/users of land · Can’t access Māori land data through GIS · Difficulties accessing information for properties where people managing the land are not owners (owners are deceased and not succeeded to) · Invoicing of non-rateable properties such as urupā can create offence.
Education and advocacy	Education and advocacy on rating in general and the Māori land rating policy specifically.

23. A meeting was also organised by the IMSB with a range of interested parties with expertise in Māori land and rating issues.

Options

24. If the council wishes to make any changes to its rating policy for MFL it must consult. Staff recommend that amendments to the Māori freehold land rates remission and postponement policy be consulted on alongside the Annual Plan 2016/2017 because this would allow it to be considered in conjunction with other rating issues.

25. Staff have identified three options for consultation:

a) No consultation and retain the current Māori freehold land rates remission and postponement policy

b) Consult on amending the:

· Māori freehold land rates remission and postponement policy to provide for further adjustments to valuation for Māori land, and remission for marae over 2 hectares in size.

· Rates remission and postponement policy to provide for remission of UAGC where multiple blocks are managed as a single entity

c) Create a remission that remits all rates on MFL.

Option 1: No consultation and retain the current remission schemes for Māori freehold land

26. This option retains the current remissions schemes and doesn’t require consultation.

27. The remissions in the current scheme address the key issues that differentiate Māori land from general land i.e. multiple ownership and problems with succession, and the difficulties this presents in making the best use of land. The rates remissions offered by Auckland Council are the most extensive in New Zealand. A list of other council’s rates remission and postponement policies are included in Attachment B. The Council is also reviewing the application of the remission policy to ensure all eligible properties have been captured. In addition concerns about whether Māori land is overvalued for rating purposes are addressed in the rules issued by the Valuer General. These provide for an adjustment to valuation of up to 15 per cent.

28. Staff do not recommend this option. Staff consider that the maximum discount provided for in the Valuer General’s rules may not fully accommodate the very wide variation in property values in the Auckland market. Further amendments to the policy deserve additional consideration to ensure that the rating policy is fairly applied to Māori land to ensure the goals in the Auckland Plan for Māori are appropriately weighted.

Option 2: Consult on amending the Māori freehold land rates remission and postponement policy and Rates remission and postponement policy

29. Staff consider that the council should consult on amendments to the Māori freehold land and general rates remission and postponement policies set out below. These amendments provide an opportunity to better address issues with the rating of Māori land than the current policy manages.

Remission of fixed charges for land managed as a single property (Rates remission and postponement policy)

30. The council offers a scheme which remits the UAGC and the Interim Transport Levy for multiple titles used as a single property, but which must be rated separately. At present this remission scheme applies to:

· car parks that are used in conjunction with a building in the same ownership

· farms on multiple blocks that are not strictly contiguous or which are not in the same ownership.

31. Māori land blocks usually are not in the same ownership. This is due to the historic conversion of land into individual titles, and the subsequent process of ownership succession. Māori land that is farmed as a single property already qualifies for the remission scheme for fixed charges. Staff recommend that the remission scheme be extending to include all Māori land, regardless of use, where the land would otherwise be treated as a single rating unit except they are in separate ownership. This will include land that is not contiguous, so long as it is clearly used as a single property. Fixed charges (excluding charges for services provided) would be remitted for all the rating units making up the property other than:

· the first rating unit

· any rating unit with one or more dwellings or other separately used part of the property.

32. The cost of extending this remission scheme is expected to be less than $10,000.

Rates remission for marae over 2 hectare (Māori freehold land rates remission and postponement policy)

33. Under the Local Government Rating Act (2002), Māori freehold land, and crown land reserved for Māori that are used for marae are non-rateable up to an area of 2 hectares. Some marae exceed this limit, and so are part-rateable.

34. As part of the council’s objective to encouraging thriving and self-sustaining marae, the council could consider remitting the rates for these properties.

35. There are no marae on a single blocks over 2 hectares, but there are likely to be blocks used in conjunction with marae that may qualify. An initial analysis of such properties indicates that the cost of extending this remission scheme will be less than $10,000.

Rates remission to adjust valuations (Māori freehold land rates remission and postponement policy)

36. A rates remission could be applied to Māori land properties to achieve the following:

a) apply an adjustment to valuation where properties have significant barriers to development due to owners being deceased or not succeeded to.

b) adjust rates to the equivalent of those that would have been charged, had the property been valued excluding any potential use that is unlikely to be achieved within Māori ownership.

37. The latter adjustment would primarily apply to coastal farmland that is valued for its potential conversion into small lifestyle or residential units. A remission would be calculated based on the difference in value for the property if it was valued only as farmland.

38. The expected cost of applying this remission would be approximately $100,000, but further analysis is required to determine the extent of eligibility.

39. At present all land must be valued for rating purposes in accordance with the Rating Valuations Act 1998 and the rules set by the Valuer-General. The capital value of a property is an assessment of the market value of the property on the date of the revaluation. This valuation is based the highest and best use of the land. This means that a farm zoned for residential development will attract a much higher valuation than a similar farm that does not have development potential.

40. Māori freehold land is initially valued the same as general land. The valuation as General land will recognise factors that will affect market value, such as:

· location

· lack of legal access to a property

· protected heritage features that restrict development

· vegetative cover

· and any other property attributes that effect value.

41. An adjustment is then applied to the rating value of MFL to recognise difficulties in alienating the land:

· up to ten per cent based on the number of owners

· up to five per cent for sites of significance located on the property.

42. The maximum 15 per cent adjustment has been set by the Valuer-General based on evidence from sales of MFL. MFL sold on the open market generally achieve prices only a little below those for land in general title. Discussions with the Valuer-General have indicated that this maximum adjustment is unlikely to change.

43. Staff consider that there are some issues with the assumptions that underlie the level of adjustment to land values provided for by the Valuer-General. These are set out in the table below.

Assumptions	Issue
That MFL that sells is comparable to MFL that is not/will not be sold.	MFL that sells tends to be prime agricultural or coastal land. In comparison Te Puni Kokeri analysis found around 80% of MFL is the lowest grade of agricultural. (Noting that some Auckland MFL is in sought after central or coastal locations.) MFL that sells tends to be in areas with large amounts of MFL. Auckland has only very limited amounts of MFL. Holdings by individual iwi/hapu groups are often small which reduces the likelihood of sale.
That the number of owners determines difficulty in alienating land.	Sale of MFL requires consent of 75% of the owners. It is logical that a property with one owner will be easier to sell or develop than a property with thousands of owners. However there are other factors that can affect the likelihood of alienation. Many properties have listed owners that are deceased and not succeeded to. A property with fewer owners, but where some or all are deceased, or that does not have effective management, may be less likely to be sold or developed than a property with a greater number of owners but an effective management structure.
That highest and best use is an equitable basis for valuation	Some Māori land may not be able to achieve its highest and best use within Māori ownership. For example the market value of coastal farmland may be based on the best use of land as small freehold residential lots.

44. Staff consider that the amendments to the remissions proposed in this option would allow the council to address the concerns raised above.

Why this argument does not apply to farmland in general title

45. Adopting a remission for high value Māori farmland raises the question of why the council does not offer a similar treatment for farmland not in Māori ownership. Many non-Māori farmers will speak of their connection to their land, and their desire to see land retained within their family. There are several reasons for supporting such a remission scheme for Māori freehold land only:

· MFL has significant impediments to sale, and sales of such land in Auckland is unlikely

· the council has an obligation to consider policies that encourage the retention of Māori land

· the council has adopted a strategic framework for Māori that supports the continued use of Māori land for culturally specific purposes such as papakāinga, the preservation of wāhi tapu sites, and for marae. These uses may be in opposition to the highest and best use determined by the market

· it is to be expected that land in general title will eventually be sold, usually at full market value. Farmland properties that previously qualified for special rateable values under the Valuation of Land Act 1951 were frequently subdivided and on-sold for non-farming uses.

Option 3: Remission of all rates on MFL

46. The council could consider adopting a rates remission to remit rates for all Māori freehold land. The cost of this proposal would be $650,000.

47. It has been argued that MFL should not be subject to rates given the history of land taken by the:

· Crown

· former councils for non-payment of rates.

48. In addition fully remitting rates for MFL would support the council’s wider objectives in the Auckland Plan.

49. Staff note that these are issues relating to redress which is primarily the responsibility of the Crown not the council. The council has no legal obligation to provide redress to Māori. The Crown is addressing redress through the Treaty Settlement process. Where the Crown has addressed the rateability of MFL, or other Māori land, through the Treaty settlement process its decisions are generally consistent with the definitions of non-rateable land in the Local Government (Rating) Act 2002 (LGRA) e.g. Ngāti Whatua O Orakei Settlement Act (Orakei Act). The only exemption in the Orakei Act that differs from that in the LGRA is in regard to undeveloped land. The council’s current remission policy fully remits rates on this type of land.

50. At present the council does not offer full rates remissions for any property, Māori or general, that has private dwellings or which is used for private pecuniary profit. People residing, farming or running businesses in Auckland benefit from and create demand for council services. Staff consider not charging rates to such properties would be inequitable. Staff also note that not all Māori landowners agree with the view that all Māori land should be not be charged rates.

51. There three variations to remitting all rates on Māori freehold land. These are applying a remission to:

· the land value of the property (rating improvements only).

· properties that do not generate commercial returns

· whenua tuku iho.

52. Staff note that each of these options have similar advantages and disadvantages to the primary option. Staff do not support option 3 or any of its variants.

Remitting rates associated with the value of the land

53. It is possible to offer a remission for the rates associated with the value of the land. This would see Māori land being charged rates for the value of improvements only. Such a remission scheme seeks to balance recognising the connection between Māori and their land with the fact that developed properties place demand on council services. Staff consider that such a scheme would still be inequitable in its treatment of Māori land in comparison to other ratepayers.

Properties that do not generate commercial returns

54. A variation to remitting all rates on MFL would be to remit rates for land that was not generating commercial returns. At present eleven properties account for $360,000 of the rates raised from MFL in Auckland. The remaining 119 properties pay $290,000. A full rates remission could be applied to the majority of the properties in the second group. While this would lower the cost of the proposal it would present a very real difficulty in determining how to strike a boundary between the groups. Staff do not have a satisfactory tool to establish an appropriate boundary.

Whenua tuku iho

55. A further variation on the remitting all rates on MFL option would be to apply it to Whenua tuku iho. Some land owners have requested that council not rate land that is whenua tuku iho. They define this as land that has never been alienated out of Māori ownership, and which is still held in accordance with tikanga Māori. Whenua tuku iho describes the relationship of the people to the land. It does not describe the way in which the land is used, and includes properties used for housing, farming and other commercial activities.

56. The landowners have given the following reasons for not rating whenua tuku iho:

· the land cannot be sold, and in once instance the landowners have had a judgement from the Māori Land Court stating this to be the case for their land

· council has an obligation to support the continued occupation and use of this land by its original owners in accordance with tikanga Māori.

· recognition must be given for the loss of land suffered by the Māori owners, and the benefits to the council and Aucklanders from land taken from Māori

· there is only a very limited amount of this land remaining in Auckland.

57. The following table identifies two key issues regarding the nature of whenua tuku iho:

Issue	Implications
Whenua tuku iho not a legally recognised category of Māori land	Need to develop a definition of whenua tuku iho in conjunction with Māori, and work with landowners to identify properties that qualify. The landowners that have raised the issue are clear that they only speak for themselves; other iwi/hapu may identify such land differently, or use different terminology.
Whenua tuku iho not legally protected	As whenua tuku iho is not legally recognised, it is not legally protected. Land that is in Māori freehold land title has impediments to sale, but this does not mean that it is legally impossible. Where 75 per cent of the owners agree, and due process has been followed, it can be sold. While land considered whenua tuku iho may not be able to be sold for cultural reasons (and sales may be blocked by the MLC) this is not enforced by statute.

58. The council’s current remission policies primarily seek to address inequities in the rating policy in its application to individual properties. To a lesser extent, they recognise the public benefit of land used for conservation or not for profit community purposes. A remission for whenua tuku iho does not fit into either of these categories, and can only really be considered as a form of redress to Māori.

59. Staff consider such an approach problematic, as the amount of rates relief provided would depend on the value of land owned. It would not relate to the level of historic injustice suffered by any particular groups.

Administrative issues

60. The review has identified some administrative issues related to Māori land. Staff are undertaking the following actions to address the issues:

Issue	Response
Inability to apportion rates between owners/users of land	Can’t legally apportion rates to individuals unless the property has been legally partitioned or subdivided. Identify rates issue as part of council’s wider support for papakāinga development. Raise as an issue through review of Te Ture Whenua Act.
Can’t access Māori land data through GIS	Māori land register to be updated to include information on settlement land and crown land reserved for Māori. Register will be uploaded into GIS and be made publically available.
Difficulties accessing information for properties where people managing the land are not owners	As much information as possible will be made publically available via GIS. Work through issue as part of council’s wider support for papakāinga development.
Invoicing of non-rateable properties such as urupā can create offence	Council required to invoice all properties, even those that are non-rateable, but can redirect mail internally with owners’ agreement
Lack of information on rating and remissions/ Education and Advocacy	Information on current rates remissions and rating policy sent to Mana Whenua contacts. Mana Whenua will also be updated on the progress of this review and opportunities for engagement. Messaging on rates and assistance available in Communication/engagement guidelines for Māori. Rates team to work with other council work programmes related to Māori outcomes to: · ensure information on rates is available to land owners · identify issues for future rates work.

Consideration

Local board views

61. If the council decides it wishes to consult on the possibility of changes to the rates remission and postponement policies in relation to Māori freehold land, local boards will have an opportunity to comment prior to a final decision in December on the matters to be consulted on during the Annual Plan 2016/2017 process. Local boards will have further opportunities to provide feedback during the Annual Plan process.

Māori impact statement

62. The report includes comment on the engagement with and impact on Māori.

Significance and Engagement

63. An amendment to the Rates remission and postponement policy or the Rates remission and postponement policy for Māori freehold land is not significant but would be consulted on alongside the Annual Plan 2016/2017.

Implementation

64. Amendments to the remission policy for Māori freehold land or general rates remission and postponement policy can be implemented within the current resources and timeframe for the annual rating process.

Attachments

No.	Title	Page
a View	Categories of Māori Land	19
b View	Other Council's policies	21
c View	Feedback from Engagement with Mana Whenua	27

Signatories

Authors

Beth Sullivan - Principal Advisor Policy

Andrew Duncan - Manager Financial Policy

Authorisers

Matthew Walker - General Manager Financial Plan Policy & Budgeting

Sue Tindal - Chief Financial Officer

Finance and Performance Committee

28 October 2015

Rural Rates Review

File No.: CP2015/18461

Purpose

1. This report considers a proposal to consult on rating farm/lifestyle properties based on size as part of the Annual Plan 2016/2017.

Executive Summary

2. During development of the LTP the council asked for a proposal to reallocate rates within the farm/lifestyle sector to be discussed with the rural community. The proposal maintains the total rates take from the sector with the following changes:

· large farm/lifestyle (50 hectares or more) 60% of the urban residential general rate

· small farm/lifestyle (less than 6 hectares) 83% of urban residential general rate

· no change to rates for medium farm/lifestyle (6-50 hectares) or other categories of rateable properties.

3. If the council wishes to change the rating of farm/lifestyle it will need to consult as part of the Annual Plan 2016/2017. It will also need to amend the Revenue and financing policy, which would be consulted on at the same time.

4. Engagement has been undertaken with rural communities. Many larger property owners were concerned at the size of their rates relative to the services they received. However, more than 90 per cent of feedback, mainly lifestyle block owners, opposed the proposal. Some respondents felt than the burden of any change in rates should be shared across all of Auckland. This would cost other ratepayers around $3 per year or add 0.1 per cent to their rates increase.

Recommendation/s

That the Finance and Performance Committee agree that its preference is to:

a) consult on the proposal to reallocate rates within the farm/lifestyle sector.

consult on the proposal to reallocate rates from large farm/lifestyle properties over the entire rating base.

not consult on the proposal to reallocate rates within the farm/lifestyle sector.

b) consult on an amendment to the rates remission and postponement policy to remit the difference in rates between what a property is charged for its smaller individual blocks, and what it will be charged if it was rated as a single combined property, if the Committee agrees its preference to consult on the proposal to reallocate rates for farm/lifestyle properties.

Comments

Background

5. Farm and lifestyle properties are charged 80 per cent of the urban residential property rate. This reflects council’s view that they have less access to council services compared to urban properties. During development of the draft plan a proposal was presented for a reallocation of rates within the farm/lifestyle differential. At its meeting on 5 November 2014 the Budget Committee agreed that a discussion document would be taken to the rural community to secure feedback on this proposal for consideration as part of the Annual Plan 2016/2017.

Farm/lifestyle differential in Auckland

6. The following table shows how land use differs based on the proposed size categories:

Property Size:	Farm and Lifestyle Properties
Property Size:	Small	Medium	Large	Totals
Property Size:	Less than 6 ha	6 ha up to 50ha	50ha or more	Totals
Number of properties	19,919	5,298	1,228	26,445
No of lifestyle properties	18883	3761	53	22,697
No of rural industry properties	1036	1537	1175	3,748
Lifestyle use (%)	95%	71%	4%	86%
Rural Industry use (%)	5%	29%	96%	14%
Rural Industry Breakdown:	61% Market Gardens, Orchards 18% Vacant^{^[2]} 12% Specialist Livestock 5% Stock Finishing	35% Stock Finishing 24% Dairy 22% Market Gardens, Orchards 10% Specialist Livestock	48% Stock Finishing 31% Dairy 10% Store Livestock 7% Forestry	n/a

7. Rural industry properties are split evenly between the three size categories. The types of rural industry differ with size of properties. Small properties tend to be used more intensively, for example greenhouses or poultry sheds. Large properties are mostly in pasture, but also include large forestry blocks.

Use of property size for rural rating elsewhere in New Zealand

8. Some New Zealand councils already use size as a basis for rating. Generally these are:

· a graduated size differential to reduce the impact of land value rates on large farms

· a minimum size limit of either 2 or 4 ha to identify rural properties that are required to pay targeted rural rates e.g. for pest control.

Guiding Principles

9. When developing rating policy options consideration is given to the principles in the Revenue and financing policy and matters set out in sections 101 and 103 of the Local Government Act 2002. The key elements relevant to this policy decision are:

· aligning rates to the level of benefit received (through an analysis of the distribution of benefits)

· affordability

· administrative simplicity.

Proposal

10. The current general rate differential for all farm/lifestyle properties is 80% of the urban residential rate. Under the proposal the general rates differential will be as follows:

Farm/lifestyle size category:	Size	General Rate Differential (% urban residential rate)
Small	Less than 6ha	83%
Medium	6 to 50ha	80%
Large	50 ha or larger	60%

11. The decrease in rates for large properties is funded by the increase in rates for small properties. There is no rating impact on medium sized farm/lifestyle properties, or non-farm/lifestyle properties. The table below shows the rating impact of the proposal.

	Farm/lifestyle size category:
	Small	Medium	Large
Size:	Less than 6ha	6 to 50ha	50 ha or larger
No of properties	19,900	5,300	1,200
Average current rates ($)	$2,781	$3,710	$6,250
Average rates under proposal ($)	$2,854	$3,710	$5,070
Average rate change(%)	+2.6%	0%	-21.9%
Average rate change ($)	+$73	$0	-$1,180

Property size as a basis for differentiating rates

12. There are advantages and disadvantages to using property size as a basis for differentiating rates, as shown in the following table:

Advantages	Disadvantages
Objective measure, can only dispute if error	No direct relationship with level of benefit from council services
Council holds this information already	Size boundaries arbitrary
Few properties just larger than proposed size boundaries (55 properties within 500sqm )	No significant difference between properties just below boundary and just above

13. Any size based boundary chosen will ultimately be arbitrary as size does not have a direct relationship to demand for council services. It can still be acceptable to use size boundaries for rating if it can be shown that the size categories broadly identify differences in how properties benefit or use council services.

14. The proposed size boundaries differentiate between the small, primarily residential lifestyle properties and large economic farm properties. Small farm/lifestyle properties are 95 per cent lifestyle use, while 96 per cent of large farm/lifestyle properties are used for rural industry.

Analysis of the distribution of benefits

15. An analysis of the distribution of benefits compares:

· the share of benefit different ratepayer sectors receive from council services

· the share of rates paid by each ratepayer sector if no differentials are applied.

16. The following table shows the share of rates different sizes of farm/lifestyle properties pay:

Farm/lifestyle Size Category	Share of Properties	Share of current rates (2015/2016)
Small	75.4%	67.1%
Medium	20.0%	23.7%
Large	4.6%	9.2%
Total	100%	100%

17. Large properties pay a greater proportion of farm/lifestyle rates compared to small ones. They make up 4.6% of farm/lifestyle properties but pay 9.2% of the rates collected from these properties. This is because larger properties have higher valuations than small ones. Under the proposal, the share of farm/lifestyle rates paid by large properties drops to 7.5%.

Proximity to council services

18. Around 30% of rates spending is on council facilities such as parks, libraries, pools, event centres, community halls and attractions such as the Auckland Museum that are partially rate funded. These facilities are primarily located in urban areas, and larger rural towns.

19. It is difficult to assess the distance from every farm/lifestyle property to every type of council facility. An analysis of the straight line distance to the nearest council library service gives a relative indication of how close properties are to council facilities, see table below.

Distance to nearest council library	Proportion of Farm/Lifestyle properties
Distance to nearest council library	Small	Medium	Large
Less than 5km	26%	15%	5%
More than 20km	7%	14%	30%

20. Small properties can be assumed to receive greater benefit from council facilities than larger properties, because they tend to be closer to these services.

Roading

21. Around 18% of rates fund local roads, mainly for maintenance and replacement costs. (State highways and motorways are the responsibility of the New Zealand Transport Authority and funded through fuel tax). The chart shows the proportion of properties on sealed or unsealed roads by size.

22. Small properties have better roads than large ones. However, costs to maintain and renew roads are related to the number of heavy vehicle movements. Rural industries, particularly dairying and forestry, are generators of heavy vehicle movements. So while small properties receive more benefit from local roads, large properties are responsible for a larger share of the costs of maintaining them.

Public Transport

23. Around 15% of rates spending is on public transport. The share paid by farm/lifestyle is lower because farm/lifestyle properties are charged a lower rates differential in part due to the lack of public transport in rural areas.

24. Small properties are more associated with public transport than large properties (noting that overall public transport use is low in rural areas). 40 per cent of small properties are located in census areas with above average rates of public transport use for rural areas. This compares to only 10 per cent of large farm/lifestyle properties in the same areas.

25. It is assumed that areas with higher rates of public transport use will also be associated with higher rates of commuting in general. Large farm/lifestyle properties are almost entirely rural industry properties. Such properties provide local employment opportunities, so reduce the need for commuting. Rural areas generally have higher rates of people working from home than urban areas. 70 per cent of large farm/lifestyle properties are located in census areas where 30 per cent or more of census respondents worked from home. This compares to 34 per cent of small farm/lifestyle properties in similar areas.

Analysis of the distribution of benefits: conclusion

26. Small properties tend to benefit more from council services than large properties. This doesn’t mean that small properties should pay higher rates however.

27. Not all small properties receive a higher level of benefit than all large properties. Some large properties will be close to council services, and have sealed roads. Some small properties are remote, and there are almost as many small properties on unsealed roads as large ones.

28. The level of benefit a property receives from council services largely depends on how close it is to urban centres, and whether it has sealed road access. These factors are reflected in land values. On average, land close to council facilities is worth twice as much as similar land in remote areas. Road sealing increases land values around 20 per cent.

29. On average, a large farm/lifestyle property close to urban areas will pay 2.3 times the rates per hectare than a large property in remote areas. Small properties close to urban areas pay twice as much rates per hectare than remote ones.

Affordability of rates

30. Nearly 70 per cent of lifestyle properties are located in areas that recorded average household incomes above $80,000 in the 2013 census. This compares with 40% of residential properties.

31. Farms and other rural industries are businesses. They have tax advantages that residential properties do not. They can treat rates as an expense and claim back GST. A farm effectively pays two-thirds the rates of a same value lifestyle property, and a third of the rates paid by a similar value rural business.

32. Larger farms will tend to be more economically productive, compared to smaller farm properties. The return on the property will depend on the quality of the land and its use however. Small but more intensively used properties such as greenhouses or poultry sheds may generate better returns than a medium sized stock farm.

Amendment to proposal: Remission for properties on multiple rating units

33. Legally the council must rate as a single rating unit properties that are on multiple titles, but which are:

· contiguous (physically adjoining, or separated only be a road, waterway or railway)

· in the same ownership

· used as a single property.

34. This most frequently occurs in rural areas, where blocks will be joined together to form a larger farm unit. If the council adopts a size based rates differential for farm/lifestyle properties these properties will be rated based on the combined size of the blocks.

35. Farm properties made up of blocks that are not contiguous, or which are in different ownership (because part of the property is leased), are rated as separate rating units. Each rating unit in the property will receive a separate UAGC and Interim Transport Levy. The council currently offers a remission that enables the additional fixed rate charges to be remitted.

36. If the council adopts a size based rates differential for farm/lifestyle properties then farm properties on multiple smaller titles will be charged the higher rates differential for each of its properties. Council should consider whether it wishes to offer a remission scheme to remit the difference in rates between what the property is charged for its smaller individual blocks, and what it will be charged if it was rated as a single combined property. This proposal was supported by the Rural Advisory Panel.

Conclusion

37. The following table applies the guiding principles for assessing rating policy options against the proposal to lower rates for large farm/lifestyle by increasing rates for small farm/lifestyle properties:

Principle	Conclusion
Aligning rates to the level of benefit received	The available evidence does not show a clear relationship between size of property and benefit from council services.
Affordability	Large farms and forestry are able to use their land productively, and have tax benefits not available to small lifestyle properties.
Administrative simplicity	A size based differential is simple to implement and administer.

38. Staff do not consider that there is a material imbalance in rates charged to large and small farm/lifestyle properties.

Alternative: Reallocate rates based on land use

39. An alternative would be to set rates based on land use rather than size. Rural industry, including farms and horticulture, would be rated at 60 per cent of urban residential. Lifestyle properties would be rated higher than the current 80 per cent to compensate for revenue lost on the rural industry properties.

40. Land use classifications are determined by the council’s valuers. Valuers primarily differentiate between rural industry and lifestyle properties based on how the property would sell in the market, and whether any rural industry use would be economic. In general, property less than 20 hectares are classed as lifestyle unless it is used for more intensive agricultural purposes such as market gardens or specialist livestock.

41. There will be cases where rural properties that are similar in nature (though not in location) attract differing land use classifications depending on how desirable the land is for residential purposes. A farm is a remote part of the region will be classed as rural industry, while a similar property located on prime coastal land or in the urban fringe may be classed as lifestyle. This is because the market value of the latter is such that farming the land would be uneconomic for any purchaser. These properties may still be economically viable for the current owners if they have held ownership for some time however.

42. Using the valuers’ assessment of economic farmland to different between farming and lifestyle will likely raise objections that the council is unfairly targeting high value farmland. It is not known how many properties classed as lifestyle are being used as productive farm land. Land use classifications are not published in valuation notices; as such they do not tend to attract objections.

43. Staff do not support this approach because of issues with classification identified above and for the reasons discussed in relation to the proposal consulted on i.e. that there isn’t a material imbalance in rates charged to farm/lifestyle properties in relation to use.

Engagement with the Rural Community

44. Engagement was undertaken with the rural community. A discussion document outlining the key issues was issued for feedback. Five public meetings were held in Waitoki, Warkworth, Kumeu, Pukekohe and Waitakere, with approximately 150 people attending in total.

45. 105 written submissions received. Of these 95 opposed the proposal and 6 were in support. The table below summarises the key feedback points received:

Feedback point	No of submitters
High rates for small blocks not justified as they receive minimal council services, or the same level of service as large properties	57
Small/Lifestyle properties cannot claim GST like large farms	21
Smaller farms not as profitable as large ones	17
Increasing rates does not encourage protection of natural habitats	11
Can't use lifestyle productively for income like large farms	10

46. The submission from Federated farmers strongly supported the proposal as it:

· [eases] “the rates burden on large farmers .” “Rates are a huge expense for farmers and a source of considerable financial pressure. There is large gap between the income a farm generates and the capital value of farmland.”

· [addresses] “the disproportionate level of rates farmers pay relative to both the Council services they have reasonable access to, and the amount other households and less land use intensive businesses pay. “

· [A size based differential is a] “more equitable, transparent and dynamic then basing general rates on land and capital value alone.”

47. Five public meetings were organised in conjunction with the Rodney, Waitakere Ranges and Franklin Local Boards. A summary of the feedback taken from the public meetings is presented in Attachment A. Feedback was similar to that recorded in the written submissions.

48. The Waiheke Local Board considered the issue at its 24 September meeting and formally resolved:

· notes that it does not support the proposal to change how rates are charged to farm and lifestyle properties.

49. A workshop was held with the Great Barrier Local Board. They were generally opposed to the proposal and noted that more relief should be provided to bush properties with high ecological value.

50. The Waitakere Local Board wrote to the Manager, Financial Policy expressing their opposition to the proposal. The board supports the provision of rates relief for the owners of properties containing areas of high ecological value to encourage good stewardship. A copy of the board’s letter is in Attachment B to this report.

51. Several comments were received from the engagement and submissions proposing that the reduction in rates for large properties be funded by all ratepayers and not just farm/lifestyle properties under 6 hectares. This is estimated to cost other ratepayers $3 per annum or would raise the rates increase by around 0.1 per cent.

52. The proposal was discussed at the 4 September meeting of the Rural Advisory Panel. The panel broadly supported the proposal. The panel was also concerned about the impact of rates on small horticultural operations. The proposal and feedback from engagement was considered at the 16 October meeting of the Rural Advisory Panel. The panel agreed that it:

“support the option of spreading a lowered rating differential for rural properties over 50ha, with the cost covered by all Auckland ratepayers and support further consultation via the Annual Plan process.”

Amendment to the Revenue and financing policy

53. The Revenue and financing policy would need to be amended to allow property size to be used as a basis for rating. If the council decides to consult on the proposal it will also need to consult on an amendment to the Revenue and financing policy.

Consideration

Local Board views and implications

54. Staff have engaged with the following rural boards: Franklin, Rodney, Waitakere, Waiheke and Great Barrier. Feedback from Waitakere, Waiheke and Great Barrier are recorded in the report. Members of the Franklin, Rodney and Waitakere boards attended public meetings, feedback from these meetings is summarised in Attachment A to this report.

55. If the council decides it wishes to consult on the possibility of changes to the rating farm/lifestyle properties local boards will have an opportunity to comment prior to a final decision in December on the content of the Annual Plan 2016/2017 Consultation Document. Local boards will have further opportunities to provide feedback during the Annual Plan process.

Māori impact statement

56. There are 50 Māori land properties that are classed as farm/lifestyle and fall into either the small or large size categories. The table below shows the rates impact on Māori land:

Size	No of Properties	Average 2015/2016 Rates	Average Rates Under Proposal	Change in Rates
Large	21	$6,271	$5,122	-$1,149
Medium	54	$2,070	$2,069	0
Small	29	$1,359	$1,382	$24

57. This proposal has been raised with Mana Whenua groups and the Independent Māori Statutory Board policy team alongside discussions on rating Māori land. No significant feedback was received.

Significance and Engagement

58. The proposed amendment to the rating policy does not meet the thresholds for significance. Rating policy forms part of the Revenue and financing policy and will be consulted on as part of development of the Annual Plan 2016/2017. The proposed amendment to the Revenue and financing policy is not significant but would be consulted on as part of the Annual Plan 2016/2017.

Implementation

59. Implementing a size based differential for rating farm/lifestyle properties would require:

· minor changes to the rates administration process

· a review of all contiguous properties to ensure they are correctly rated as a combined property.

These issues can be addressed within the current resources and timeframe for the annual rating process.

Attachments

No.	Title	Page
a View	Feedback from engagement with rural community	39
b View	Waitakere Local Board feedback	41

Signatories

Authors

Beth Sullivan - Principal Advisor Policy

Andrew Duncan - Manager Financial Policy

Authorisers

Matthew Walker - General Manager Financial Plan Policy & Budgeting

Sue Tindal - Chief Financial Officer

Finance and Performance Committee

28 October 2015

Annual review of Uniform Annual General Charge

File No.: CP2015/21629

Purpose

1. This report recommends options for consultation on the Uniform Annual General Charge (UAGC) as part of the Annual Plan 2016/2017.

Executive Summary

2. In June 2015 the council resolved to undertake an annual review of the UAGC. If the council wishes to make any changes to the UAGC it can only do so if it has consulted on this as part of the Annual Plan 2016/2017. Decisions may be taken within the broad scope of the options consulted on.

3. Possible options for consultation on the UAGC are: $0, $200, $397 ($385 adjusted for general rates increase), $600, $800 and $980. The council may also decide not to consult on changes to the UAGC and retain the current level ($397).

4. Rates increases have varied widely between ratepayers in the last few years as a result of transition and the recent revaluation. A material change to the UAGC would result in another year with large numbers of ratepayers facing varying changes. Retaining the current UAGC would mean the first year in which all ratepayers (residential and farm/lifestyle 3.5 per cent and business 2.5 per cent) would face the same general rates increase^{^[3]}.

Recommendation/s

That the Finance and Performance Committee agrees that it does not support consultation on changes to the UAGC.

That the Finance and Performance Committee identify preferred options for consultation.

Comments

Background

5. At its meeting on 25 June the Council resolved:

15 f) note that additional work will be undertaken to inform the 2016/2017 Annual

Plan on a number of issues including:

vi) annual review of the Uniform Annual General Charge.

6. The council will make decisions on the feedback it receives following consultation on the Annual Plan 2016/2017 in May 2016 and a final decision to adopt the plan, and rates, at the end of June 2016. If the council wishes to consider options for the level of the UAGC at that time it can only do so if it has consulted on options for the level of the UAGC as part of consultation on the Annual Plan 2016/2017. The council may only consider options for the level of the UAGC that are within the scope of what was consulted on.

Guiding Principles

7. When developing rating policy options consideration is given to the principles in the Revenue and financing policy and matters set out in sections 101 and 103 of the Local Government Act 2002. The key elements relevant to this policy decision are:

· aligning rates to the level of benefit received (through an analysis of the distribution of benefits)

· affordability

· minimising change

· administrative simplicity.

Discussion

8. Rates are a tax on property wealth. They are used to fund those general council activities where we can’t charge individuals who benefit, no alternative funding source or where the council wishes to subsidise the activity due to its wider social benefits.

9. Rating policy sets the balance between rates being a tax to fund public goods giving consideration to affordability versus rates set as a charge for service. Decisions on the level of UAGC are informed by the application of political judgement to the objective information presented by staff. Staff have not made a recommendation regarding the level of the UAGC.

Background

10. Legislation allows the council to include the UAGC as a fixed charge in the rates that it sets. The sum of all fixed charge rates may not exceed 30% of the total rates collected. The current UAGC is $385 and set on every separately used or inhabited part (SUIP) of a rating unit e.g. shop in a shopping mall or each dwelling.

11. The UAGC sets a minimum contribution that each ratepayer makes towards the cost of running the city. It is not a payment for the minimum level of services, or benefit, that each property receives. The services the council provides are predominantly public goods and the benefit that each property, or resident, receives can’t be objectively measured.

12. The table below shows how Auckland Council’s fixed charges compare with those of other larger metropolitan councils in New Zealand. Further comparisons with other councils are set out in Attachment A along with a detailed description of the comparative analysis.

13. The analysis compares the level of district-wide (or quasi district-wide) fixed rates, excluding water and wastewater, which fund the public good services provided by the council. Note that Tauranga’s charge is less than 30 per cent of total rates when water and wastewater charges are included.

Council	Fixed charges as a % of total rates	UAGC $ (incl. GST)	Total fixed charges $ (incl. GST)
Auckland Council	16%	385	506
Wellington City	0%	-	-
Christchurch City	7%	118	138
Hamilton City	0%	-	12
Dunedin City	16%	-	286
Tauranga City	42%	800	800
Average	13%	217	290

Options

14. Modelling has been undertaken for 6 UAGC scenarios. The general rates (including GST) paid by some example residential properties for the 2016/2017 year under each of the UAGC options are set out in the table below.

Property value	UAGC level
	$0	$200	$397 (current)	$600	$800	$980
	$0	$200	$397 (current)	$600	$800	$980
$250,000	$782	$910	$1,036	$1,166	$1,294	$1,410
$500,000	$1,564	$1,620	$1,676	$1,733	$1,789	$1,839
$750,000	$2,347	$2,331	$2,315	$2,299	$2,283	$2,269
$1,000,000	$3,129	$3,041	$2,954	$2,865	$2,778	$2,698

15. The table shows that higher UAGCs lowers the rates burden on higher value properties and raises it for lower value properties. Conversely a lower UAGC raises the burden on higher value properties and lowers it for lower value properties.

16. An analysis of the impacts of rates compared to household income has been carried out using census mesh block data for median household income. This shows a strong relationship between average property value and average household income.

17. The following graph shows the impact of different UAGC options on different income deciles. This is based on a comparison of rates under each option to household incomes by 2013 census mesh-block.

18. Higher levels of UAGC shift the rates burden to lower value properties. This will also shift the rates burden to parts of the city where incomes are lower. Analysis of home ownership levels provided during consideration of rating policy for the long-term plan showed that home ownership is lower for parts of city with low incomes. This means that in those areas of the city where property values are lower more of the rates burden is borne by landlords.

The degree of change in rates for each UAGC option is summarised in the table below.

UAGC	Percentage change in total rates
	-20%<	-20% to -10%	-10% to 0%	0% to 10%	10% to 20%	>20%
	-20%<	-20% to -10%	-10% to 0%	0% to 10%	10% to 20%	>20%
UAGC - $0	30,574	66,639	159,323	199,641	65,971	7,693
UAGC - $200	4,244	17,090	167,641	321,160	19,706	0
UAGC - $397	0	0	0	529,841	0	0
UAGC - $600	0	0	66,429	360,154	90,626	12,632
UAGC - $800	0	17,463	105,573	208,504	130,964	67,337
UAGC - $980	8,452	34,776	101,303	153,915	108,085	123,310

19. The chart below shows the proportions of ratepayers better off under a higher or lower UAGC by local board.

20. Changing the level of the UAGC does not alter the balance of rates between the business and non-business sectors. This is because the share of rates paid by business is set as a proportion of overall rates, 32.7% in 2016/2017. However, it does alter the balance of rates between residential and farm/lifestyle sectors. This is because farm/lifestyle properties tend to have higher values when compared to residential properties.

21. In each of the last four years, 2012/2013 to 2015/2016, large numbers of ratepayers have faced rates increases, or decreases, well above or below the headline rates increase. During consultation on the Long-term Plan 2015-2025 more than 150 ratepayers expressed concern about the variance in their rates increase from the headline increase of 2.5 per cent for the 2015/2016 year.

22. If there is a material change to the UAGC many ratepayers would again face increases, or decreases, substantially different from the headline rates increase. If the UAGC remains the same for 2016/2017, adjusted for the overall rates increase, all ratepayers^{^[4]} will face the same rates increase for the first time (3.5 per cent for residential and farm/lifestyle and 2.5 per cent for business). In addition business ratepayers in Franklin will transition to the business differential applying to the rest of the region and have an increase of 4.7 per cent.

Consideration

Local Board Views

23. Local board views on the level of the UAGC, captured as part of the consideration of the LTP 2015-2025, were mixed. Some would like an increase in the UAGC, while others would like no change, with one suggesting a decrease.

24. If the council decides it wishes to consult on the possibility of changes to the UAGC local boards will have an opportunity to comment prior to a final decision in December on the content of the Annual Plan 2016/2017 Consultation Document. Local boards will have further opportunities to provide feedback during the Annual Plan process.

Māori impact statement

25. 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 the rating policy may have on Māori. Staff note that as Māori make up a higher proportion of the lower income deciles they are more likely to be adversely affected by increases to the UAGC. A higher UAGC will raise the rates for lower value properties which in general are located in areas with lower average incomes.

Significance and Engagement

26. The recommendations made in this report are significant. Rating policy forms part of the Revenue and financing policy and will be consulted on as part of the Annual Plan process should the Governing Body agree to consult on a change.

Legal Compliance

27. The proposals in this document are not unreasonable.

Implementation

There are no implementation issues associated with changing the level of the UAGC.

Attachments

No.	Title	Page
a View	Fixed rates in other centres	49

Signatories

Authors

Andrew Duncan - Manager Financial Policy

Aaron Matich - Principal Advisor Modelling

Eric Wen - Advisor - Financial Polciy

Authorisers

Matthew Walker - General Manager Financial Plan Policy & Budgeting

Sue Tindal - Chief Financial Officer

Finance and Performance Committee

28 October 2015

Interim transport levy structure

File No.: CP2015/21643

Purpose

1. This report considers options for consultation on the interim transport levy (ITL) as part of the Annual Plan 2016/2017.

Executive Summary

2. In June 2015 the council resolved to undertake a review of the level and composition of the ITL. If the council wishes to make any changes to the ITL it can only do so if it has consulted on this as part of the Annual Plan 2016/2017. Decisions may be taken within the broad scope of the options consulted on.

3. The report does not consider the level of the ITL. Consideration of the level of the ITL requires discussion of the overall budget. This can be considered as part of final decision making on the budget.

4. Staff considered two options for the composition of the ITL, which can be implemented individually or in combination:

· increase the share of the ITL raised from businesses to the same as the share they pay of general rates

· share the business ITL requirement based on capital value rather than a uniform fixed rate.

The council may also decide not to consult on changes to the ITL and retain the current level.

5. The impact of the options are discussed in the report. Changing the ITL would lead to further change in the distribution of rates for businesses. Without these changes all business ratepayers will face the same increase of 2.5 per cent (general rates and ITL combined).

Recommendation/s

That the Finance and Performance Committee agrees that it does not support consultation on changes to the interim transport levy

That the Finance and Performance Committee agrees its preferred options for consultation from one or a combination of the following:

a) An increase in the share of the interim transport levy met by businesses from 14.7 per cent to 32.7 per cent for 2016/2017 and 32.3 per cent for 2017/2018

b) Share the business interim transport levy amongst business ratepayers on the basis of capital value rather than via a fixed charge.

Comments

Background

6. The interim transport levy (targeted rate) is an interim measure, for three years, to help fund the accelerated transport program.

7. The accelerated transport program provides an additional $523 million over three years. This is funded by $181 million from the ITL, $122 from debt and $215 million from NZTA and central government. The levy is $113.85 (including GST) for residential and farm/lifestyle ratepayers and $182.85 (including GST) for business ratepayers.

8. The council has determined that either a motorway toll or a combination of fuel taxes and higher rates to be superior funding mechanisms for additional transport investment in the long run. Both the motorway toll and fuel taxes make a stronger connection between those who will benefit from the transport investment and those who will fund it than a targeted rate. However, the transport levy is the only mechanism available at this time.

9. At its meeting on 25 June the Council resolved (GB/2015/60 refers):

f) note that additional work will be undertaken to inform the 2016/2017 Annual Plan on a number of issues including:

ii) level and composition of the transport targeted rate.

10. If the council wishes to consider options for the level and composition of the ITL in May or June 2016 it can only do so if it has consulted on this as part of the Annual Plan 2016/2017. The council may only consider options for the level of the ITL that are within the scope of what is consulted on.

11. The council will make decisions on any changes to the interim transport levy following consideration of the feedback it receives as part of consultation on the Annual Plan 2016/2017 in May 2016. A final decision to adopt the Annual Plan 2016/2017, including rates, will be made at the end of June 2016.

Guiding Principles

· aligning rates to the level of benefit received (through an analysis of the distribution of benefits)

· affordability

· minimising change

· administrative simplicity.

Discussion

13. This report considers the composition of the ITL. Consideration of the level of the ITL requires a discussion of the overall budget. Detailed analysis of the overall budget is part of the Annual Plan process and final decisions will be made in May. The council will be able to make decisions on the level of the ITL at that time.

14. There are two key dimensions to options for change to the ITL. These may be implemented on their own or in combination. They are:

· increase the proportion of the ITL raised from business ratepayers

· share the ITL across business ratepayers based on capital value.

Each of these is discussed below.

15. All the options would be applied across the region on a consistent basis. All the options are administratively practical and straight forward to implement.

Split between residential and business

16. The council could increase the proportion of the ITL it collects from the business sector to bring it in line with the proportion of the general rates requirement it collects from business adjusted for the long-term differential strategy. This would increase the business sectors share of the ITL to 32.7 per cent for 2016/2017 and 32.3 per cent for 2017/2018. The business ITL would move from $182.85 to $407 and the residential (including farm/lifestyle) ITL would fall from $113.85 to $90 including GST. For 2017/2018 the figures would be $402 including GST and $90 including GST respectively.

17. For 2015/2016 around 14.7 per cent of the ITL revenue requirement is collected from business ratepayers compared with 33 per cent of the general rates requirement. This is below the ultimate target of the long term differential strategy which is to collect 25.8 per cent of rates from the business sector by 2036/2037. At $182.85 the business ITL is roughly equivalent to the residential rate of $113.85 after taking into account the ability of businesses to seek GST refunds and to claim rates as an expense against tax.

18. In setting the business differential for the general rate the council determined that whilst business placed more demand on council services and were better able to afford rates they were being charged too much at current levels. As a result business rates are gradually being lowered. By setting the ITL at a lower level than the current proportion of the general rate collected from business the council is providing a temporary acceleration in the reduction in the overall rates burden met by business.

Sharing ITL within business sector

19. The council could share the ITL requirement raised from the business sector based on capital value rather by a uniform fixed charge. The following table shows the ITL businesses properties of differing values would pay under the status quo and based on capital value for 2016/2017.

Option	Property value
	$500,000	$1,500,000	$3,000,000	$10,000,000
	No of properties under $750k	No of properties $750k to $2,000k	No of properties $2,000k to $7,000k	No of properties over $7,000k
	22,501	9,569	5,282	1,567
ITL rates status Quo	$182.85
ITL rates capital value	$67	$202	$405	$1,349

Notes to the table:

· All numbers are in dollar amount

· All rates numbers include GST.

20. The current fixed charge ITL doesn’t directly connect to the relative ability of businesses to pay nor does it reflect their use of services. However, the fixed charge is simpler to explain.

21. Sharing the business ITL rates requirement on the basis of capital value would provide a better connection with demand for services and ability to pay. While property value isn’t a perfect indicator for demand for council services, nor an ideal indication of ability to pay, it has a better correlation to these factors than a fixed charge does. Following the same logic, the general rate differential of 0.90 would apply to rural business properties under this option.

Combined option

22. The options presented above can be implemented on their own or in combination. The impact of combination of options is set out in the tables below for 2016/2017. The combined option contains two sub-options:

A. business rate distributed via a fixed charge

B. business rate distributed on CV

23. The combined option would generate the same ITL revenue as currently budgeted.

Combined option: increase business share to 32.7% and decrease residential rate

	Status quo	Option 1A	Option 1B
	Status quo	business rate distributed via fixed charge	business rate distributed on CV
Business CV example			500,000	1,500,000	3,000,000	10,000,000
Residential rate	113.85	89.82
Business rate	182.85	406.82	150	450	900	3,001
ITL revenue	61,800,000	61,800,000
General rate increase	0.00%	0.00%

Notes to the table:

· All numbers are in dollar amounts

· All rates numbers include GST

· All revenue numbers exclude GST.

Minimising change

24. The rating policy in the Long-term Plan 2015-2025 means that all residential ratepayers will have rates increases (general rates and ITL combined) of approximately 3.4 per cent and all business ratepayers increases of approximately 2.5 per cent.^{^[5]} This brings stability to ratepayers following the completion of the transition to the standardised rating policy in 2015/2016.

25. If any changes are made to the ITL then business ratepayers will face increases and others decreases that could differ considerably from the baseline rates increases of 2.5 per cent in the Long-term Plan 2015-2025. How many ratepayers will face change and by how much will depend on the nature of the change to the ITL.

Consideration

Local Board views and implications

26. If the council decides it wishes to consult on the possibility of changes to the ITL local boards will have an opportunity to comment prior to a final decision in December on the content of the Annual Plan 2016/2017 Consultation Document. Local boards will have further opportunities to provide feedback during the Annual Plan process.

Māori impact statement

27. 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 the ITL may have on Maori. Staff note that as Maori make up a higher proportion of the lower income deciles they are more likely to be beneficially affected by a decrease in the ITL.

Significance and Engagement

28. A recommendation to change the ITL would need to be consulted on as part of the Annual Plan process which meets the requirement for consultation on significant issues.

Legal Compliance

29. The proposals in this document are not unreasonable.

Implementation

30. There are no implementation issues associated with changing the ITL.

Attachments

There are no attachments for this report.

Signatories

Authors

Andrew Duncan - Manager Financial Policy

Aaron Matich - Principal Advisor Modelling

Eric Wen - Advisor - Financial Polciy

Authorisers

Matthew Walker - General Manager Financial Plan Policy & Budgeting

Sue Tindal - Chief Financial Officer

[1] Note that Māori customary land is non-rateable, and has therefore been excluded from discussions.

[2] These are predominately very small scraps of land that are leftovers from roading or subdivisions, or unformed roads/driveways, with 56 per cent less than $10,000 in land value. Often these properties are used in conjunction with other properties. Any change to the rating policy will need to ensure there is consistency in how these properties are rated.

[3] With the exception of Franklin business properties which will face an average general rates increase of 4.7 per cent due to the merging of Franklin business differentials with the rest of the region.

[4] Ratepayers who have made changes to their properties, e.g. a subdivision or addition of extra rooms, will have their values adjusted and hence will face changes in rates different from the headline increase.

[5] With the exception of Franklin business properties which will face an average rates increase of 4.6 per cent due to the merging of business differentials with the rest of the region.

Chairperson	Cr Penny Webster
Deputy Chairperson	Cr Ross Clow
Members	Cr Anae Arthur Anae	Cr Calum Penrose
	Cr Cameron Brewer	Cr Dick Quax
	Mayor Len Brown, JP	Cr Sharon Stewart, QSM
	Cr Dr Cathy Casey	Member David Taipari
	Cr Bill Cashmore	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