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Finance and
Performance Committee
01 June 2017
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Final Annual
Budget 2017/2018 - Mayoral Proposal
File No.: CP2017/10041
Purpose
1. To
present the Mayoral proposal for the final Annual Budget 2017/18 for
deliberation and decision-making.
Executive
summary
2. The
Governing Body adopted the annual budget consultation document in February this
year which identified the key issues on which the council was seeking feedback
before adopting the Annual Budget 2017/18.
3. The
mayoral proposal for the Annual Budget 2017/18 places high priority on rating
stability to restore public confidence in the council, supporting vulnerable
Aucklanders and on implementing a more equitable revenue strategy that creates
the financial headroom for the acceleration of infrastructure investments to
relieve transport and housing pressures in the region.
4. The
Annual Budget 2017/18 includes $208 million additional capital expenditure on
infrastructure, primarily for transport. This provides a strong signal of my
future priorities for next year’s Long Term Plan with a core focus on
infrastructure that supports housing construction, particularly transport and
water. To enable this there will be a continued emphasis on alternative funding
sources such as targeted rates, road pricing and the government’s Housing
Infrastructure Fund.
5. The
key issues for consultation were that the general rates increase be limited to
2.5 percent in 2017/18. Achieving this requires the Uniform Annual General
Charge to increase by 2.5 percent and the business-residential rating
differential to be held at its 2016/17 level. Targeted rates for funding
ATEED’s tourism promotion and for growth infrastructure were also
consulted on, as was a living wage for council staff who provide important
services to Auckland but struggle to afford to live in the region.
6. The
Annual Budget 2017/18 proposal seeks to share the burden of growth more fairly
among those who live and benefit from working in Auckland, to continue to
generate savings across the council group and to allow ratepayer funds to be
redirected into much needed infrastructure projects that will relieve the
growing pressure on our region.
7. It
is a budget that allows the council to begin to address the primary pressures
of housing affordability and transport congestion in Auckland within the
confines of the council’s borrowing constraints. And it indicates to
Government and Auckland residents that Auckland Council is doing everything it
can to raise revenue, address Auckland’s most pressing challenges and
operate efficiently with the limited tools it has available.
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Recommendation/s
That the Finance and
Performance Committee:
a) recommends
that the Governing Body adopts an average increase to both
the fixed and variable portions of the general rate for existing ratepayers
of 2.5 per cent for the final Annual Budget 2017/18
b) recommends
that the Governing Body agrees to amend the council’s
Revenue and Financing Policy to pause the Long-Term Differential Strategy for
the 2017/18 year and extend the time to reach the target proportion of
25.8 percent of rates from the business sector until 2037/38
c) recommends
that the Governing Body, as part of the final Annual Budget 2017/18, agrees
to a targeted rate on commercial accommodation providers to fund a proportion
of the visitor attraction and major events expenditure of Auckland Tourism,
Events and Economic Development (ATEED) as follows:
i) the
amount of the targeted rate is set at 50 percent of ATEED’s budgeted
expenditure on visitor attraction and major events, being $13.45 million
ii) in
consideration of the distribution of benefits and affordability for
commercial accommodation providers, they be categorised by type into three
tiers:
· Tier
1 comprising hotels and serviced apartments
· Tier
2 comprising motels, lodges and motel-like accommodation in campgrounds
· Tier
3 comprising other accommodation providers such as backpackers, campgrounds
and hostels
iii) in
further consideration of the distribution of benefits for commercial
accommodation providers, they be categorised by location into three zones:
· Zone
A comprising the local board areas of Albert-Eden, Devonport-Takapuna,
Mangere-Otahuhu, Maungakiekie-Tamaki, Orakei, Waitemata
· Zone
B comprising the local board areas of Henderson-Massey, Hibiscus and Bays,
Howick, Kaipataki, Manurewa, Otara-Papatoetoe, Puketapapa, Upper Harbour,
Waiheke, Whau
· Zone
C comprising the local board areas of Franklin, Great Barrier, Papakura,
Rodney and Waitakere Ranges
iv) the
targeted rate is applied on a differential basis based on the type and
location as set out in the following table:
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Differential ratios
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Provider type
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Hotels and
serviced
apartments
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Motels and
Lodges
(including motel-like accommodation at campgrounds)
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Other
(Backpackers, campgrounds, hostels)
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Location
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Zone A
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1.0
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0.6
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0.0
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Zone B
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0.5
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0.3
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0.0
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Zone C
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0.0
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0.0
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0.0
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Note: The change from the
original proposal is set out in paragraph 21.
v) the council will consider applications for remission under its
existing rate remission scheme (Remission of rates for miscellaneous
purposes), for example where the owner/ratepayer are separate from the
accommodation operator and the nature of the relationship between the parties
means the targeted rate is unable to be passed on to the accommodation
operator
vi) staff
report back on the development of a more targeted remission scheme as part of
the Long Term Plan 2018-28
vii) staff
report back on a proposal for 2018/19 for the inclusion of informal
accommodation providers currently being rated as residential properties
viii) staff report
back on a proposal for the introduction of alternative governance
arrangements of ATEED, including greater participation for commercial
accommodation providers appropriate to their level of funding of
ATEED’s activities
ix) the council’s
Revenue and Financing Policy be amended to provide for
targeted rates to be used to fund visitor and external relations, destination
and marketing and major events in the Economic Growth and Visitor Economic
activity
x) the
$13.45 million of general ratepayer funding no longer required to fund ATEED
be used to fund transport infrastructure projects, specifically mass transit
to the airport and other airport access improvement projects
xi) note
that ATEED’s future role and activities will be considered as part of
the Long Term Plan 2018-28
xii) note that
the Mayor is open to discussing with the industry any proposals it wishes to
put forward for an industry-led and funded regional tourism organisation as a
partial or complete alternative to using a targeted rate to fund
ATEED’s tourism promotion activities
d) recommends
that the Governing Body agrees to amend the council’s
Revenue and Financing Policy to facilitate future proposals to the
Governing Body on the use of targeted rates to fund growth infrastructure
e) recommends
to the Governing Body that Auckland Council group implements a living wage
policy over the council term to October 2019 as follows:
i) the
rate will initially be based on the reference living wage published by the
Living Wage Movement Aotearoa New Zealand for 2017 being $20.20, and
thereafter will be calculated based on council wage inflation
ii) the
living wage applies to Auckland Council and its substantive
council-controlled organisations and excludes contractors and volunteers
iii) a
phased implementation approach be employed to ensure the greatest benefit is
received by people earning lower than a living wage in priority to addressing
relativity issues
iv) a
complementary Trainee, Cadet, Intern and Apprenticeship rate is developed
v) the
operating budget for the final Annual Budget 2017/18 include costs of $1.9
million for living wage policy implementation and that this be offset by
savings
f) recommends
that the Governing Body agrees to the operating and capital budgets
incorporating the above rating and other changes and the following other key
changes to rates policy and capital and operating budgets for the final
Annual Budget 2017/18 as below:
i) $500,000
operating budget to fund collaborations on homelessness
ii) $10
million of Auckland Transport operating budget to fund mass transit network
investigations
iii) updated
capital budgets for City Rail Link which reflect an increase of
$240 million in council’s share of net capital investment by 2024/25
(revised total council investment of $1.7 billion)
iv) an
additional $161 million capital budget to accelerate transport investment
(including $30 million for mass transit land acquisition)
v) $7.2
million of additional capital budget for works on either side of the Skypath
construction
vi) $10
million of capital budget for cruise ship infrastructure
vii) $20
million of stormwater capital budget brought forward from future years to
address weather event resilience
viii) additional
capital budget of $10.2 million for Regional Facilities Auckland to construct
a shared plant facility for services to the Town Hall and Aotea Centre
ix) waste
management services and charges be standardised in accordance with staff
recommendations
x) Manukau,
Uptown and Wiri business improvement districts be expanded in accordance with
staff recommendations
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Comments
Background
8. Auckland
has benefited from unprecedented population growth, but it has placed the
region and its people under immense pressure. Traffic congestion turning to
gridlock is costing Auckland and New Zealand billions in lost productivity each
year. That and housing unaffordability are the challenges that must be
addressed as priorities for Auckland.
9. Although
Auckland Council has a limited suite of tools with which to address the
challenges facing Auckland, the Annual Budget 2017/18 sets out a number of
proposals which will ensure the council restricts general rate rises and provides
value for money to Aucklanders, develops new revenue streams which allows for
ratepayer funds to be redirected to much needed infrastructure projects and
helps the most vulnerable Aucklanders.
10. The budget
was proposed on 30 November 2016 and accepted as a proposal for consultation by
the Governing Body on 15 December 2016.
11. In February
this year the Governing Body adopted a consultation document which set out for
the community the key issues to receive feedback on before adopting the Annual
Budget for 2017/18. The consultation issues reflected the desire to reinforce
the rating stability that has arisen from the standardisation of rating policy
across the Auckland region. A core objective of the mayoral proposal is that
both residential and business ratepayers receive an average general rates
increase of 2.5 percent in 2017/18.
Rating policy
Note officer reports on these issues
are attached to this report
Rating stability
12. Public
submissions received were strongly supportive of the rating stability policies
of setting the average general rates increase for both residential and business
ratepayers at 2.5 percent, and of pausing the implementation of the long-term
differential strategy for business and residential rates for one year. The
officers’ report notes “clear majority support for rebalancing how
services and capital investment in Auckland is funded to shift some of the
burden from general ratepayers to those who more directly benefit from the
expenditure”.
13. The updated
budget prepared by council staff based on a 2.5 percent general rates increase
contains efficiency savings for both the council parent and CCOs, which can be
achieved without reducing service levels and without compromising the
council’s prudential limits.
14. Importantly,
a general rates increase of 2.5 percent, while delivering the services
Aucklanders expect of their Council, maintains pressure on the Council group of
organisations to achieve ongoing savings of at least 3 percent across this term
of Council.
15. From
2018/19 general rate rises will be influenced by the future path of
inflationary pressures. The Consumer Price Index increased by 2.2 percent
in the March 2017 quarter, though consumer price inflation is forecast to
remain subdued. Nevertheless, the council will need to take into account
the impact of inflationary pressures in critical areas, such as the
construction sector.
Accommodation provider
targeted rate
16. The use of
targeted rates provides the council with an opportunity to better and more
fairly allocate the funding for specific expenditure between different groups
of ratepayers. The visitor attraction and major events expenditure of ATEED has
contributed to the growth in the visitor economy of Auckland. This growth
provides both general benefits for Auckland and clear and direct benefits for
the tourism industry. In particular, it directly benefits commercial
accommodation providers, whose customers are overwhelmingly visitors to
Auckland.
17. The
consultation process has provided significant feedback, showing strong support
from ratepayers and providing information from the detailed submissions of
industry participants. I have continued to engage with the hotel industry
during the period after consultation closed, meeting a number of key industry
players, both owners and management.
18. In
consideration of the staff report on this matter (attached as Attachment A),
along with workshops and discussions with councillors and industry
participants, I have revised my proposal for the accommodation provider
targeted rate.
19. The revised
proposal reflects the weighing of a number of factors as set out in the staff
report in paragraph 76. As a result, the revised proposal retains a significant
proportion of general rates funding of ATEED’s visitor attraction and
major events expenditure. The revised proposal also differentiates the
application of the rate based on accommodation provider types and their
location. It also takes into account a judgement regarding the relative
affordability of the rate on different accommodation provider types, including
the providers’ ability to pass it on to their customers, if they decide
to do so. More broadly, the overall impact on the community (general ratepayers)
of meeting the region’s revenue needs is an important consideration.
20. The revised
proposal is for half of the $26.9 million ATEED visitor attraction and major
events expenditure to continue to be funded by general rates, and for half to
be funded by the accommodation provider targeted rate. This 50/50 apportionment
is a political judgement applying a “stand back” evaluation of the
factors set out in the staff report, including consideration
of ATEED expenditure that has less direct benefit for accommodation providers.
21. The table below shows how the modified accommodation provider
targeted rate differential ratios will be applied and includes additional
information as to how this compares to the original proposal.
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Differential ratio
and
estimated rates increase
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Provider type
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Hotels and
serviced
apartments
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Motels and
lodges (including
motel-like accommodation at campgrounds)
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Other
(campgrounds, backpackers, hostels)
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Location
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Zone A
Differential
ratio
Average rates
increase
% of original
proposal
Average $ per
room per night
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1.0
64%
60%
$3-$6
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0.6
58%
36%
$2-$3
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0.0
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Zone B
Differential
ratio
Average rates
increase
% of original
proposal
Average $ per
room per night
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0.5
36%
30%
$2-$4
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0.3
30%
18%
$1-$2
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0.0
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Zone C
Differential
ratio
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0.0
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0.0
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0.0
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NOTE: Amounts are estimates
only and are stated exclusive of GST
22. A rate
collecting $13.45 million would create capacity for about an additional $100
million of capital investment in transport infrastructure over the next six
years.
23. As set out in
the staff report, the revised proposal includes the use of the council’s
existing rate remission scheme and provision for the development of a bespoke
scheme. Submissions provided information about certain accommodation operating
models, such as some strata-title serviced apartments owned by investors, where the nature of the relationship between the owner and
accommodation operator means in some cases the targeted rate is unable to be
passed on to the operator.
24. I propose to
consider whether the informal sector, such as Airbnb, should be included from
the 2018/19 year for the Long Term Plan. A rating policy for these
accommodation providers, including their status as business or residential
ratepayers, will be developed over the coming months and reported back to the
Finance and Performance Committee for consideration.
25. ATEED’s
future role and functions will be considered as part of the Long Term Plan
2018-28, which is already partly underway in the economic development work
stream of the section 17A reviews. Specifically, the visitor attraction
expenditure for future years will be significantly influenced by industry
participants as part of the governance structure that will be set up.
26. Some industry
participants have approached the Mayoral Office with the suggestion of an
industry-led and funded regional tourism organisation as an alternative to
using a targeted rate to fund ATEED’s tourism promotion activities. To
date no specific proposal has been submitted by the industry, and it is not
possible to gauge whether this idea has significant support within the
industry. Notwithstanding this, I am open to discussing with the industry
any proposals it wishes to put forward over the coming twelve months.
Growth infrastructure
targeted rate
27. The Auckland
Unitary Plan has enabled significant intensification of existing urban areas
and identified 11,000 hectares of new areas – which could deliver 422,000
new homes by 2040.
28. While urban
development can progress quickly, rural land identified for development lacks
the required infrastructure such as roads, sewers, water supply and community
amenities to support new housing. Currently this infrastructure is funded
partly from external sources (such as NZTA) and from council’s development
contributions and infrastructure growth charges. These lump sum charges are
payable when a new dwelling is consented or connected to water and wastewater
networks. These funding mechanisms create two particular issues, being that
they are often insufficient to pay for the infrastructure that must be built,
and secondly that they offer no incentive for landowners to develop their land.
29. 66 percent of
written submissions supported this proposal to amend the Revenue and Funding
Policy to add growth infrastructure targeted rates to the council’s
rating toolkit which can be used to affect the acceleration of development of
new housing areas and may curb landbanking – a growing issue and outcome
from steadily increasing property values in Auckland.
30. The detailed
policy of growth infrastructure targeted rates will be developed for inclusion
in the Long Term Plan 2018-28. It is envisaged that growth infrastructure
targeted rates be used alongside the existing development contributions and
infrastructure charges, as an annual payment that spreads the cost of
infrastructure over several years and can be levied ahead of development
occurring. This would have the advantages of incentivising development of land,
reducing the current reliance on ratepayers to subsidise new housing
developments, more closely link the rates paid by landowners to the uplift in
value of their land as a result of it being available for development, and
establishing a more predictable and secure revenue stream for council.
Other budget changes
Living wage policy
31. The 2017/18
budget will mark the first stage of implementing a living wage policy across
the Auckland Council group. By raising the minimum wage for our staff to $18.00
an hour in the first year we are setting down the path of making a significant
difference to our lowest paid employees. This change also has the benefit of
being a positive shift for gender pay equity. 71 percent of
the submissions received through the public consultation process were in
support of a living wage.
32. Importantly,
the officers’ report (refer Attachment C) recommends the establishment of
a separate wage and guidelines for employees taking part in council’s
trainee, cadet, apprenticeship and internship programmes to ensure that our
commitment to invest in youth and other programmes with social outcomes is
maintained.
Homelessness
33. As New
Zealand’s largest city, Auckland faces significant challenges in relation
to homelessness. Council is not best suited to lead efforts to reduce
homelessness but can have significant influence on the issue as a facilitator
of inter-agency efforts.
34. The annual
budget proposes that Council contribute $500,000 a year towards coordinating
central government agencies such as Housing NZ, MSD, DHBs and Police with NGOs
and private businesses supporting the homeless in Auckland. A significant
portion of this investment will go towards implementing the housing first model
in the region, where the homeless are provided with a stable and healthy home
with support services around them.
35. As a
facilitator, Council will be able to best influence and help direct efforts
that will have a measurable and positive affect on homelessness in Auckland.
36. Homelessness
is not just an Auckland Council problem. The Government has acknowledged the
issue by putting $3 million over three years towards community agencies working
with the homeless.
Mass Transit Network
37. Auckland continues to face serious transport access issues involving
the city centre, the inner suburbs, the airport and the South. An expanded and
well-connected mass transit network is at the heart of Auckland
Transport’s plans for supporting growth in existing and future urban
areas. Investigation and design of potential mass transit solutions
continues and requires $10 million of increased operating budget in 2017/2018,
with $30 million of capital budget for route protection including property
acquisition. In addition, general rates funding freed up by the accommodation
provider targeted rate will contribute further to airport access improvement
projects, including mass transit to the airport.
Attachments
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No.
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Title
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Page
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a⇩ 
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Annual Budget 2017/2018 - Key Budget and Rating Issues
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13
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b⇩
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Other rates policy issues
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45
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c⇩ 
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Implementing a living wage
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53
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Signatories
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Author
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Mayor Hon Phil Goff, CNZM, JP
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