HuttCity_TeAwaKairangi_SCREEN_MEDRES

 

 

 

 

 

16 June 2020

 

 

 

Long Term Plan/Annual Plan Subcommittee
Meeting to be held in the
Council Chambers, 2nd Floor, 30 Laings Road, Lower Hutt

on

 

Thursday, 18 June 2020 commencing at 9.30am

 

 

 

 

SUPPLEMENTARY ORDER PAPER

 

 

 

6.       Final decision on rating policy options for 2020/21 (20/562)

Report No. LTPAP2020/4/126 by the Chief Financial Officer                            2

 

 

 

 

 

 

 

 

 

 

Kathryn Stannard

HEAD OF DEMOCRATIC SERVICES

 

 

 

 

 


 

 

Long Term Plan/Annual Plan Subcommittee

16 June 2020

 

 

 

File: (20/562)

 

 

 

 

Report no: LTPAP2020/4/126

 

Final decision on rating policy options for 2020/21

 

Purpose of Report

1.    The purpose of this report is for Council to make a final decision on rating policy changes to be implemented for the Annual Plan 2020/21.

2.    The three yearly general revaluations in September 2019 resulted in significant changes in property values across different categories. If Council chose to retain the existing rating policy then, due to the changes in the property values, this would result in an overall increase in general rates for residential properties and decreases for commercial properties. Further to this, Council policy on rating differentials would exacerbate the impact.

3.    Through the Draft Annual Plan 2020/21 three options on rating policy change were presented for public feedback. Following the public submission process, the preferred option of Council has been further developed and two further options developed for Council consideration.

Recommendations

That the Subcommittee recommends that Council:

(i)        notes that the overall Revenue and Financing Policy, including the differential factors, will be reviewed from a first principles approach as part of the 2021-2031 Long Term Plan process;

(ii)       notes the significant changes between and within the different categories in the capital values in the 2019 rating revaluation;

(iii)      notes the options developed and included in the draft Annual Plan 2020/21;

(iv)      notes the overall strong support for the preferred option 1;

(v)       notes that option 1 has been further refined following feedback through the public submission process;

(vi)      agrees that option 1 C is the preferred option for 2020/21;

(vii)     instructs officers to prepare the final Annual Plan 2020/21 for adoption based on option 1C; and

(viii)    instructs officers to prepare the rating resolution to be presented at the Council meeting on 30 June 2020 based on option 1 C. 

 

Acronyms:

DAP – Draft Annual Plan 2020/21

LTP – Long Term Plan 2018-2028


 

Background

Strategic financial context

4.    A key underpinning principle of the Council’s LTP Financial Strategy is the affordability of rates to ratepayers. As a result the Financial Strategy includes the following  elements:

-     Capital value is the basis for gathering general rates revenue; the higher the value of the property, the higher the rates paid by the property owner. 

-     Differentials for businesses reflect their higher share of the benefits of certain Council services.

-     Differentials applied to community facilities and rural sectors to reflect ability to pay and relative levels of service received.

-     Rates relief is offered through rates rebates which are funded by central government.

-     Rates postponement and remission policies (includes financial hardship, wastewater charges for schools, community, sporting and other recreation organisations). 

-     Limits in annual rates revenue increase.

Broader strategic context – Housing affordability

5.    Council is aware that households are under increasing financial pressures. Households in Lower Hutt have experienced increasing costs for housing in both rental and ownership markets in recent years. House prices increased by 46 per cent between 2015 and 2019, while rental costs increased by 31 per cent during the same period.  These housing costs have increased at a much faster rate than household incomes which means that, as well as an increase in homelessness and housing hardship, a growing number of households are experiencing difficulties accessing and sustaining accommodation.

6.    What Council is doing:

-     A recent change to the District Plan enables the construction of more homes in the city.

-     Developing a housing plan to identify additional actions to help deliver more suitable and affordable homes.

-     A full review of the city’s planning framework. 

-     Investment of over $1.6M over the current and next two years to prevent homelessness and help households access and sustain accommodation.

Council’s response to Covid-19 pandemic

7.    Council took action promptly in response to the Covid-19 lockdown. A range of initiatives were developed to support the Lower Hutt community as part of the Covid-19 Response plan. This included a focus on welfare with funding provided to food banks and charities to support food distribution to those in need.  

8.    The response also included lobbying central government to extend the rates rebates scheme. Council offered extended payment terms for ratepayers who were experiencing financial hardship, and also waived rates penalties for late payment. The criteria for the rates postponement policy were extended, which included enabling small businesses facing financial hardship to be able to postpone rates in certain circumstances.

Background – rating policy

Note that section should be read in conjunction with report LTPPS2020/2/3 presented to the LTP/Annual Plan Subcommittee 11 February 2010 “Impact of General Revaluation 2019 and rating Options for Consultation” which included detailed analysis.

9.    In 2012, general business rates were almost four times the amount of residential rates. In the 2012-2022 Long Term Plan the priority focus for the Council was on “growth and rejuvenation of the city”.  Council began a process of adjusting the share of general rates paid by businesses, residential and rural ratepayers.  A gradual transition over 10 years of the rating differentials was introduced.  This was considered to be a more equitable allocation between property categories.  The intention was that by 2021/22, the general rates paid by business ratepayers would be 2.3 times that of a residential ratepayer.  Our modelling indicated that about a 60% residential share of general rates was intended.

10.  Following the three yearly revaluation of properties in 2017/18, Council agreed to freeze the differential transition for one year and extend the transition period by a year to reduce the rates impact on residential property values.

11.  The Annual Plan 2019/20 included the updated differential transition plan. This is detailed in Table 1 and shows the target of 2.29 by 2022/23 (with a minor revision from 2.30 to 2.29 included in LTP 2018-2028).

Table 1: Annual Plan 2019/20 - extract from differential transition plan

Differential

2019/20

2020/21

2021/22

2022/23

Business accommodation

2.51

2.44

2.37

2.29

Business central

2.72

2.58

2.44

2.29

Business suburban

2.63

2.52

2.41

2.29

Utility Networks

2.36

2.34

2.32

2.29

 

12.  As a result of this differential transition plan, since 2012 there has been a significant transfer of rates from the business sector to residents: 

business has moved from a 44% share in the general rates in 2010/11 to a 31% share in 2019/20.

residential property has moved from a 51% share of general rates in 2010/11 to a 63% share in 2019/20, i.e. the 60% share had been achieved sooner than originally anticipated.

13.  The 2019 three yearly revaluation in Lower Hutt has seen residential property values increase substantially more than business values:

residential property increased by 31.8%

commercial property increased by 16.9%.

Within the residential property increases there have been suburbs with very significant increases, such as Wainuiomata average increase of 55% and Naenae average increase of 46%. This has raised significant concerns about affordability of rates in 2020/21 for these suburbs.

The 2019 revaluations changed property values across different categories resulting in residents potentially picking up 65% of the overall rates bill in 2020/21. Refer graph 1 which shows the trend in percentages. Graph 2 shows the trend in financial terms.

Graph 1: General rates revenue percentage by property category

 


 

 

Graph 2: General rates revenue by dollar amount by property category

 

 

Options developed for the Draft Annual Plan 2020/21

14.  The Council plans, through the Long Term Plan 2021-2031, to complete a full review, from a first principles approach, of the Revenue and Financing Policy. This policy includes the rating differentials.

15.  In the interim for 2020/21, Council developed three options for the Draft Annual Plan 2020/21 and sought public feedback. In summary these were :

Option 3 – Do nothing and continue to reduce the share of rates paid by businesses;

Option 2 – Freeze the rating differentials for one year (the same approach as in 2017/18). Due to the 2019 property revaluation changes, residential properties would continue to have a larger share of the rates but not as much as option 1; or

Options 1(the preferred option) - “A holding position” - Keep the allocation of general rates at the same percentage levels between all property rating categories as was the case in 2019/20, that is, not continuing with the direction of reducing the proportion of rates paid by businesses. While individual properties may still see an increase in the rates levels payable, this approach will generally see most property categories having an increase of a similar percentage. From an affordability perspective this seems the most reasonable and fair approach, and hence was the preferred approach of Council.

 

This option of having “a holding position” of the existing allocations was an interim solution proposed for one year ahead of the full review being undertaken as part of the 2021-2031 LTP.  In the draft Annual Plan 2020/21, the impact on the average residential property of this option would be around a $28 per annum lower rates when compared to option 3.

 

16.  Table 2 provides the differentials based on option 1, which were included in the draft Annual Plan 2020/21. Each differential for a property category has been recalculated to ensure that the same percentage/share of the rates is retained as per 2019/20. 

Table 2: Option 1 differentials included in the DAP

Property category

2019/20

DAP 2020/21

Residential

1.00

1.00

Business accommodation

2.51

2.64

Business central

2.72

2.98

Business Queensgate

2.72

3.73

Business suburban

2.63

2.60

Rural

0.75

0.75

Utility Networks

2.36

2.80

 

17.  The DAP included a section near the front of the plan entitled “Rates Differential (Split)” (pages 8 to 15) which explained the options. The Revenue and Financing  Policy (pages 58 to 66) referenced the proposed changes to the differentials and included the following rationale:

How does council decide what is funded from where?

Appropriate funding sources are determined using a two-step process on an activity by activity basis.

Step One

The funding needs of Council must be met from what Council determines to be the most appropriate funding source for each activity following consideration of:

•     The community outcomes to which the activity contributes

•     The distribution of benefits between the community as a whole and any identifiable parts of the community and individuals

•     The period over which the benefits are expected to occur

•     The extent to which the action or inaction of particular individuals or groups contributes to the need for the activity to take place

•     The costs and benefits of funding an activity distinctly from other activities.

A more detailed discussion of the use of different funding tools and the reasons for the allocation of costs to various sectors of the community for each activity is provided in detailed content that follows later in this policy.

Step Two

The second step in the process is for Council to apply its judgement to the overall impact on the community. In exercising this judgement Council considers the following;

•     The impact of rates and rates increases on residential properties, and in particular on the affordability of rates and rates increases for low, average and fixed income households.

•     The impact of rates and rates increases on businesses and on the competitiveness of Lower Hutt as a business location.

•     The fairness of rates (and changes in rates) relative to the benefits received for “standout” properties with unusually high capital values.

•     The special characteristics of particular classifications of property - including their purpose and proximity to the city.

•     The complexity of the rating system and the desirability of improving administrative simplicity.

•     The change in relative rateable values between types of properties.

As the General rate is a general taxing mechanism, shifting the “differential factor” for each sector’s share of the city’s overall capital value is the principal means that the Council has used to of achieving the desired overall rates impact on the wider community.

 


 

Approaches by other Councils in relation to business differential

18.  Table 3 summarises comparative information on other Council’s commercial or business differential in the Wellington region.  Hutt City Council’s LTP 2018-2028 target differential of 2.29 is comparatively very low compared to these other Councils.

Table 3: Business/commercial differentials in Wellington region

Council

Differential

2019/20

Commentary

Wellington City Council

3.25

The commercial differential was adjusted from 2.8 to 3.25 in 2019/20 following significant changes to property values through the general revaluation. WCC was faced with a similar issue to HCC with residential property values increasing at a much higher rate than commercial property values.  The differential change ensured that the rates proportions derived from commercial property category and residential property category were retained at similar proportions to before the general revaluation.

Porirua City Council

3.32

Alongside the business differential, there is also a shopping plaza differential at 2.83. The latest general revaluation is effective 1 September 2019.

Upper Hutt City Council

2.7

The latest general revaluation is effective 1 August 2019.

 


Background of ratepayer- Queensgate Mall

 

19.  Of the 2016 rating valuation, 1.1% of the city’s total value was held by Queensgate Mall (the Mall) but because of the commercial differential, 2.5% of the general rate was paid by the Mall.  Based on the 2019 valuation, the Mall’s share of the City’s value reduced to 0.8%.  This reduction is due in part to the rebuild of the Mall.  When Council developed the business central differential, it identified that the Mall should be subject to the same differential as other commercial properties including the reasons below:

-     The impact of rates and rates increases on businesses and on the competitiveness of Hutt City as a business location.

-     The fairness of rates (and changes in rates) relative to the benefits received for “stand-out” properties with unusually high capital values.

20.  Graph 3 shows the trend in property value since 2010 and graph 4 shows the rates trend during the same period.  

Graph 3: Property value trend for Queensgate Mall from 2010 to 2020

Graph 4: Rates paid by Queensgate mall from 2010 to 2019

21.  In the 2019 property revaluation, the capital value of Queensgate reduced by 4% compared with an average increase of 23% for all other Business Central properties. Queensgate represents approximately 30% of the total Business Central rating category.

22.  Table 4 provides the indicative impact on rates for the three options for the rating policy that were included in the DAP. This indicative impact for rates is based on the latest rating database information post DAP.

Table 4: Impact of options in the DAP on the rates paid by Queensgate shopping centre

Option

Rates 2019/20

Rates 2020/21

% change

Amount per annum

 

Capital value $250M

Capital value $240M

 

 

Option 1: Keep the allocation of general rates at the same levels of % between all property rating groups as 2019/20.

$2.176M

$2.231M

2.5%

Higher

$55k

Higher

Option 2 : Freeze the transition for one year

$2.176M

$1.665M

(23.5%)

Lower

$512k

Lower

Option 3: Status quo

$2.176M

$1.602M

 

(26.4%)

Lower

$574k

Lower

 


 

Summary of public submissions on the DAP

23.  An overwhelming majority preferred option 1, maintaining the current splits (78%), with 17% preferring option 2 freezing the differential and 5% continuing with the current plan.  This question was answered by 113 of the 164 respondents approximately 69% or just over two thirds.

Which of three Rates Split options do you prefer (option 1 is Councils preferred option)

Option 1

(maintain % splits)

Option 2

(freeze differential)

Option 3

(continue with current plan)

78% (117)

17% (26)

5% (7)

 

24.  There were submitters that thought commercial rate payers should pay more and others that took the opposite view. One submitter suggested that the basis of any differences in charging should be established solely upon the level of services received by each rating category and that the differential should continue to be reduced so businesses would pay progressively less rates.

25.  Another suggested that the rates are needed to move away from property valuations and percentages set for each group as the starting point.  They also suggested that the rating valuations should be applied within each category to determine the relative allocation for individuals within each category rather than spread across all ratepayers.

26.  Another thought that the proportion paid by businesses should not be reducing as they benefitted from facilities just as residences do and should not be advantaged above residents. Another who commented thought that the rates differential needed to stop or, if anything, needed reversing so that commercial properties started paying a higher proportion. 

27.  Concern was expressed for struggling businesses and the flow-on impact of increasing commercial rates on the business owners who own/rent premises who in turn increase the price of their products/services affecting all the residents. As a residential rate payer the submitter was preferred to pay an extra 35c a week to keep local businesses operating than have them close or put their prices up.

28.  The Maungaraki Community Association proposed that there be a zero rates increase for both residential areas and businesses and keeping the Business Differential Rate at the current rate.

29.  Extract of summary of submission from Stride Investment Management Limited and Diversified NZ Property Trust (Queensgate):

Diversified and Stride strongly oppose the Proposal (Option1), which unfairly and unreasonably targets Queensgate Shopping Centre. This is because:

(a)    There is no basis for carving Queensgate out from the rest of the Business Central community as its own rating unit, other than as a way to load a high differential onto the Shopping Centre.

(b)  The Proposal acts to protect residential ratepayers in light of Covid – 19 but does not acknowledge that retailers have been some of the hardest hit businesses as a result of the epidemic.

(c)  The Proposal is in stark contrast to the well-established and well understood policy by the Council to gradually decrease the business differential over time, as developed in 2012 and confirmed most recently in the 2018 Long Term Plan ("LTP") and 2019/2020 Annual Plan.

(d) The Proposal acts to keep the allocation of general rates at the same levels between all property rating groups as in 2019/20. To achieve this, it has artificially generated the increased differential as a way to "work around" Queensgate's recent capital value decrease. This is to ensure it still receives maximum rates from the Shopping Centre.

(e)  The Proposal contravenes the Council's responsibility under local government legislation to act in an open, transparent and democratically responsible manner.

30.  Extracts of submission from Property Council New Zealand relevant to rating differential:

·    Freeze the business rates differential transition for a year (option 2), until the Council does a full review of the Revenue and Financing Policy as part of the LTP 2021-2031…..This will help to limit the rates burden on businesses without dramatically increasing the rates for residential ratepayers.

 

·      In 2012, the Council acknowledged that businesses were unfairly paying almost four times the rating bills of residential ratepayers and implemented a strategy to reduce the business differential over a number of years. By increasing the differential under option 1 this sets a concerning precedent for future years. Decreasing the business differential has been a gradual, well canvassed policy, giving certainty to property owners and tenants alike.

 

·    We would like to outline our opposition to targeting Queensgate Shopping Centre with its own rating differential. There is no basis for separating Queensgate from the rest of the Business Central community as its own rating unit, other than as a way to load a high differential onto the Shopping Centre. We recommend that the Council abolishes the introduction of a separate rating differential for Queensgate. Queensgate is home to approximately 138 businesses …. The recent devastating effects for retail as a result of Covid-19 will have a disruptive, stressful and damaging impact on many of the retail shops for many months, if not years. ...An expectation that retail business at Queensgate should pay a high rates increase on behalf of the community in light of the strain already faced by these operators is unreasonable, unfair and inappropriate.

 

 


 

Further development of preferred option 1, including latest rating impact assessment of all options

31.  Officers have analysed the feedback received from the submissions and looked to see whether there is an improved solution for the Annual Plan 2020/21.  The analysis and commentary that follows explains the rationale for the options that were included in the DAP and also analyses two further modifications for option 1, being option 1B and option 1C. This analysis is based on the latest rating database information and assumes the 3.8% rates revenue increase is approved by Council and that growth in the rating base is approximately 1%. The rating impact here shows general rates only and excludes the targeted rates charges.

Option 1 Hold 2019/20 position based on percentage splits

32.  An overwhelming 78% of submitters supported the preferred option 1 of using the differential model largely based on the previous percentage splits of the general rate.  This includes making Queensgate a separate rating category.  This would see the rates for Queensgate increase consistently with all other properties across the city despite its drop in value.  Queensgate and the Property Council submitted against this option.

33.  Council’s preferred option as outlined in the DAP, was developed to maintain as close as possible to an even spread of the proposed rate increase across all categories of ratepayers between the 2019/20 rating year and the proposed 2020/21 year, but acknowledged that due to changes in revaluation that some individual properties may pay either more or less than the average movement of the revaluation. 

34.  The reason for this approach was that when Council compared the proposed 2020/21 movement between rating categories based on the 2019 revaluation, the residential categories would have paid a significant increase compared with other rating categories. Furthermore, when Council examined the percentage that was anticipated to be paid by each ratepayer category based on 2010 which is when the differentials were originally established, it identified that the residential category of ratepayer would pay approximately 5% more in rates.  This then raised concerns over the affordability of rate increases for the residential category.

35.  The increases in capital value within the Business Central category, compared with a decrease in the capital value of Queensgate would lead to significant rate increases for the Business Central category ratepayers, thus Council considered it appropriate that Queensgate should have its own differential for the 2020/21 year.  Furthermore, the approach developed by Council was to ensure that there was consistency between all categories (including all business categories, rural and utilities) of ratepayers by maintaining the percentage increase evenly across categories of ratepayers within city.  This is consistent with the objectives contained within Council’s proposed amended Revenue and Financing policy including:

•   The change in relative rateable values between types of properties.

•   The impact of rates and rates increases on businesses and on the competitiveness of Hutt City as a business location.

Table 5 details the financial impacts of option 1.

Table 5: Option 1 analysis

 

2019/20 rates

2020/21 Option 1

Property category

Average amount of general rates

% of general rates take

Average amount of general rates

Differential

Percentage change from 2019/20

Average business accommodation

$19,003

0.76%

$19,878

2.687

4.607%

Average business central

$11,907

4.97%

$12,312

2.946

3.404%

Queensgate

$2,156,450

2.46%

$2,209,680

3.724

2.468%

Average business suburban

$10,195

22.53%

$10,521

2.613

3.197%

Average residential

$1,510

62.81%

$1,550

1.000

2.657%

Average rural

$1,548

0.86%

$1,596

0.747

3.130%

Average utilities

$17,738

5.26%

$18,227

2.803

2.758%

 

In option 1, Queensgate would see the lowest percentage increase (2.468%) in any ratepayer category (noting reduction in capital value of $10M for this property).

Option 1B Single Queensgate and Business Central category

36.  This option of modifying option 1 was developed to understand the impacts if Queensgate was to be included within the Business Central category, however this option was not included within the consultation process contained within the DAP, but was requested by two submitters.  This option is still based on ensuring the same percentage of general rates to be allocated in the proposed year based on the allocation of general rates between rating categories in the 2019/20 year.

37.  If Queensgate was included within the Business Central category, the average increase for all other Business Central ratepayers would be 11.07%, while Queensgate would see a reduction of 12.94% (reflecting lower capital value).  That option would be inconsistent with Council preferred approach of keeping the increase to groups of ratepayers in line with the 2019/20 rating year to address affordability concerns. Option 1B is not consistent with this because of the significant increase to the ratepayers within the Business Central category. It also should be noted that it is likely that when Queensgate redevelopment is completed there is expected to be a significant increase in the capital value. While this is not likely to happen before 30 June 2020, it is possible that there will be an increase for the year ended 30 June 2021 given building activity underway.  Therefore, based on Council’s DAP preferred option 1, if Queensgate was to be included within the Business Central category then the remainder of the Business Central category would see an increase in rates for the 2020/2021 year and a decrease in rates for the 2021/2022 year, and the inverse would apply to Queensgate.  These increases to the Business Central category ratepayers for the 2020/21 year without modification will likely create affordability issues which cannot be offset by decreases in the 2021/22. This approach would result in an inconsistency in Council’s overall approach of maintaining the percentage increase evenly across categories of ratepayers within the city. Table 6 details the financial impacts of option 1B.

Table 6: Option 1B analysis, combine Business Central and Queensgate

 

2019/20 rates

2020/21 Option 1B

Property category

Average amount of general rates

% of general rates take

Average amount of general rates

Differential

Percentage change from 2019/20

Average business accommodation

$19,003

0.76%

$19,878

2.687

4.61%

Average business central

$11,907

4.97%

$13,225

3.164

11.07%

Queensgate

$2,156,450

2.46%

$1,877,513

3.164

(12.94%)

Average business suburban

$10,195

22.53%

$10,521

2.613

3.20%

Average residential

$1,510

62.81%

$1,550

1.000

2.66%

Average rural

$1,548

0.86%

$1,596

0.747

3.13%

Average utilities

$17,738

5.26%

$18,227

2.803

2.76%

 

Option 1C 

38.  This option was developed in response to the Stride Investment Management Limited and Diversified NZ Property Trust (Queensgate), and the Property Council’s submissions where Queensgate proposed that as an alternative, “Option 1 could be appropriate, provided that the "Business Queensgate" rating unit is deleted, such that Queensgate is subject to the same differential as the rest of the Business Central rating unit, being 2.98”.

39.  It should be noted that the capital value of Queensgate reduced by 4% compared with an average increase of 23% for all other Business Central properties. Queensgate represents approximately 30% of the total business central rating category, and because of Council’s intention to see the different categories of properties paying the same proportion as in 2019/20, if Queensgate was not treated separately, then the remaining Business Central properties have a significant increase in rates compared with all other properties within the city including Queensgate. 

40.  Based on the assumption that if Queensgate was to be included within the Business Central category with a differential of 3.164, as noted in option 1B above, the general rate payable by Queensgate would amount to $1,878k, compared with $2,209k in option 1, a difference of approximately $325k in rates for Queensgate.

Under option 1C, $325k less rates would be collected from Queensgate than Option 1. If collected from the Business Central category this would result in an 11% increase for other ratepayers in the Business Central category. This level of increase is considered to give rise to affordability concerns for those ratepayers.  It is proposed that the difference between those two amounts should be borne by all ratepayers. This amounts to approximately 0.37% increase on all ratepayers.  This would then result in a differential factor of 3.165 compared with business central of 2.946 (the DAP proposed a differential of 2.98). The differential for Queensgate in this option would therefore be reduced from 3.72 in the DAP down to 3.165. Refer Table 11 for further comparative analysis of options.

41.  In addition, by making Queensgate a separate differential category this then provides Council with the ability to consider the change in capital values in subsequent years without significantly impacting the Business Central category.

42.  The impact of this proposal is set out in the table 7 demonstrating that the Business Central average increase will be 3.79%, with Queensgate receiving a reduction in the general rate of 12.59% (in part because of capital value reduction).

Table 7: Option 1C analysis

 

2019/20 rates

2020/21 Option 1C

Property category

Average amount of general rates

% of general rates take

Average amount of general rates

Differential

Percentage change from 2019/20

Average business accommodation

$19,003

0.76%

$19,952

2.687

4.99%

Average business central

$11,907

4.97%

$12,358

2.946

3.79%

Queensgate

$2,156,450

2.46%

$1,885,013

3.165

(12.59%)

Average business suburban

$10,195

22.53%

$10,563

2.614

3.61%

Average residential

$1,510

62.81%

$1,556

1.000

3.04%

Average rural

$1,548

0.86%

$1,602

0.747

3.51%

Average utilities

$17,738

5.26%

$18,294

2.803

3.14%

 

43.  This option provides for retaining the principle of maintaining the percentage of general rates paid based on the percentage that each category paid in 2019/20. It also better reflects the reduction in Queensgate’s capital value. It continues to ensure a reasonably even rates increase for each category of ratepayers (excluding Queensgate which has a significant decrease), ensuring affordability across all categories of ratepayers. It is also important to note that Council has the intention of undertaking a first principles approach to the review of the Revenue and Financing policy for the 2021/22 year.

Option 2 as per DAP -Freeze the differentials to be the same as 2019/20

44.  In 2017/18, following consultation with the community, Council decided to freeze the differential transition for one year.  This freeze happened because the 2016 residential property values increased far more rapidly than commercial property values.  The same uneven increase in capital values has happened in 2019. Table 8 demonstrates the impact on the average properties for each category.

45.  This was suggested as a preferred option by some submitters


 

 

Table 8: Option 2 analysis- freeze the differentials to be the same as 2019/20

 

2019/20 rates

2020/21 Option 2

Property category

Average amount of general rates

% of general rates take

Average amount of general rates

Differential

Percentage change from 2019/20

Average business accommodation

$19,003

0.76%

$18,907

2.5

(0.51%)

Average business central

$11,907

4.97%

$11,574

2.7

(2.80%)

Queensgate

$2,156,450

2.46%

$1,643,100

2.7

(23.81%)

Average business suburban

$10,195

22.53%

$10,779

2.6

5.73%

Average residential

$1,510

62.81%

$1,578

1.0

4.51%

Average rural

$1,548

0.86%

$1,631

0.8

5.37%

Average utilities

$17,738

5.26%

$15,627

2.4

(11.90%)

 

Option 3 as per DAP - Status quo – Continue with differential transition adjustment

46.  Continue with the differential transition adjustment to the share of general rates paid by commercial, residential and rural ratepayers. Homeowners would pay an increased percentage of the general rates to an estimated share of 65%.  When this policy of adjustment was adopted, it was not intended to have the impact it is having now, that is, the residential share of the general rates is over 60%.

This was suggested by some submitters as a preferred option.


 

Table 9: Option 3 analysis- status quo – continue with differential adjustment

 

2019/20 rates

2020/21 Option 3

Property category

Average amount of general rates

% of general rates take

Average amount of general rates

Differential

Percentage change from 2019/20

Average business accommodation

$19,003

0.76%

$18,631

2.4

(1.96%)

Average business central

$11,907

4.97%

$11,128

2.6

(6.54%)

Queensgate

$2,156,450

2.46%

$1,579,822

2.6

(26.74%)

Average business suburban

$10,195

22.53%

$10,469

2.5

2.69%

Average residential

$1,510

62.81%

$1,600

1.0

5.94%

Average rural

$1,548

0.86%

$1,102

0.8

(28.79%)

Average utilities

$17,738

5.26%

$15,706

2.3

(11.46%)

Summary of options and officer advice

47.  Table 10 provides a summary of the rating impact of the options on the average residential property.  This shows that option 1 C is on average a rates increase of about $2.44 per week. This is $5 higher per annum than the DAP which showed an average rates increase of $122 per annum. 

Table 10: Rating impact for average residential ratepayer, including targeted rates

 

Average rates increase per annum

Average rates increase per week

General rates increase

Option  1

$121

$2.33

2.66%

Option 1B

$121

$2.33

2.66%

Option 1C

$127

$2.44

3.04%

Option 2

$150

$2.88

4.51%

Option 3

$172

$3.30

5.94%

 

48.  Table 11 provides a summary of the rating impact of the options on Queensgate.

 

Table 11: Rating impact for Queensgate, including targeted rates

Options

Rates in 2020/21

Change in rates from 2019/20

Change amount %

Differential

Option  1

$2,231,038

Higher   $54,926

Higher   2.52%

3.724

Option 1B

$1,899,430

Lower ($276,682)

Lower   (12.71%)

3.164

Option 1C

$1,906,376

Lower ($269,736)

Lower (12.40%)

3.165

Option 2

$1,664,463

Lower ($511,649)

Lower (23.51%)

2.7

Option 3

$1,601,185

Lower ($574,927)

Lower (26.42%)

2.6

NB – Note capital value for 2019/20 was $250M whilst reduction for 2020/21 to $240M.

49.  Following the property revaluation in 2019, Council decided to progress a rating policy review after noting since 2010 a significant transfer of rates from the business sector to residents, and that the original share of 60% residential had been achieved sooner than originally anticipated. The proposed options developed for 2020/21 are a one-year interim solution ahead of a full review of the Revenue and Financing policy as part of the LTP 2021-2031.

50.  The key underlying consideration applied in looking for a solution for 2020/21 has been affordability for ratepayers and aiming for an equitable solution within the context of the significant property revaluation changes. With this in mind, the preferred option 1 in the DAP included the following principals

-     Maintain the same percentage of general rates to be allocated to each rating category in 2020/21, based on the allocations of general rates between rating categories in 2019/20.

-     Maintain a reasonably even spread of the rates increase across all ratepayers categories for 2020/21.

51.  Further options 1B and 1C developed after the public submissions, have modified this approach to take into account the significant property value decrease for Queensgate and also to consider the rating impact for the Business Central category.  Based on the analysis detailed in the previous section, Officers recommend option 1C. This option works to achieve the key principals aimed for, reflects the Queensgate drop in property value whilst also not unreasonably burdening the Business Central rating category or other ratepayers.

Legal Considerations

52.  The most relevant legislation includes the Local Government Act 2002, Local Government (Rating) Act 2002 and the Rating Valuations Act 1998.  Specialist legal advice is being provided in support of the proposed changes to rating policy to ensure that Council meets legislative compliance requirements. 

Financial Considerations

53.  External specialist advice is being provided in support of the proposed changes to the policy included in this report. This is being funded from within existing budgets.

Appendices

No.

Title

Page

1

Appendix 1  Detailed rating impact information on options

24

 

 

 

 

Author: Jenny Livschitz

Chief Financial Officer

 

 

 

 

Approved By: Jo Miller

Chief Executive

 


Detailed rating impact information on options

Section A – Rates increase 3.8%

Table A: By Property category, Option 1A:  Keep same percentages by property categories, 3.8% rates increase

 


 

 

Table B: By Property category, Option1B: Keep same percentages by property categories, 3.8% rates increase (combine Business Central and Queensgate)

 


Table C: By Property category, Option 1C:  Keep same percentages by property categories, 3.8% rates increase (change allocation of Queensgate)

 

 


 

 

Table D: By property category - Option 2: Freeze differential, 3.8% rates increase

 

 


 

 

Table E: By property category - Option 3: Status Quo, 3.8% rates increase

 

 


 

 

 

Table F: Option 1; Keep same percentages by property categories, Average residential property by suburb, 3.8% rates increase  

Table G: Option1B:  By Property category, Keep same percentages by property categories, 3.8% rates increase (combine Business Central and Queensgate)

Residential Suburbs

Capital Value July 2019

2019-2020 Rates

Capital Value July 2020

% Change in Property Value

2020-2021 Rates

$ Change Annual

$ Change Weekly

ALICETOWN

$529,000

$2,645

$660,000

25%

$2,680

$35

$0.67

AVALON

$459,000

$2,423

$605,000

32%

$2,544

$121

$2.33

BELMONT

$546,000

$2,699

$705,000

29%

$2,791

$92

$1.78

BOULCOTT

$589,000

$2,835

$735,000

25%

$2,865

$30

$0.58

EASTBOURNE

$747,000

$3,336

$930,000

24%

$3,347

$11

$0.22

EPUNI

$521,000

$2,619

$660,000

27%

$2,680

$60

$1.16

FAIRFIELD

$474,000

$2,470

$620,000

31%

$2,581

$111

$2.13

HARBOUR VIEW

$542,000

$2,686

$685,000

26%

$2,742

$56

$1.07

HAYWARDS

$312,000

$1,956

$405,000

30%

$2,049

$93

$1.79

HUTT CENTRAL

$689,000

$3,152

$855,000

24%

$3,162

$10

$0.19

KOROKORO

$584,000

$2,819

$785,000

34%

$2,989

$170

$3.26

MAUNGARAKI

$543,000

$2,689

$685,000

26%

$2,742

$53

$1.01

MELLING

$414,000

$2,280

$545,000

32%

$2,395

$115

$2.22

MOERA

$382,000

$2,178

$505,000

32%

$2,297

$118

$2.27

NAENAE

$336,000

$2,033

$490,000

46%

$2,259

$227

$4.36

NORMANDALE

$520,000

$2,616

$660,000

27%

$2,680

$64

$1.22

PETONE

$629,000

$2,962

$755,000

20%

$2,915

($47)

($0.91)

STOKES VALLEY

$344,000

$2,058

$485,000

41%

$2,247

$189

$3.64

TAITA

$343,000

$2,055

$485,000

41%

$2,247

$192

$3.70

WAINUIOMATA

$297,000

$1,909

$460,000

55%

$2,185

$276

$5.31

WAIWHETU

$477,000

$2,480

$620,000

30%

$2,581

$101

$1.94

WATERLOO

$553,000

$2,721

$695,000

26%

$2,766

$46

$0.88

WOBURN

$769,000

$3,406

$950,000

24%

$3,397

($9)

($0.17)

 


 

 

Table H: Option1C:  By Property category, Keep same percentages by property categories, 3.8% rates increase (change allocation of Queensgate)

Residential Suburbs

Capital Value July 2019

2019-2020 Rates

Capital Value July 2020

% Change in Property Value

2020-2021 Rates

$ Change Annual

$ Change Weekly

ALICETOWN

$529,000

$2,645

$660,000

25%

$2,686

$41

$0.79

AVALON

$459,000

$2,423

$605,000

32%

$2,549

$127

$2.44

BELMONT

$546,000

$2,699

$705,000

29%

$2,797

$99

$1.90

BOULCOTT

$589,000

$2,835

$735,000

25%

$2,872

$37

$0.71

EASTBOURNE

$747,000

$3,336

$930,000

24%

$3,356

$20

$0.38

EPUNI

$521,000

$2,619

$660,000

27%

$2,686

$66

$1.28

FAIRFIELD

$474,000

$2,470

$620,000

31%

$2,586

$116

$2.24

HARBOUR VIEW

$542,000

$2,686

$685,000

26%

$2,748

$62

$1.19

HAYWARDS

$312,000

$1,956

$405,000

30%

$2,053

$97

$1.86

HUTT CENTRAL

$689,000

$3,152

$855,000

24%

$3,170

$18

$0.34

KOROKORO

$584,000

$2,819

$785,000

34%

$2,996

$177

$3.40

MAUNGARAKI

$543,000

$2,689

$685,000

26%

$2,748

$59

$1.13

MELLING

$414,000

$2,280

$545,000

32%

$2,400

$120

$2.32

MOERA

$382,000

$2,178

$505,000

32%

$2,301

$123

$2.36

NAENAE

$336,000

$2,033

$490,000

46%

$2,264

$231

$4.45

NORMANDALE

$520,000

$2,616

$660,000

27%

$2,686

$70

$1.34

PETONE

$629,000

$2,962

$755,000

20%

$2,921

($40)

($0.77)

STOKES VALLEY

$344,000

$2,058

$485,000

41%

$2,251

$194

$3.72

TAITA

$343,000

$2,055

$485,000

41%

$2,251

$197

$3.78

WAINUIOMATA

$297,000

$1,909

$460,000

55%

$2,189

$281

$5.40

WAIWHETU

$477,000

$2,480

$620,000

30%

$2,586

$107

$2.05

WATERLOO

$553,000

$2,721

$695,000

26%

$2,773

$52

$1.00

WOBURN

$769,000

$3,406

$950,000

24%

$3,405

($0)

($0.01)


 

Table I:  Option 2; Freeze differential, Average residential property by suburb, 3.8% rates increase

 


 

Table J: Option 3; Status Quo, Average residential property by suburb, 3.8% rates increase

 

 

 

 

Section B - Rates increase of 3.8%

Table K: Impact of no change to rating policy on allocation of general rates, Assumes 3.8% overall rates

 

 

 

 

 

 

 


 

 

Table L: Indicative impact of options on the average residential property, Assumes 3.8% overall rates increase

 

The above amounts are inclusive of the wastewater, water supply, and recycling targeted rates.  $81.00 of the 2020/21 increase is attributable to these targeted rates.

 

 

 

 

 

 

Table M: Indicative impact of options on the average business central rates, assumes 3.8% overall rates increase

 

 

 

 

 

 

 

Table N: Indicative impact of options on Queensgate rates, assumes 3.8% overall rates increase