budget committee addendum agenda - november 14

8/10/2019 Budget Committee Addendum Agenda - November 14

1/17

Note: The reports contained within this agenda are for consideration and should not be construed as Council policyunless and until adopted. Should Members require further information relating to any reports, please contactthe relevant manager, Chairperson or Deputy Chairperson.

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

Date:Time:Meeting Room:Venue:

Tuesday, 18 November 20141.30 pmReception LoungeAuckland Town Hall301-305 Queen StreetAuckland

Budget CommitteeOPEN ADDENDUM AGENDA

MEMBERSHIP

Chairperson Mayor Len Brown, JPDeputy Chairperson Cr Penny WebsterMembers Cr Anae Arthur Anae Cr Calum Penrose

Cr Cameron Brewer Cr Dick QuaxCr Dr Cathy Casey Cr Sharon Stewart, QSMCr Bill Cashmore Member David TaipariCr Ross Clow Member John TamihereCr Linda Cooper, JP Cr Sir John Walker, KNZM, CBECr Chris Darby Cr Wayne WalkerCr Alf Filipaina Cr John WatsonCr Hon Christine Fletcher, QSO Cr George Wood, CNZMDeputy Mayor Penny HulseCr Denise KrumCr Mike Lee

(Quorum 11 members)

Mike GiddeyDemocracy Advisor

17 November 2014

Contact Telephone: (09) 307 7565Email: [email protected]: www.aucklandcouncil.govt.nz


2/17


3/17

Budget Committee

18 November 2014

Page 3

ITEM TABLE OF CONTENTS PAGE

11 Rates transition management option 5


4/17


5/17

Item1

1

Budget Committee

18 November 2014

Rates transition management option Page 5

Rates transition management option

File No.:CP2014/27028

Purpose1. This report sets out options for a rates transition policy for the Long-term Plan 2015- 2025.

Executive Summary2. The advice in this report is based on the rating policy adopted by the Governing Body at its

meeting on 6 November to be consulted on as part of the Long-term Plan 2015-2025. Thereare two key factors driving changes in rates for 2015/2016:

revaluation impacts remaining transition for residential ratepayers.

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

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

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

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

Option 1: No transition

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

seen major increases in the value of their properties.8. All ratepayers with similar value properties would pay the same rates irrespective of their

location in the region. Those ratepayers facing the largest increases would be brought intoline with all other ratepayers from day one. Changes in rates in future years would then bedriven by the proposed overall rates increases set out in the Long-term Plan 2015-2025 andthe long-term differential strategy (the gradual reduction in business rates). There are nocosts to other ratepayers.

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

Option 2: Remission for increases above 10 per cent10. This would continue to cap annual rates increases at 10 per cent. However, as a result

there would be many ratepayers with rates increases less than 10 per cent who would paymore rates than those with similar value properties whose annual increases were capped at


6/17

Item11

Budget Committee

18 November 2014


10 per cent. To fund the lost revenue all other ratepayers would face additional increases of3.7 per cent. As a result, the average residential rates increase would be 9.3 per cent.Many ratepayers would face rates in excess of the underlying rates requirements in theLong-term Plan 2015-2025 in the 2016/2017 and 2017/2018 years.

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

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

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

12. This option would not change the average rates increase as it funds a cap on increases byslowing the decrease in rates for 120,000 ratepayers. Many ratepayers would pay eithermore or less rates than similar valued properties in other parts of the region. Manyratepayers having increases capped would continue to face increases in excess of theunderlying rates increase for the next three years and some would still facing large

increases after the end of this period.13. The council could implement the first three options. However, the fourth option cannot be

implemented without a change to legislation and would therefore require central governmentsupport.

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

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

Discussion

Rating pol icy for co nsultat ion as p art of the Lon g-term Plan 2015-2025

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

Uniform Annual General Charge (UAGC) of $385 proportion of general rates collected from business ratepayers of 32.8 per cent for

2015/2016 falling to 25.8 per cent by 2025/2026 in equal steps and that thedifferential ratio for business be set annually to reflect this

Franklin business differential be set at a level that will align with the overallbusiness sector in 2016/17.

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

3.5 per cent overall rates increase plus 1.0 per cent to fund the reduction in rates to be collected from the business sector plus 1.1 per cent arising from the shift in rates from the farm/lifestyle sector to the

residential sector as a result of the revaluation.

2012-2022 rates transit ion management pol icy

16. The Long-term Plan 2012-2022 moved ratepayers from 8 legacy rating policies to one

regionally consistent rating policy. This led to major changes in rates for many ratepayers.To manage the impact of this change the council took advantage of the provisions in theLocal Government (Auckland Transitional Provisions) Act 2010 that provided for ratestransition. The council asked the government to make some amendments to these


7/17

Item1

1

Budget Committee

18 November 2014


provisions to allow it to manage transition more effectively. The government made thosechanges by Order-in-Council as provided for in the legislation. The legislation that allowedfor this transition was only available until 2014/2015 and it has now expired.

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

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

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

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

Changes in rates for 2015/2016 includ ing revaluat ion imp acts

19. Changes in rates for 2015/2016 are much more tightly focused around the average than the

change arising from the move to a regionally consistent rating policy in 2012/2013. This isbecause most of the ratepayers have already fully transitioned. The following table illustratesthis by comparing the number of ratepayers facing large increases and decreases in2012/2013 and 2015/2016.

Rates change 2015/2016 2012/2013

Increases > 15% 57,000 98,000Decreases < -10% 43,000 116,000

20. Most of the changes faced in 2015/2016 (85 per cent) are no more than plus or minus 15 percent (or within plus or minus $375). There are 11 per cent of ratepayers facing increasesover 15 per cent and 6 per cent of residential ratepayers facing increases over $500 per

year. Conversely 7 per cent of ratepayers would receive decreases of more than 10 percent with 2.5 per cent of residential ratepayers facing decreases of more than $500 per year.

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

CategoryPercentage change in total rates

15%

Business 2,402 2,453 5,363 7,901 8,682 5,200 2,621 4,669Residential 11,511 11,937 27,219 67,275 113,810 97,749 74,866 51,178

Farm/lifestyle 6,464 8,247 5,876 3,682 1,627 554 300 1,446

Total 20,377 22,637 38,458 78,858 124,119 103,503 77,787 57,293

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

Dollar change in total rates

$500

6,941 4,034 8,769 22,081 76,113 147,740 101,212 42,212 19,561 26,882

23.


8/17

Item11

Budget Committee

18 November 2014


The bubble diagram below shows the combined percentage and dollar change in rates forresidential properties. The size of the bubble indicates the number of ratepayers facingchanges in rates around the central point. A large bubble indicates a large number ofratepayers and conversely a small bubble indicates a small number of ratepayers.

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

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

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


9/17

Item1

1

Budget Committee

18 November 2014


Revaluat ion

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

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

29. The revaluation shows the largest value increases for residential properties are in themedium value locations adjoining the central suburbs. This follows the pattern of largerincreases starting in the central suburbs and rippling out over time. It also shows thatbusiness properties have only increased in value by 16 per cent and farm/lifestyle properties

by 17 per cent whereas residential properties have increased by 34 per cent. The changesin property values have introduced further changes in rates with 135,000 ratepayers nowestimated to face increases over 10 per cent in 2015/2016.

Discussion

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

fairness in two dimensions- affordability of change in rates- similar value properties paying similar rates

change in rates in future years. cost to other ratepayers implementation.

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

32. As noted above, most of the changes in rates that will occur in 2015/2016 are due to the

revaluation. If insufficient change is allowed to happen over the next three years then therewould still be ratepayers facing changes when the next revaluation occurs.

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

Rates revaluation impact

Average property value Percentage capital

value increase

Annual rates increase Weekly rates

increasea) $550,000 b) 34% c) $6 d) $0.12

e) $550,000 f) 50% g) $219 h) $4.20

Income tax comparison

Average household income ofAuckland home owners

Pay rise Annual tax increase1 Weekly tax

increase

i) $112,000 j) 0.7% k) $230 l) $4.40


10/17

Item11

Budget Committee

18 November 2014


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

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

for specific services to the property such as solid waste where the ratepayer has entered into an agreement with the council for repaying

financial assistance such as the retro-fit your home targeted rate funding activities where the ratepayer determines the rates charged such as Business

Improvement District rates.

Option 1: No transition

35. Staff recommend this option on balance as it moves ratepayers onto regionally consistentrates which reflect their property valuations and avoids further major change in subsequentyears. In 2015/2016 all ratepayers would be paying the same rates as other similar value

properties in other parts of the region.36. While a large number of ratepayers would face increases over 10 per cent, for the majority

of residential ratepayers the change would be within 15 per cent and under $375 per year, orless than $7 per week. However, 6 per cent of residential ratepayers would still faceincreases of over $500 per year or $10 per week.

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

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

Option 2: Remission for increases over 10 per cent

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

40. Using remissions to cap rates increases at 10 per cent reduces revenue from thoseproperties by $50 million. Rates for other ratepayers would need to increase by an additional3.7 per cent to cover the cost of the increase cap. On average residential ratepayers wouldface increases of 9.3 per cent, up from 5.6 per cent. 302,000 residential ratepayers would

have increases between 5 and 10 per cent.

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

Category

Percentage change in total rates

15%

-10% -5% 0% 5% 10% 15%

Business 1,823 808 3,504 6,810 7,408 18,938 0 0

Non-business 13,063 12,885 25,027 45,190 85,898 301,679 0 0

Total 14,886 13,693 28,531 52,000 93,306 320,617 0 0

42. Remitting rates by capping increases at 10 per cent would result in many ratepayers facingincreases in excess of the underlying rates increase in subsequent years. There would also


11/17

Item1

1

Budget Committee

18 November 2014


be some ratepayers who would face increases above 10 per cent in four years time at thenext revaluation.

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

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

44. This option eliminates the largest increases for non-business ratepayers for 2015/2016 and

manages the rates changes that may present the greatest affordability issues. Thisapproach would help around 40,000 ratepayers. The dollar increases for this group areprimarily greater than $500 and on average $1,377. This provides no relief for businessratepayers.

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


Category

Percentage change in total rates

20%

Business 1,392 2,936 5,073 7,577 8,099 5,988 4,843 3,383

Non-business 9,574 26,632 31,019 64,582 103,316 102,236 146,383 0

Total 10,966 29,568 36,092 72,159 111,415 108,224 151,226 3,383

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

48. Using remissions to cap rates increases at 20 per cent for non-business properties reduces

revenue from those properties by $8.9 million in revenue. To fund this option all othersratepayers would face an additional increase of 0.6 per cent in their rates taking the averageresidential rates increase to 6.2 per cent.

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

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

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

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

52. Many ratepayers would end up paying either more or less rates than similar valuedproperties in other parts of the region. There would be 120,000 ratepayers who wouldotherwise have rates decreases of more than -2.1 per cent paying more rates than thosewith similar value properties. Some of these ratepayers facing decreases would have beendoing so for the last three years. Their higher rates would continue to fund a cap onincreases for other ratepayers with similar value properties.


CategoryPercentage change in total rates

-20%< -20% to

-10%

-10% to

-2.1%

0 to

-2.1%

0 to

5%

5% to

10%

10% to

20%

>20%

Business 0 0 0 18,119 8,682 12,490 0 0

Residential 0 0 0 142,211 115,437 226,093 0 0


12/17

Item11

Budget Committee

18 November 2014


Total 0 0 0 160,330 124,119 238,583 0 0

54. Capping increases at 10 per cent would require off-setting this by capping decreases insubsequent years. The decrease cap would need to be set each year and would dependhow many ratepayers face increase and decreases. There would also be some ratepayers

who would still face increases above 10 per cent in four years time at the next revaluation.55. This option would require new legislation to implement. The council cannot implement this

policy as a rates remission as a remission can only reduce rates and a rate cannot be set onthe basis of how much property rates decline (required for setting a decrease cap).

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

57. The council cannot propose this option as it is unable to be implemented at this time. If thecouncil wishes to consult on this option it would need to propose one of the other optionsand note that it was seeking legislative change to allow it to proceed with an increase capand decrease cap. This approach that was taken for consultation on the Long-term Plan2012-2022.

Consideration

Local Board Views and Implications

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

Maori Impact Statement

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

Significance

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

Implementation Issues61. Issues associated with implementing the options presented in this report have been included

for consideration.

Attachments

No. Title Page

A Analysis of changes in rates 13

Signatories

Authors Aaron Matich - Principal Advisor

Andrew Duncan - Manager Financial Policy

Authorisers Matthew Walker - Manager Financial Plan Policy and BudgetingKevin Ramsay - Chief Financial Officer


13/17


14/17

Budget Committee

18 November 2014



15/17

AttachmentA

Item1

1

Budget Committee

18 November 2014



16/17

AttachmentA

Item11

Budget Committee

18 November 2014



17/17

AttachmentA

Item1

1

Budget Committee

18 November 2014

budget committee addendum agenda - november 14

Documents