Rates Rises Require Urgent Response

Rates Rises Require Urgent Response

“News that councils are planning on increases in rates revenue averaging 7-8% over each of the next three years highlights the need for urgent changes to the policy environment under which local government operates”, Roger Kerr, executive director of the New Zealand Business Roundtable, speaking on behalf of the Local Government Forum, said today.

Mr Kerr was commenting on the Federated Farmers’ analysis of 83 city, district, and regional council draft long-term council community plans, which revealed that on a nationwide basis rates revenue is projected to increase by 7.7% in 2006/07, 8.3% in 2007/08 and 7.4% in 2008/09.

“These increases are well in excess of both inflation and population growth and are coming at a time when the economy is going to be much weaker than it has been over recent years”, Mr Kerr said.

“They are also ahead of likely growth in nominal GDP, which implies that local government will be taking a bigger bite out of the economy at the expense of the productive sector. This will reduce growth in national income and living standards.

“Councils are blaming the rates increases on inflation in the construction sector pushing up infrastructure costs and central government imposing new responsibilities and additional compliance costs. Unfortunately, we haven’t seen any quantification of these factors and we also know that too many councils are choosing to get involved in activities well beyond the efficient provision of public goods like core infrastructure and local regulation.

"Councils in some areas, such as Auckland, are also blaming rates increases on the level of spending on public passenger transport projects. However, they have yet to provide competent economic evaluations to demonstrate that such projects would be worthwhile from an overall community perspective. We doubt that this test can be met for many rail projects.

“Moreover, rates increases are only part of the problem. Some councils have massively increased so-called financial contributions on new developments which, together with excessive restrictions on the supply of land for development, are pushing up the costs of new sections, homes and commercial property.

“The ultimate problem is excessive council spending which has been encouraged by the Local Government Act 2002, contrary to the assurances of Chris Carter, the previous Minister of Local Government at the time the legislation was being drawn up.

“The local government sector is a creature of statute and the Local Government Forum believes that only with central government leadership and direction will local authorities take steps to rein in their spending and therefore their rates demands.

“As a first and modest step in this direction, the Local Government Forum has developed a set of proposals to amend key local government legislation (a copy of these proposals is attached). We have already discussed our ideas at a meeting with the Minister of Local Government Mark Burton and we look forward to further discussion and consideration as part of the upcoming review of the Local Government Act.

“We believe that our specific proposals would help focus councils on their core business and ease rates demands, but ultimately we think there needs to be a much more substantive shift in thinking around local government policy, including roles and responsibilities, funding, representation, and structure. Legislation limiting rates increases to population growth plus inflation, unless higher increases are approved in a poll of ratepayers, could be part of such reforms.

“The local government sector is very important for New Zealand’s economic prospects: it owns $60 billion worth of assets and it has a major role in the regulation of economic activity.

“The Local Government Forum hopes that a constructive dialogue can be held with both central and local government on the future direction of the sector so that it makes a better contribution to the improvements to productivity and competitiveness needed to move New Zealand back up the OECD rankings”, said Mr Kerr.

ENDS

13 June 2006

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KEY LOCAL GOVERNMENT POLICY ISSUES
FOR DISCUSSION WITH MINISTER OF LOCAL GOVERNMENT, TUESDAY 11 APRIL 2006

1. LOCAL GOVERNMENT ACT 2002

1.1 Purpose and Powers of Local Government

The Problem: The Local Government Act 2002 has resulted in local authorities being actively encouraged to expand their businesses beyond the provision of local public goods. This is one reason behind large rates increases over recent years.

The Solution: There are two options that could be taken to address this problem:

(1) Amend Section 3 of the Act to make the purpose statement less activist and more focused on efficiency. Subsection (d) which provides them to play a “…broad role in promoting social, economic, environmental and cultural wellbeing…” should either be deleted in entirety or amended to provide for councils to “have regard” to those aspects of well-being. The subsection should also require local authorities also to have regard to the roles of central government, commercial firms, not-for-profit organisations and individuals in promoting such wellbeing.

(2) Amend Section 12 of the Act to delete subsection 2 that provides for “full capacity to carry on or undertake any activity of business, do any act, or enter into any transaction”. Section 12(3) would be amended to read, "For the purposes of performing its role, a local authority has the powers conferred by this Act and any other enactment."

1.2 Restrictions on Full Capacity

The Problem: Although espousing to give local authorities “full capacity”, the Local Government Act 2002 restricts this capacity by imposing restrictions on what councils can do that might be efficient and good business practice but not be acceptable from an political perspective. These restrictions reduce efficiency and impose compliance costs on councils. For example:

 Section 59(1) provides council controlled organisations with multiple, potentially conflicting and confusing objectives. To illustrate, 59(1)(a) requires a CCO to “achieve the objectives of shareholders…”; 59(1)(d) requires a trading CCO to “…conduct its affairs in accordance with sound business practice”; yet 59(1)(c) requires a CCO to “exhibit a sense of social and environmental responsibility…”
 Section 90(2) requires councils’ significance policies to list assets regarded as ‘strategic assets’ – these then require the special consultative procedure to be used if there is to be a change in ownership, mode of delivery, etc.
 Section 130 requires councils not to divest ownership or interest in a water service except to another local authority.
 Section 136 restricts any contracts for the provision of water services to a term not longer than 15 years and states that the council must retain control over all matters relating to pricing and management of water services and policy on delivery of water services.
 Section 138 requires councils to consult the public on the disposal of parks or parts of parks.
 Section 142 requires councils to provide free membership of libraries.

The Solution: amend these sections of the Local Government Act 2002 to remove these restrictions and allow councils greater freedom to make their own decisions.

We are also concerned that the relevant sections do not take into account the possibility of unanticipated contingencies that may affect ownership or mode of delivery. What happens, for example, if water supply is declared a strategic asset and the current owner/operator falls over for some reason or the water supply is disrupted by a storm? Does the Council then have to go through the special consultative procedure before water supply by a new operator or mode of delivery can recommence?

For example, Auckland City states that its policy on significance will not apply in an emergency situation or where delays caused by complying with the policy would result in significant damage to property or risk people's health and safety. Those contingencies may affect the application of its policy but they cannot overide the legislative requirement to use the consultative procedure for a change in ownership or mode of delivery. These inflexible provisions, which were intended to make privatisation difficult, could well prove troublesome if unforseen contingencies arise.

1.3 Beneficiary Test

The Problem: Section 101 of the Local Government Act 2002 sets out processes for financial management. While subsection 3(a) requires “consideration of the distribution of benefits” for each activity, experience has proven the beneficiary test to be insufficient in that some ratepayers continue to be charged large amounts in rates that are totally out of proportion to the benefit received. Moreover, it is extremely difficult, if not infeasible, to assess the level of benefits received by different classes of ratepayers on a conceptually sound and rigorous basis.

The Solution: Place more emphasis on economic efficiency or require flat rates unless councils can demonstrate unambigously that such allocation should be modified in relation to particular services because it is inefficient or inequitable.

1.4 Costs of Planning Processes

The Problem: The high costs of the present LTCCP/annual plan process are way beyond the likely benefits. We also think the community consultation processes are largely a sham and we believe that local authorities would support moves to reduce the costs, for example by reconsidering whether LTTCPs should be subject to compulsory audits.

The Solution: Simplify the present requirements for LTCCP/annual plan processes.

2. LOCAL GOVERNMENT (RATING) ACT

The Local Government Forum is currently participating as a member of a stakeholder reference group to the Department of Internal Affairs’ Local Government Funding Project. While we appreciate the opportunity to be involved, this is a relatively limited exercise and some individual Forum members are separately advocating for an independent, first-principles review of local government funding. However, in the absence of such a review there are several rating issues that should be addressed as a priority.

2.1 Non-Rateable Land

The Problem: There is a long list of land that is exempt of rates set out in Part 1 of Schedule 1 of the Local Government (Rating) Act 2002. For some local authorities, especially those with large areas of DOC estate, this can be a large proportion of the total land. These exemptions result in a narrow rates base and place a greater burden on those that must pay rates. It is particularly unfair that the Crown makes no rates contribution for its land, especially as local authority infrastructure can be put under severe pressure by the visitors who are attracted to national parks and other reserves.

Solution: Review the list of non-rateable categories of land contained in Part 1 of Schedule 1 of the Local Government (Rating) Act 2002 with a view to making the rating system ‘broad-base, low-rate’.

2.2 Transparency

The Problem: For almost all ratepayers, the only interaction with their local authority is when they receive their rates assessment. Their rates assessment should therefore enable them to see quickly and clearly how much they are paying for council activities – only then will they be in a position to decide whether they are receiving value for money. However, only a handful of local authorities provide itemised rates assessments that go beyond the requirement in section 45 of the Local Government (Rating) Act 2002 to set out the different types of rate. Many still load up much of their activity in the catch-all ‘general rate’ without any breakdown on the rates assessment.

Some local authorities claimed that moving to itemised rates assessments would be too costly and complicated. We disagree – a number of quite small councils are able to do this relatively simply without incurring significant costs.

The Solution: Amend section 45 of the Local Government (Rating) Act 2002 to require the rates assessment to break the general rate into amounts allocated to activity classes.

3. LOCAL ELECTORAL ACT 2001

3.1 Fair and Effective Representation

The Problem: Section 19(V)(2) requires that under a ward system the number of councillors per person must be the same (within a tolerance of +/-10%) throughout the local authority. Prior to 2001 a number of other factors were able to be used (e.g., area, rateable value, etc) to ensure that communities were effectively represented. The representation reviews that took place between 2001 and 2004 resulted in a noticeable decline in rural representation (in some cases resulting in no rural representation at all) and the law as it now stands is unfair for those in rural areas who usually pay a disproportionate amount of rates to fund services they rarely or never use. This breaches an important democratic principle of ‘no taxation without representation’.

The Solution: Amend section 19(V)(2) to enable local authorities to use factors other than strict adherence to population quotas when reviewing their representation arrangements.

4. OTHER POLICY ISSUES

4.1 Local Councils Website

The Problem: The Local Councils Website (www.localcouncils.govt.nz) is a welcome initiative to help people assess how their local authority is performing across a range of indicators. The revenue section would, however, benefit from more detailed information on why and how the total rate burden is allocated among ratepayers. For example, the number of rateable properties, the land and capital value of the district, and how councils fund each activity. The revenue information provided is a good start, but the site would be more relevant with more detail and depth in this area.

Solution: Keep the Local Councils Website regularly updated and introduce new information, particularly on the revenue side.

4.2 Rates Rebates

The Problem: While the Local Government Forum understands the motivation behind increasing and expanding the rates rebates scheme, we are concerned that the scheme can only be a short-term stop-gap and that it does not address the real issue it is trying to address – protecting people from an ever-growing rates burden.

The Solution: The focus should be on encouraging local authorities to contain their rates rises by focusing on core business, ensuring that activities are funded by those who benefit from them, and providing ratepayers with transparent information.

4.3 Clarification of Central and Local Government Roles and Responsibilities

The Problem: Local authorities have been complaining that one driver behind rates increases has been the compliance costs associated with having to administer legislation, regulation and policies passed on by central government – e.g., new drinking water standards, prostitution and gambling, changes to the Building Act, dog control, etc.

The Local Government Forum has sympathy with these concerns but we note that they are largely un-quantified. We also consider that some councils have been keen to embrace their new roles and responsibilities and that it is a case of the discretionary spending increases by councils and their desire to take on new roles that is backfiring on a local government sector which was generally keen to be unleashed to take a more active role in promoting ‘well-being’.

The Forum is also wary about claims that central government should provide local authorities with more taxpayer funding to meet added roles and responsibilities, particularly if it were to reduce the discipline on local authorities to contain their rates burdens.

The Solution:

The Department of Internal Affairs should be asked to investigate and report on the extent to which compliance costs for local authorities have increased in response to changes in legislation, regulation and policies passed on by central government and its findings should be made available to the public.

The roles and responsibilities of central and local government should be reviewed and clarified with a view to focusing local authorities on the provision of local public goods.

Any additional taxpayer funding for local government to meet new or changed roles and responsibilities should be tied to reductions in rates in order to be fiscally neutral.

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Table: Local Authority Rates Increases 2005/06 to 2008/09

$ 000 Percent Increases
2005/06 Annual Plan Draft 2006-16 LTCCP 2005/06 to 2006/07 2006/07 to 2007/08 2007/08 to 2008/09
CITIES & DISTRICTS 2005/06 2006/07 2007/08 2008/09
Far North 47,773 51,083 55,732 59,621 6.9% 9.1% 7.0%
Whangarei 46,877 49,818 54,604 60,245 6.3% 9.6% 10.3%
Kaipara 11,329 12,493 21,407 17,686 10.3% 71.4% -17.4%
Rodney 71,830 81,241 90,429 100,196 13.1% 11.3% 10.8%
North Shore 131,381 144,684 157,854 171,152 10.1% 9.1% 8.4%
Waitakere 101,220 112,129 123,556 135,488 10.8% 10.2% 9.7%
Auckland 340,258 363,496 388,154 411,346 6.8% 6.8% 6.0%
Manukau (1) 178,415 149,337 161,358 174,344 -16.3% 8.0% 8.0%
Papakura 20,594 22,023 23,469 25,266 6.9% 6.6% 7.7%
Franklin 35,742 40,197 43,786 46,579 12.5% 8.9% 6.4%
Thames-Coromandel 35,885 41,125 45,961 51,004 14.6% 11.8% 11.0%
Hauraki 15,264 16,741 17,481 18,224 9.7% 4.4% 4.3%
Waikato 28,927 31,650 34,095 36,446 9.4% 7.7% 6.9%
Matamata-Piako 18,320 19,924 21,979 23,252 8.8% 10.3% 5.8%
Hamilton 78,229 84,978 90,936 98,115 8.6% 7.0% 7.9%
Waipa 24,704 26,625 28,965 31,183 7.8% 8.8% 7.7%
Otorohanga 7,104 7,659 8,093 8,525 7.8% 5.7% 5.3%
South Waikato 14,993 15,389 16,422 16,915 2.6% 6.7% 3.0%
Waitomo 8,155 9,391 10,146 11,829 15.2% 8.0% 16.6%
Taupo 30,850 33,587 36,681 39,813 8.9% 9.2% 8.5%
Western Bay of Plenty 31,806 34,668 37,454 39,291 9.0% 8.0% 4.9%
Tauranga 54,739 65,316 71,865 78,113 19.3% 10.0% 8.7%
Rotorua 50,515 54,888 59,063 62,818 8.7% 7.6% 6.4%
Whakatane 23,181 23,737 25,846 27,929 2.4% 8.9% 8.1%
Kawerau 5,013 5,457 5,828 5,869 8.9% 6.8% 0.7%
Opotiki 6,098 6,266 6,560 6,804 2.8% 4.7% 3.7%
Gisborne 34,981 36,738 38,385 40,829 5.0% 4.5% 6.4%
Wairoa 7,315 7,775 8,502 9,115 6.3% 9.4% 7.2%
Hastings 45,331 47,918 50,528 53,437 5.7% 5.4% 5.8%
Napier 35,654 37,764 38,995 41,782 5.9% 3.3% 7.1%
Central Hawkes Bay 10,573 11,711 12,765 13,914 10.8% 9.0% 9.0%
New Plymouth 39,160 41,970 44,660 47,500 7.2% 6.4% 6.4%
Stratford 6,230 7,378 8,045 8,304 18.4% 9.0% 3.2%
South Taranaki 20,384 22,550 25,759 28,518 10.6% 14.2% 10.7%
Ruapehu 13,005 14,965 16,016 16,318 15.1% 7.0% 1.9%
Wanganui 29,992 31,208 33,149 34,168 4.1% 6.2% 3.1%
Rangitikei 11,696 12,625 13,109 13,829 7.9% 3.8% 5.5%
Manawatu 17,804 19,289 21,090 22,570 8.3% 9.3% 7.0%
Palmerston North 45,477 48,958 54,320 59,183 7.7% 11.0% 9.0%
Tararua 12,701 15,599 16,971 18,459 22.8% 8.8% 8.8%
Horowhenua 16,058 17,474 19,467 21,674 8.8% 11.4% 11.3%
Kapiti Coast 29,595 31,928 34,561 38,154 7.9% 8.2% 10.4%
Porirua 31,460 33,947 36,038 37,984 7.9% 6.2% 5.4%
Upper Hutt 21,044 22,007 23,473 24,876 4.6% 6.7% 6.0%
Lower Hutt 68,421 71,169 73,731 75,888 4.0% 3.6% 2.9%
Wellington 169,918 180,937 189,569 199,432 6.5% 4.8% 5.2%
Masterton 13,513 14,750 18,445 19,681 9.2% 25.1% 6.7%
Carterton (2) 4,202 n.a. n.a. n.a n.a. n.a. n.a.
South Wairarapa 6,037 6,318 6,477 6,663 4.7% 2.5% 2.9%
2,105,551 2,231,105 2,413,277 2,581,216 6.3% 8.2% 7.0%

Tasman 33,473 36,269 40,643 44,477 8.4% 12.1% 9.4%
Nelson 32,434 37,522 40,236 42,264 15.7% 7.2% 5.0%
Marlborough 37,018 37,969 40,821 44,254 2.6% 7.5% 8.4%
Kaikoura 3,263 3,467 3,867 4,409 6.3% 11.5% 14.0%
Buller 6,482 7,972 8,656 9,861 23.0% 8.6% 13.9%
Grey 9,127 9,570 10,162 10,896 4.9% 6.2% 7.2%
Westland (3) 5,151 n.a. n.a. n.a. n.a. n.a n.a.
Hurunui 9,140 9,589 10,043 10,645 4.9% 4.7% 6.0%
Waimakariri 21,549 25,476 27,905 31,604 18.2% 9.5% 13.3%
Christchurch (4) 210,236 232,185 252,015 282,589 10.4% 8.5% 12.1%
Selwyn 14,245 15,514 17,902 19,472 8.9% 15.4% 8.8%
Ashburton 13,534 15,414 18,081 19,314 13.9% 17.3% 6.8%
Timaru 23,604 27,330 29,507 31,204 15.8% 8.0% 5.8%
Mackenzie 3,722 4,140 4,047 4,175 11.2% -2.2% 3.2%
Waimate 4,816 5,404 5,873 6,242 12.2% 8.7% 6.3%
Waitaki 18,353 20,643 21,293 22,332 12.5% 3.1% 4.9%
Central Otago 12,543 14,425 15,576 16,257 15.0% 8.0% 4.4%
Queenstown-Lakes 31,405 33,177 37,501 41,944 5.6% 13.0% 11.8%
Dunedin 73,928 77,693 86,470 91,925 5.1% 11.3% 6.3%
Clutha 16,660 17,848 17,864 18,394 7.1% 0.1% 3.0%
Southland 23,438 24,891 26,991 29,479 6.2% 8.4% 9.2%
Gore 8,276 8,519 9,015 9,430 2.9% 5.8% 4.6%
Invercargill 29,302 31,153 33,827 35,009 6.3% 8.6% 3.5%
636,548 696,170 758,295 826,176 9.4% 8.9% 9.0%

Chatham Islands 587 586 595 606 -0.2% 1.5% 1.8%

TOTAL, CITIES & DISTRICTS 2,742,686 2,927,861 3,172,167 3,407,998 7.0% 8.3% 7.4%

REGIONS
Northland 5,827 7,652 8,740 9,190 31.3% 14.2% 5.1%
Auckland 117,456 126,575 135,623 145,314 7.8% 7.1% 7.1%
Waikato 44,053 52,308 58,295 63,094 18.7% 11.4% 8.2%
Bay of Plenty 14,747 18,609 20,519 23,091 26.2% 10.3% 12.5%
Hawkes Bay 8,871 9,919 10,749 11,450 11.8% 8.4% 6.5%
Taranaki 4,903 6,012 6,146 6,282 22.6% 2.2% 2.2%
Manawatu-Wanganui 18,357 21,792 25,468 27,330 18.7% 16.9% 7.3%
Wellington 57,956 61,620 65,426 69,999 6.3% 6.2% 7.0%
272,170 304,487 330,966 355,750 11.9% 8.7% 7.5%

West Coast 2,876 2,917 3,173 3,265 1.4% 8.8% 2.9%
Canterbury 49,418 61,864 64,074 66,082 25.2% 3.6% 3.1%
Otago 8,432 9,038 9,873 10,760 7.2% 9.2% 9.0%
Southland 7,153 7,590 8,222 8,488 6.1% 8.3% 3.2%
67,879 81,409 85,342 88,595 19.9% 4.8% 3.8%

TOTAL, REGIONS 340,049 385,896 416,308 444,345 13.5% 7.9% 6.7%

GRAND TOTAL, CITIES, DISTRICTS & REGIONS 3,082,735 3,313,757 3,588,475 3,852,343 7.7% 8.3% 7.4%

(1) Manukau City Council’s rates revenue reduction for 2006/07 is due to the removal of Manukau Water from the Council’s financial statements. Excluding that factor the Council expected rates to increase by 5.9%.
(2) Carterton District Council’s LTCCP had not been released as at 9 June. 2005/06 rates figure not included in totals.
(3) Westland District Council’s LTCCP had not been released as at 9 June. 2005/06 rates figure not included in totals.
(4) Christchurch City Council includes Banks Peninsula District Council’s 2005/06 rates figure (BPDC was abolished from February 2006 and incorporated into Christchurch City).

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