Council Copy

Rating Policy Project

Workshop Wednesday 15 July 2020

1:00pm – 2:30pm

to be held at the: Clocktower Chambers Palmerston Street, Westport

RATES POLICY PROJECT

WORKSHOP: 15 JULY 2020

Prepared by - Lynn Brooks - Management Accountant

Reviewed by - Dean Phibbs - Group Manager Corporate Services

INTRODUCTION

In this workshop Councillors will continue to form a rating policy. Workshops are held with the final result intended to be that a new rates policy can be created for community consultation.

At the last workshop (held on 26 February 2020) it was confirmed how the Natural Differential throughout the district applies. “Natural Differential” is another way of saying that some property is worth more than others depending on the location, so if all rates were charged on the same basis then the higher value properties would pay a bit more rates than lower value properties.

The 26 February 2020 paper showed the Natural Differential throughout the district and if all of the residential sector were charged the same differential, no matter where in the district they are located the natural differential provides a discount for an average property in the rural area or in low value built up areas.

Through the examples that were shown at the last workshop, a Natural Differential showed that the property values are less outside of the main centres for similar sized property.

At the 26 February 2020 workshop there were three outcomes:

1. Councillors instructed that the Natural Differential was sufficient for the Residential Sector. This means that the Residential Sector would have a single differential, and rural areas would not have a reduced differential; and

2. Councillors instructed to look at the rating categories for the properties in the categories which are 4000 sqm to 10ha, and present the results. After presentation of this information Councillors could decide if there was a need for a discount for this particular group of properties; and

3. Councillors instructed that there was to be no exemptions to Short Term Accommodation (STA) such as “under x bed nights STA would not apply” so any property advertising Short Term Accommodation at all would fall into this category. The reason being it’s difficult to administer if this category is based around a number of bed nights, and difficult to “police” by Council rating staff.

This paper shows the one change to the last model so that the 4000sqm to 10ha properties are rated at a differential of 1. This paper shows the results of the new rating model with the changes above incorporated. The results showing in this paper also includes the new values from the revaluation of property which came into effect from 1 July 2020 rating year, as well as adjusting the “rates take” to agree to the amounts in the 2020-2021 Annual plan.

The revised model shows that 16 differentials would be required.

The recommendation is that “natural differentials” provide sufficient discount for the 4000 sqm to 10ha group based on the examples provided in this workshop paper.

RECOMMENDATION

1 Do not provide a discount to the Rural Less than 10ha Group.

This Property Analysis (see tables below) and attached detailed information shows that there is no requirement

This is because the examples show:

A rating system based on land value provides a natural rating differential.

It is not necessary to introduce more differentials for the 4000m2 to 10ha which is described as the

“Rural Less than 10h” Group.

It’s not recommended to introduce a discount to the “Rural Less than 10h” group. If introduced, it would add unwarranted complexity It would also provide an unjustifiable discount to some ratepayers.

It would also provide an unjustifiable discount to some ratepayers. It would also require a premium from others, without any logic to support the premium or discount provided.

The key issue is that general rates are not struck on a “benefit received principle”.

The key issue is that general rates are not struck on a “benefit received principle”. General Rates are charged by a Council when a local authority has determined the community as a whole should pay for a service and there is little or no benefit from, or too much cost involved in, funding the activity

The key issue is that general rates are not struck on a “benefit received principle”.

The key issue is that general rates are not struck on a “benefit received principle”. General Rates are charged by a Council when a local authority has determined the community as a whole should pay for a service and there is little or no benefit from, or too much cost involved in, funding the activity separately from others. (That is a direct quote from "Rating Know How").

Where there is a good reason to charge a service separately to only some ratepayers, this is when a TARGET rate should be applied - for example a Promotion & Development Rate.

But Council is not considering target rates, as it has not identified any specific activities that should be funded by ratepayers, and it is considered that all activities of Council should be funded by all ratepayers using GENERAL rates, except for water, solid waste and wastewater schemes.

General rates are based on the land value of a property. In other words rates are a tax based on the value of land to pay for the whole needs of the District.

This differs from water rates and sewer rates, which are charged as a share of the cost to just those properties who do access, or are able to access the water supply. Which is a good reason to charge those particular services as target rates.

Information to support the recommendation not to provide discounts, or to charge a premium to property in the “Rural Less than 10ha” group (4000m2 to 10ha group)

1a: Analysis of (1000m²) residential sections – revision from the last workshop

In the last workshop paper Council compared sections of a similar size (1000m2) as a standard base to work out if there is a natural differential.

The conclusion was the land value provides a natural differential, and the table is re-presented below because it helps to refresh the understanding of where different property values lie in the District.

This table shows the Residential group whether in town, village, country setting throughout the District for a sample of property being 1000sqm.

Average 1000m² section value in , compared to Westport Town as a standard of 1 Location Average 1000m² section value / $59,000 0.8 of 1 (20% discount) //Hector $44,000 0.6 of 1 (40% discount) /Ngakawau $34,000 0.45 of 1 (55% discount) $35,000 0.45 of 1 (55% discount) Westport outskirts (north of Domett Street) $79,000 1.05 of 1 (5% premium) $113,000 1.4 of 1 (40% premium) Westport Central $77,000 1 of 1 (standard) Grey Valley $26,000 0.33 of 1 (67% discount Inangahua $12,000 0.15 of 1 ( 85% discount) Blacks Point $65,000 0.85 of 1 (15% discount) $46,000 0.60 of 1 (40% discount) $20,000 0.25 of 1 (75% discount)

1b: Comparison of the 4000sqm to 10ha Group to the other Residential Groups

The Rural 4000m2 to 10ha group is property spread throughout the district. The table below shows the key numbers for this group compared to the other two Residential Groups.

Group Number % of Properties % of Properties % of Properties of valued less valued at $80- valued at $160k+ Properties than $80k $160k Rural 4000sqm 1995 43% 42% 15% to 10ha Residential 2696 89% 10% 1% Main Centre Residential 1003 78% 19% 3% Provincial

The table shows there are 1995 properties in the 4000m2 to 10ha group.

Of these 1995 properties, 43% of the properties are valued at $80,000 or less. Compared to the Residential Main Centre group (2696 ratepayers) who have 89% of the properties valued at $80,000 or less, and 78% of Residential Provincial group (1003 ratepayers).

A greater percentage of properties are valued between $80,000 and $160,000 compared to the Residential groups. A greater percentage of properties are valued at over $160,000 than the Residential groups.

1c: Result if a special differential was introduced for the 4000sqm to 10ha Group

If a special differential was introduced for this group, for example a discount, then this would introduce inequities because their general rates would be lower for 43% of this group than for properties of a same value, the only differentiating factor being the land area of the property.

This would be the case for 43% of this group who have property valued at less an $80,000. $80,000 is used as a guide because this is the band of land value which is the majority in the other two Residential groups have, most land in the residential sector is valued at $80,000 or less (refer to the table at section 1b above).

1d: So what about the other 57% in this group, who have higher value property than the other Residential Groups?

Many of these properties are currently rated on extremely favourable terms, their general rates are heavily discounted depending on the location, for no logical reason.

Consider these properties, all valued at $200,000: Buller Gorge near Westport paying $752 general rates, paying $568 general rates, Fairdown paying $647 general rates, Birchfield $1,010 general rates, Granity $455 general rates.

This shows there is a wide variation to the differentials that apply in each location, and those differentials don’t have any apparent logic. If a Westport town property was valued at $200,000 it would pay $2,250 in general rates under the current rating system.

If all of the properties above were standardised and rated at the same value under the drafted model they would pay $1,745 general rates, plus $307 UAGC (all figures GST inclusive) plus any fixed charges that may apply.

Many of the higher than $80,000 properties are on the fringes of the townships, some actually occur in the middle of towns and villages as they may be properties owned by the same entity which have many sections side by side and therefore meet the contiguous rating rules, or they may be larger sections not subdivided.

1e: Taking into account the total level of rates that a household pays

Some people think that while considering general rates it is important to take into account the total level of rates that a group of ratepayers would pay compared to others. To calculate this then, if all the three groups being Rural 4000sqm to 10ha plus Residential Main Centre and Residential Provincial were aligned to be a differential of 1, this group would pay more in general rates, but would not be charged as much rates in total as the ratepayers in the nearby townships because these ratepayers are not usually connected to the water and wastewater schemes.

(Note: some are connected to water but not sewer they are in such close proximity to townships).

1f: “Outliers”

An analysis of the “outliers” was completed.

This was for those extremely high value properties in the Rural 4000sqm – 10ha group.

It was found that there are 7 properties with land value at over $350,000. Of these 6 are not owned and occupied by an individual, they are owned by either absentee landlords (many overseas) or corporates.

The other is one resident owner on Coast Road with land value alone of $410,000 currently paying $395 general rates. The reason this ratepayer pays so little is because their current rating category is the lowest rated group of ratepayers in the whole of Buller District at $0.09262 cents per dollar of land value, compared to Westport Town $0.96475 per dollar of land value. This means a home in Westport is paying ten times more in general rates, than the Punakaiki home $1 for $1 comparison.

1e: Table showing land value, area of land, location and the current total rates compared to the draft model for a random sample of properties in the 4000 sqm to 10ha group.

Land Land Location Current Rating System Model Rating System in Draft Total Rates Value Area 2019/2020 2019/2020 2019/2020 2019/2020 Total if Model Model 2020/2021 Less or More Total UAGC General Fixed Model UAGC General Fixed Per Annum if Rates Rates Charges Adopted Rates Charges this model Rates adopted $50,000 0.089 Little Wanganui $197 $0 $197 $0 $436 $0 $436 $0 $239 $50,000 0.8828 Seddonville $754 $500 $254 $0 $743 $307 $436 $0 $11 $50,000 0.432 Karamea $819 $500 $221 $98 $841 $307 $436 $98 $22 $50,000 0.1265 Crushington $129 $0 $129 $0 $436 $0 $436 $0 $307 $50,000 0.312 Taipoiti $811 $500 $188 $123 $893 $307 $436 $150 $82 $51,000 0.2833 Seddonville $99 $0 $99 $0 $445 $0 $445 $0 $346 $51,000 0.3253 Cape Foulwind $997 $500 $374 $123 $902 $307 $445 $150 $95 $51,000 0.2756 Charleston $740 $500 $240 $0 $752 $307 $445 $0 $12 $52,000 0.2653 Waimangaroa $1,317 $500 $211 $606 $1,394 $307 $454 $633 $77 $52,000 5.2609 $697 $500 $197 $0 $761 $307 $454 $0 $64 $53,000 8.301 Mokihinui $620 $500 $120 $0 $769 $307 $462 $0 $149 $100,000 1.872 Karamea $1,138 $500 $540 $98 $1,277 $307 $872 $98 $139 $100,000 1.5892 Karamea $902 $500 $304 $98 $1,277 $307 $872 $98 $375 $100,000 1.0328 Nikau $973 $500 $473 $0 $1,179 $307 $872 $0 $206 $100,000 2.0234 Birchfield $729 $500 $229 $0 $1,179 $307 $872 $0 $450 $100,000 0.1917 Cape Foulwind $492 $0 $492 $0 $872 $0 $872 $0 $380 $100,000 2.5057 Cape Foulwind $996 $500 $373 $123 $1,329 $307 $872 $150 $333 $100,000 0.1796 Charleston $972 $500 $472 $0 $1,179 $307 $872 $0 $207 $150,000 1.4448 Crossroads $237 $0 $237 $0 $1,309 $0 $1,309 $0 $1,072 $150,000 0.0911 Cape Foulwind $1,237 $500 $737 $0 $1,616 $307 $1,309 $0 $379 $150,000 5.1543 Fairdown $941 $500 $441 $0 $1,616 $307 $1,309 $0 $675 $150,000 2.103 $1,244 $500 $621 $123 $1,766 $307 $1,309 $150 $522 Land Land Location Current Rating System Model Rating System in Draft Total Rates Value Area 2019/2020 2019/2020 2019/2020 2019/2020 Total if Model Model 2020/2021 Less or More Total UAGC General Fixed Model UAGC General Fixed Per Annum if Rates Rates Charges Adopted Rates Charges this model Rates adopted $150,000 5.3404 Alma Road $1,939 $500 $396 $1,043 $2,738 $307 $1,309 $1,122 $799 $200,000 7.2099 Granity $1,078 $500 $455 $123 $2,202 $307 $1,745 $150 $1,124 $200,000 1.7054 Birchfield $1,510 $500 $1,010 $0 $2,052 $307 $1,745 $0 $542 $200,000 8.515 Fairdown $1,270 $500 $647 $123 $2,202 $307 $1,745 $150 $932 $200,000 4.2963 Utopia $1,068 $500 $568 $0 $2,052 $307 $1,745 $0 $984 $200,000 6.7071 Sergeants Hill $1,191 $500 $568 $123 $2,202 $307 $1,745 $150 $1,011 $200,000 4.3524 Nine Mile $2,111 $500 $568 $1,043 $3,174 $307 $1,745 $1,122 $1,063 $200,000 0.172 Omau $1,606 $500 $983 $123 $2,202 $307 $1,745 $150 $596 $200,000 3.9806 Cape Foulwind $2,111 $500 $568 $1,043 $3,174 $307 $1,745 $1,122 $1,063 $200,000 1.3241 Buller Gorge $2,295 $500 $752 $1,043 $3,174 $307 $1,745 $1,122 $879

The table shows that an alignment of differentials would result in this group of ratepayers paying more for their general rates than presently. Ratepayers with land up to the value of $100,000 would not experience large change, it would generally be around $300 or less.

Those ratepayers with higher value property would experience greater increases, as much as around $1,100. This is due to a realignment of rates where these ratepayers have had the benefit of very low differentials for many years. For example the sample shows one ratepayer paying less than $1,100 for a $200,000 property in Granity, their rates would increase $1,124 to $2,202 total rates.

1g: Compare results of the 4000sqm to 10ha Group to the other two Residential Categories

Land Value and Location Current Rating System Model Rating System in Draft Total Rates

2019/2020 2019/2020 2019/2020 2019/2020 Total if Model Model 2020/2021 Less or More Total UAGC General Fixed Model UAGC General Fixed Per Annum if Rates Rates Charges Adopted Rates Charges this model

Rates adopted

Compare to: Residential Main Centre $50,000 Westport 3,129 500 562 2,067 2,900 307 436 2,157 -$229 $50,000 Reefton 911 500 411 0 743 307 436 0 -$168 $99,000 Westport 3,553 500 986 2,067 3,328 307 864 2,157 -$225 $100,000 Orowaiti Vacant 1,300 500 800 0 1,179 307 872 0 -$121 $160,000 Westport Vacant rated 151 1,159 500 659 0 1,703 307 1,396 0 $544 $166,000 Westport 4,227 500 1,660 2,067 3,912 307 1,448 2,157 -$315

Compare to: Residential Provincial$0 $50,000 Waimangaroa 1,309 500 203 606 1,376 307 436 633 $67 $50,000 Blacks Point 780 500 157 123 893 307 436 150 $113 $99,000 Hector 1,259 500 402 357 1,528 307 864 357 $269 $100,000 Granity 1,145 500 399 246 1,479 307 872 300 $334 $220,000 Tauranga Bay 1,605 500 982 123 2,376 307 1,919 150 $771 $220,000 Punakaiki 2,928 500 1,258 1,170 3,423 307 1,919 1,197 $495

Model General Rates This table shows that many Residential Main Centre group ratepayers would receive a reduction in their rates using this model, and the Residential Provincial Group ratepayers pay more. The greatest increases are for those properties that have been reclassified from “Rural Residential” which currently pays much lesser rates, to the Residential Provincial group. The greatest increases are for the high value properties.

The recommendation is that a special differential for 4000sm2 to 10ha Group is not introduced, as it would add unneeded complexity and inequity in the rating system. It must be remembered that the rates review process is a re-setting of rates process and comparing the rates to what a ratepayer paid before, based on a system without logic is not a reason to re-set rates so that the system is simple, fair, easy to administer and understand. 2. Draft Model as at 15 July 2020 Workshop:

New Category Differential Residential Main Centre 1.000 Residential Main Centre Multi 2.000 Residential Main Centre STA 1.500 Residential Provincial 1.000 Residential Provincial Multi 2.000 Residential Provincial STA 1.500 Rural 4000m2 to less than 10ha 1.000 Rural 4000m2 to less than 10ha Multi 2.000 Rural 4000m2 to less than 10ha STA 1.500 Rural more than 10ha 0.250 Rural more than 10ha Multi 0.500 Rural more than 10 ha STA 0.375 Commercial Main Centre 3.000 Commercial Provincial 2.250 Commercial Rural 2.250 Clay and Cement 10.000 Mining 10.000 Harbour 10.000 Remission Main Centre 3.000 Remission Provincial 2.250 Remission Rural 2.250 Charge Services Only 0.000

Residential Main Centre = Westport and Reefton Residential Provincial = All other areas STA = Short Term Accommodation Multi = Multiple residences on the land