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Rates Policy Review

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Rates Policy Review RATES POLICY REVIEW PREPARED BY: BULLER DISTRICT COUNCIL FOR CONSULTATION DURING JANUARY 2021 AND FEBRUARY 2021 CONTENTS 1 Rates and local government obligations 2 About rates policy reviews 3 Background 4 Goals 5 Current system 6 What is being reviewed 7 What rates pay for 8 General rates 9 Previous feedback and considerations 10 Council has considered a wide range of rates models 11 What is proposed 12 Visual explanation of what this rates review is proposing to change 13 Natural differential 14 The proposed system for collecting rates 15 Glossary 16 Next Steps Table 1 Comparison of the current rating system with the proposed system Table 2 Council Activities and how they are funded Page 1 1 Rates and local government obligations The purpose of local government is to provide for democratic and effective local government that recognises the diversity of New Zealand communities. The Local Government Act (2002) provides the framework and powers for local authorities to decide which activities they undertake and the way they will undertake them. Buller District Council (Council) has a broad role making decisions about the current and future needs of our community for good-quality local infrastructure, local public services, and performance of regulatory functions. Council plays a broad role in promoting the social, economic, environmental and cultural well-being of their community, taking a sustainable development approach. When Council makes those decisions, it must consider affordability to ratepayers. Council is also responsible for promoting accountability to its community under the Local Government Act (2002). 2 About rates policy reviews Council’s rates policy sets out how rates will be calculated. A rates policy review occurs annually when Council develops its Annual Plan and/or Long Term Plan. A review can either be minor such as making small changes to the wording of the document or small value changes. It can also include substantial changes - such as this proposal - in which case full community consultation must be held because the effects on ratepayers could be significant. This rates review proposes calculating rates charges in a comparable way for similar properties. If the proposal is adopted, Council will not get more rates income as a result because the value of rates collected will not change. What is likely to change is the share of the total rates pool each property owner pays. Some ratepayers may notice minor changes to their rates charges. Others may notice greater changes, depending on how ‘out of line’ their rates charges have been to comparable properties. That is why setting rates is a complex and challenging topic. 3 Background Council’s rates policy review has been underway for seven years. The review has always been, and still is, about simplifying the system so that comparable properties pay a similar amount in rates, the system has fewer differentials, and is more straight forward to administer. To assist Council, determine its direction on simplifying its rates policy, community consultation occurred in 2014 and 2017/2018. A subsequent proposal to use capital value as a basis to set general rates was presented to Council in February 2018. The proposal was rejected. Council has listened to prior community feedback and the rates model being proposed here reflects this feedback. Page 2 4 Goals Goals of the rates review include: • Comparable properties pay a similar amount in rates. • Fewer differentials. • Simpler to administer. • More transparent system. • Easier to understand. 5 Current system There are 42 different categories of ratepayers and 42 differentials (appendix 1) charged for the part of general rates which is set on the land value of a property. The current system has some special differentials that were put in place many years ago to modify the amount of rates paid (for example charging less for sea-side properties which were worth more than property that were not near the sea). But as time has gone on and the use, and value, of property has changed these differentials have not been modified each year to reflect the changes. As a result, the differentials Council uses now are out of date. Sometimes classifying ratepayers into one of the 42 categories is difficult to administer because of the wording in the rating policy. Council is not able to just ‘tweak’ the system by modifying one or two of the differentials. This is because among the 42 differentials there are several categories that need to be recalculated because they produce inconsistent results for comparable ratepayers. The result is comparable properties do not pay comparable rates. Sometimes ratepayers on one side of the street are paying more than those ratepayers on the other side of the street just because the rating categories are set out that way. There are instances of properties with similar land value not being charged comparable rates. In some cases, the variances are extreme: • A residential property in Westport township with a land value of $100,000 is charged $1,110 in variable general rates, but the same value property near Punakaiki is charged as little as $107. • A commercial property in Westport with a land value of $100,000 is charged $4,434 variable general rates while a Charleston commercial property of the same value pays $172. In some cases, the variances are minor: • Some farming rates vary just $6 per $100,000 of land value and there is no need to have two different rates for them. Instead of ‘tweaking’ the rates system, the whole general rates system has been reviewed and a reset of general rates is proposed. This means that every ratepayer in Buller District could be affected by having to pay more, or less, rates charges if the proposal is adopted. Some differentials were introduced to reduce the amount of rates collected from pockets of high value land as established by the Council valuers, Quotable Value NZ. This was due to increasing market property prices. These differentials were introduced after ratepayers successfully petitioned for special discounts to be applied in their area, however once the market changed or corrected, these differentials were often no longer relevant. Page 3 As well as creating more differentials, a set amount from each sector of our community (such as industrial, or residential) is collected on a historical basis and little recognition for changes in a sector (such as the construction of a large industrial plant in addition to the historical properties in the sector) were not always factored into the rates strike. This meant that as each sector has changed over time, the amount of rates collected from each sector has not adjusted to consider the growth or decline in that sector compared to others in Buller. As well as the above reasons, the present rating system uses many flat charges to set the rates. Flat charges are in place for water, sewer, and solid waste and recycling, as well as charging part of the general rate as a flat charge – the Uniform Annual General Charge (UAGC). This means that everybody, no matter what the value of their property pays most of their rates as a flat charge, and only a small part of their rates is charged on the value of their property. This means that the system for setting rates in our district has become regressive over time. Rates are comparable to a tax. A regressive tax is a tax that takes a larger percentage of tax from low- value or low-income taxpayers than from high-value or high- income earners. A regressive tax is generally a tax that is applied uniformly to all situations, regardless of the payer. The opposite of a regressive tax is a progressive tax. That is, it is a step-by-step tax system, where higher value pays more, and low-value or low-income taxpayers pays less. This rates review proposal includes a flat fee for general rates (Uniform Annual General Charge) at $307. Under the current system the Uniform Annual General Charge is $500 so the proposed rates policy makes the rates system more progressive. This change reallocates approximately $1m from flat, fixed rates to rates that are charged on the land value of each ratepayers property. 6 What is being reviewed Council’s rates review has considered general rates only, including how much the fixed and variable charges per property should be. General rates are calculated in two ways: • a value-based general rate (variable charge – based on value of land) • and a uniform annual general charge (UAGC) - (flat charge - fixed amount per property). Council has not reviewed targeted rates - water, sewer, and recycling and solid waste rates. 7 What rates pay for Rates makes up a large proportion of the annual income of Buller District Council. 54% of the annual revenue required to operate Council is collected from both general and target rates, and it is important to recognise this means the majority of Council income is currently collected under a rates system which is historic and yield based, and not easily able to be explained, it is ‘just how it has always been’. The two different types of rates – targeted and general - pay for different things. • Targeted rates pay for water supplies, sewer schemes, recycling, and solid waste. • General rates pay for all the other services Council provides to the community and make up the majority of the Council’s total rates requirement and are calculated as the net rate requirement after targeted rates are set. Council’s rates policy review proposes to only change the way general rates are collected. Page 4 8 General rates Council provides around 50 services which are funded by general rates.
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