14/10/2014 W hat do your rates fund ? Proportional Share of Council - - PDF document

14/10/2014 1

Rates Overhaul : Finding the right balance

W hat w ill w e cover this evening?

• What do our rates pay for?
• History of the Rates Overhaul Project.
• Work done to date.
• Some of the issues so far.
• Interesting facts and figures about our

properties and our rates.

• Timeline.
• Your questions and feedback.

Rates Overhaul : Finding the right balance

W hat do your rates pay for?

Netw ork I nfrastructure roads and public transport, water supply, waste water and stormwater plus solid waste disposal; and Com m unity I nfrastructure cultural and recreational facilities as well as a range of regulatory activities. Local Governm ent expenditure accounts for som ew here less than 5 % of national expenditure every year

Rates Overhaul : Finding the right balance

W hat do your rates fund ?

Roading Governance & Admin Community Services Amenities & Reserves Sewer & Stormwater Regulatory Services Water Rubbish & Recycling

Proportional Share of Council Operating Costs

Our average annual rate bill is $1,756 per year. This equates to $4.90 per

• day. This amount funds:

Drinking Water Civil Defence Sewerage Treatment Parks & Reserves Refuse & Recycling Recreation (libraries, theatre) Roading & Footpaths Stormwater Systems and much more Compare this to average household expenses on a cost per day basis: Electricity ($180 pm) $ 5.91 Digital TV ($80 pm) $ 2.63 Telephone & Internet ($100 pm)$ 3.29 Insurances ($160 pm) $ 5.26 Rates Overhaul : Finding the right balance

History

• Proposal for a review of rates was included in

the Long Term Plan for 2006, 2009 and 2012.

• Previous Council started to look at this in 2011

through to 2012.

• Project not completed.
• In 2013 your new Council agreed on a Rates

Review Committee.

Rates Overhaul : Finding the right balance

W hat has the Council been up to behind closed doors ?

There have been four key workshops held for Councillors covering the following:

– Legislation Process BDC must follow, and our current rates model. – How equitable is our current system? How do we measure benefits ratepayers receive in exchange for rates. – Rating mechanisms What type of rates can we have and how can we set rates, and affordability issues. – Principles of good rating policy and a good rating system

Rates Overhaul : Finding the right balance

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W hat com es next? If we had a clean sheet of paper and started again, w hat could our rates system look like?

Rates Overhaul : Finding the right balance

The three inform ation packs Starting with a clean sheet of paper ask three fundamental questions

• Why do we need a Rates Overhaul?
• What are the principles of a good rating system?
• Rating system options?

Rates Overhaul : Finding the right balance

Som e of the issues talked about…

I nform ation pack 1 The three houses

Rates Overhaul : Finding the right balance

I nform ation pack 2

• There is some really interesting discussion

about rates being a tax versus a user charge.

• Following on from this there is the

argument that ability to pay should not be factored into local government taxes.

Som e of the issues talked about…

Rates Overhaul : Finding the right balance

I nform ation pack 3

• there are lots of thoughts asking what do you think about :

– Sourcing more of the rates take from progressive rating mechanisms. – Setting a simple system. – Should we have more targeted rates? – Should we use Annual Value or Land Value or Capital Value to strike rates? – Are rates really a tax or should they be a flat charge for everyone?

Som e of the issues talked about…

Rates Overhaul : Finding the right balance

Som e interesting facts

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Som e interesting facts

Rates Overhaul : Finding the right balance

Som e interesting facts

Rates Overhaul : Finding the right balance

Your Questions and Feedback

All of your feedback is being recorded to help Council make it’s proposed new model.

Rates Overhaul : Finding the right balance

Timeline

• From now until November Council will develop a

proposed model(s) for you to consider.

• December through to January will be the formal

consultation period.

• February will have Council deciding if any changes

to our rating system will go ahead. If so they will be included with our Long Term Plan.

• We want your feedback ratesoverhaul@bdc.govt.nz

and go to our website www.bullerdc.govt.nz.

Rates Overhaul : Finding the right balance

Consultants costs to date

$ 0

Rates Overhaul : Finding the right balance

Why are we having a Rates Overhaul?

• To ensure that everyone pays a fair share.
• The present system is not “fit for purpose”.

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What is wrong with the present system?

The present system is:

• Com plex
• I nconsistent
• Difficult to understand
• Not equitable
• Costly
• Regressive

Rates Overhaul : Finding the right balance

What is complex about the present system?

Rates Overhaul : Finding the right balance Rates Overhaul : Finding the right balance Rates Overhaul : Finding the right balance

2,625 3,011 3,397 3,783 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 ‐ 50,000 100,000 150,000 200,000 250,000

Total Rates (GST Inclusive) Land value Westport Residential ‐ Total Rates compared to Land Value

Total Rates Fixed Charges ‐ $ 2,239

Rates Overhaul : Finding the right balance Rates Overhaul : Finding the right balance

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What do we need to do?

• Start again based on a good set of principles.
• We set these principles out in detail in the

second Information pack.

• We identified eight principles.

Rates Overhaul : Finding the right balance

Eight Principles

• Simple.
• Easy to understand.
• Consistent.
• Need to recognise “ability to pay”.
• Equitable
• Right balance between Benefits available and

requirement to pay.

• Rates are a tax not a user charge.
• Low cost to administer.

Rates Overhaul : Finding the right balance

So what are the Options available for a principled rating system?

• We tried to cover the options available in the

third information pack.

Rates Overhaul : Finding the right balance

Rates have to be some form of Property Tax

• No choices here.
• We cannot have a citizens tax, or a local sales

tax.

• We have to use property as the base.
• Liable ratepayers will be the owners of any

rateable property.

Rates Overhaul : Finding the right balance

Councils can only assess three kinds of Rates

• General rates.
• Uniform Annual General Charge.
• Target Rates.

Rates Overhaul : Finding the right balance

General Rates can calculated on either:

• The “Annual Value” of Land.
• The Capital Value of Property.
• The Land Value of the Property.

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Important Point

• For General Rates it is not possible to have any

hybrid or combinations.

• You have to pick one of the three Value
• ptions.

Rates Overhaul : Finding the right balance

Next Step for General Rates ‐ Decide either…

• A Uniform rate in the dollar of rateable Value

for all rateable property.

• Different rates in the dollar of rateable value

for different categories of property.

Rates Overhaul : Finding the right balance

Uniform Annual General Charge

• Fixed dollar amount.
• Same for every property irrespective of

property value.

Rates Overhaul : Finding the right balance

Important points

• Optional.
• 30% cap.

Rates Overhaul : Finding the right balance

Target Rates

Can be set in numerous ways

• Any single service or function.
• Can cover several functions.
• Can be set as several target rates for one function.
• Can be set in respect of all property or just selected

property.

• Can be set on a uniform basis or a differential basis.
• Can be set for water as a fixed charge or a “unit”

charge or as a metered rate.

Rates Overhaul : Finding the right balance

If we know what the Problems are, and we have established a set of good Principles, and we know what the available Options are, what do we do now?

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To establish a Rating System you need to:

• Decide which value base to use (Land Value or

Capital Value).

• Decide what we should do about any

differentials.

• Decide what should be flat or fixed amounts

per property versus what should be progressive according to property value.

Rates Overhaul : Finding the right balance

Conclusion on Land Values

• Land Value requires extensive use of rating

tools (differentials, uniform charges, and target rates) and often results in an unduly complex structure that cannot be understood.

Rates Overhaul : Finding the right balance

Conclusion on Capital Values

• The Government Inquiry into Rates (The

Shand Inquiry) recommended Capital Value as the preferred Value basis.

• Capital Value looks to be a better option.

Rates Overhaul : Finding the right balance

Conclusion on Annual Values

• Dismissed as an option by the Shand Inquiry.
• Others preferred.

Rates Overhaul : Finding the right balance

What are our Land Values in comparison to our Capital Values?

0.9% 2.5% 3.0% 11.9% 28.5% 53.2% 0.8% 4.0% 5.0% 13.0% 42.2% 35.1% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Mining Industrial Commercial Rural Residential Residential Rural Commercial

Buller Property Values

Land Value Capital Value

Rates Overhaul : Finding the right balance

Under Land Values who pays what share of Total Rates?

Rates Overhaul : Finding the right balance

0.9% 2.5% 3.0% 11.9% 28.5% 53.2% 3.9% 6.2% 8.5% 6.5% 62.7% 12.1% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Mining Industrial Commercial Rural Residential Residential Rural Commercial

Buller Total Rates Distribution

Land Value Total Rates

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Under Land Values who pays what share of General Rates?

0.9% 2.5% 3.0% 11.9% 28.5% 53.2% 9.5% 10.2% 12.3% 6.7% 38.6% 22.7% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Mining Industrial Commercial Rural Residential Residential Rural Commercial

Buller General Rates Distribution

Land Value General Rates

Rates Overhaul : Finding the right balance

Under Land Values who pays what share of the UAGC?

0.9% 2.5% 3.0% 11.9% 28.5% 53.2% 0.3% 2.6% 3.5% 13.5% 68.0% 12.2% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Mining Industrial Commercial Rural Residential Residential Rural Commercial

Buller Uniform Annual General Charge Distribution

Land Value UAGC

Rates Overhaul : Finding the right balance

Under Land Values who pays what share of the total of General Rates & UAGC?

0.9% 2.5% 3.0% 11.9% 28.5% 53.2% 6.5% 7.7% 9.5% 8.9% 48.1% 19.3% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Mining Industrial Commercial Rural Residential Residential Rural Commercial

Buller General Rates + UAGC Distribution

Land Value General + UACG

Rates System Overhaul : Are your rates a fair share of the burden ?

Under Land Values who pays what share of Target Rates?

0.9% 2.5% 3.0% 11.9% 28.5% 53.2% 0.2% 3.9% 7.2% 3.0% 84.0% 1.6% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Mining Industrial Commercial Rural Residential Residential Rural Commercial

Buller Targeted Rates Distribution

Land Value Targeted

Rates Overhaul : Finding the right balance

So what would happen if we just dropped Land Value and used Capital Value, but changed nothing else?

• Same categories of ratepayers / Same

differentials.

• Same UAGC.
• Same target rates.
• New Scenario No 1

Rates Overhaul : Finding the right balance

Scenario No.1 ‐ Under Capital Values who pays what share of Total Rates?

0.8% 4.0% 5.0% 13.0% 42.2% 35.1% 2.9% 7.6% 8.2% 6.9% 63.0% 11.4% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Mining Industrial Commercial Rural Residential Residential Rural Commercial

Buller Total Rates Distribution

Capital Value Total Rates

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So just changing to Capital Values instead of Land Values makes some differences but does not seem to solve the issues. So what happens if we change to Capital values, drop the differentials, but retain the existing UAGC and Target rates?

New Scenario No. 2

Rates Overhaul : Finding the right balance

Scenario No.2 ‐ Shares of Total Rates

0.8% 4.0% 5.0% 13.0% 42.2% 35.1% 0.5% 3.7% 5.6% 9.0% 64.3% 16.9% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Mining Industrial Commercial Rural Residential Residential Rural Commercial

Buller Total Rates Distribution

Capital Value Total Rates

Rates Overhaul : Finding the right balance

So what happens if you get rid of the differentials and the UAGC altogether, and just have a value based General Rate and the existing Flat target rates?

• New Scenario No 3

Rates Overhaul : Finding the right balance

Scenario No.3 ‐ Shares of Total Rates

Rates Overhaul : Finding the right balance

0.8% 4.0% 5.0% 13.0% 42.2% 35.1% 0.5% 4.0% 5.9% 9.0% 59.2% 21.5% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Mining Industrial Commercial Rural Residential Residential Rural Commercial

Buller Total Rates Distribution

Capital Value Total Rates

However one of our principles is related to the ability to pay and one of the factors here is “what is the true cost”?

• Commercial ratepayers pay tax and they are

entitled to claim the cost of rates as an expense when they put in their tax returns.

• They are also able to reclaim the GST

component.

• Non‐commercial or residential ratepayers do

not get those advantages.

Rates Overhaul : Finding the right balance

Commercial ratepayer

• $1 rates bill.
• Plus GST 15 cents.
• Total initial cost $1.15.
• Claim back GST 15 cents.
• Claim Tax deduction for $1 and reduce tax by

28 cents.

• Total Actual Cost 72 cents.

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What this tells us that the Commercial ratepayer can afford to pay more up front and still finish up with the same net cost or “ability to pay”

• $1.59722 rates bill after differential of 1.59722.
• Total Initial rates including GST @ 15% equals

$1.83680.

• Claim back GST of 23.958 cents.
• Claim tax deduction on $1.59722 equals 44.722

cents.

• Total Actual cost $1.15.

Rates Overhaul : Finding the right balance

So what happens if we modify Scenario No.3 and apply a commercial differential of 1.59722 on all commercial ratepayers?

• New Scenario No. 4

Rates Overhaul : Finding the right balance

Scenario No.4 ‐ Shares of Total Rates

0.8% 4.0% 5.0% 13.0% 42.2% 35.1% 0.7% 4.6% 6.7% 7.4% 54.2% 26.4% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Mining Industrial Commercial Rural Residential Residential Rural Commercial

Buller Total Rates Distribution

Capital Value Total Rates

Rates Overhaul : Finding the right balance

Conclusions?

• Changing to Capital values does not disadvantage

the rural sector.

• Changing to Capital Values allows us to get rid of

most differentials.

• Getting rid of both the positive and the negative

differentials evens up the general rates burden, but this is still leaves the regressive effects of the fixed UAGC on top of the fixed target rates.

Rates Overhaul : Finding the right balance

Conclusions?

• Getting rid of the UAGC and

incorporating it into the General rate works quite well in conjunction with the retention of fixed target rates.

• This approach restores the

traditional balance between fixed rates and progressive rates.

Rates Overhaul : Finding the right balance

Conclusions?

• However there are alternatives such as

progressive value based target rates, and/or additional differentials.

• These alternatives could leave room for

retention of a Uniform Annual General Charge.

Rates Overhaul : Finding the right balance