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The Downtown Levy – intended for CBD retailers, but now?

by John Albertson
Twenty years or so ago, retail in the Wellington CBD was under pressure. Analysis of credit card spending indicated considerable “leakage” from Wellington residents spending outside the CBD and there wasn’t much being gained back from the suburban areas of the Hutt Valley and Porirua.

The key was competition from the malls. In the Hutt Valley we had Queensgate and further up the valley Maidstone Mall was still a force. Johnsonville Mall had been refurbished and North City Mall was in its heyday. All the national chains in the CBD also had stores in at least two of the malls.

What did the malls offer? They had much the same stores with the same stock and prices. But they had free car parking. They had a safe environment for children. They had an “all of centre” marketing and advertising programme. All the shops opened for the same hours and, in the main, they were longer hours than those offered by the stores in the CBD.

Quite a formidable opponent.

The first attempt to counter this was a voluntary programme where CBD retailers were asked to put their “hands in their pockets” to fund a promotional programme to fight back. Like all things voluntary, there was a group who kept their money and rode on the coat tails of those who did get involved. From memory around 60% of retailers participated.

The money didn’t go far. So the only alternative was to create a promotional fund via a compulsory levy. The Downtown Levy was born. It was included in the rates on buildings in the CBD but in the end it was invariably passed onto retail tenants as rates are one of those items that are charged to a retailer as a separate item from rent.

So, we had all retailers paying into a fund to promote retail activity.

The first two things that were introduced were ……
Free weekend parking
CBD retail promotions.

The fund was administered separately from other Council activities and the money was kept separate from activities such as Totally Wellington Tourism, the economic development agency and similar bodies. It was a fund paid for by retailers for the promotion of retail. There was also a dedicated staff member.

Over the years, funds raised as part of the Downtown Levy have been put to a variety of uses. But there is little or no accountability to those who provide the funds.

As we understand it, the Downtown Levy is this year being spent as follows:

WREDA $8.4m
Retail Support (free weekend parking) $1.5m
Galleries and Museums $2.4m
Visitor Attractions (Te Papa/ Carter Obs) $2.1m

This highlights what happens when there is no accountability back to those who provide the funding.

If we go back to the original intent, we have moved a long way from those early objectives. The weekend parking looks OK although we would like to understand how the number is arrived at – to shift $1.5m from the Downtown Levy to the parking meter bucket one assumes that there is a formula. Is there an assumption of 50%, 75% or 100% occupancy of meter space? One can’t base it on actual occupancy as this is exaggerated because the parking is free!

However, if we look at the other activities the Downtown Levy is now supporting, it is an extremely long bow to suggest that some of these things are retail related or provide any real support to retail.

While visitor attraction is of value to retail, the real value comes from keeping locals shopping locally. The vast majority of retail sales in Wellington are generated from people who live here or work here. The visitors are a nice addition but no retailer would be able to survive on their business alone. They are the icing on the cake. We have become so hell bent on being a city that attracts tourists (and we aren’t knocking those intentions) we have forgotten about our locals. They are the ones who put bread and butter on the tables of retailers, pay rates and vote.

The competition hasn’t changed – the malls in the Hutt Valley and Porirua are still the real competitors. They have “marketing committees” who decide how their marketing funds will be spent. There is an accountability to those who pay the money as to how it is spent.

Conclusion:

The size of the targeted rate is now very much bigger than it was originally. (I suspect in relative terms as well as real terms). What is the size of the levy and how many ratepayers actually contribute? How is it calculated?

We believe it is time to look at who is paying, how much are they paying over and above what their “normal” rates would be and should they have a say in how it is spent? The current allocations are far from the original intent.

What justification is there for the Carter Observatory to be propped up by the Downtown Levy? If the Carter Observatory is unable to make ends meet, then let’s be honest about it rather than dip into a fund that has become a support bucket for a whole lot of causes.

Unless something has changed since the original imposition of the Downtown Levy, and all those who are paying it know about it and understand it, then it is time this was discussed openly with those contributors. We are of the view that most contributors are unaware that they are, in fact, paying for these additional activities.

The levy was imposed for a specific purpose for the benefit of those paying it. It is not the Council’s right to roll it back into the general rates pool.

If the money is no longer being used for its original purpose, then the levy should be removed. The Council should not be able to strike a special levy for a special purpose and then continue to collect the revenue when the special purpose is no longer being funded.

John Albertson was the Marketing Director at R Hannah and Co at the time of the introduction of the levy. He subsequently spent 17 years as CEO of the NZ Retailers Association and was involved in a lot of the early decision making.

5 comments:

  1. Traveller, 12. March 2018, 7:44

    If the free parking is being done away with, then those paying the special levy should get a rates reduction. It isn’t the Council’s money to simply put into the general fund. They raised the funds for “promotion” (including the free parking) on the basis that those who were benefiting should pay higher rates.

     
  2. Geraldine, 12. March 2018, 11:23

    There is also a question of whether commercial ratepayers in the CBD are paying 3 times for WREDA – through the general rate, the commercial targeted rate and the Downtown Levy. Do they get 3 times the benefit?

    Should CBD commercial ratepayers pay 100% of the Long Haul Airline Attaction initiative through the Downtown Levy? Are they the only group of ratepayers who will benefit? Unlikely.

     
  3. Sarah, 12. March 2018, 15:14

    Good point Geraldine. Particularly as these ratepayers get no say in what WREDA do. Councillors: tell us what the levy money will be used for if the free weekend parking is stopped and you do not remove the levy from commercial rates.

     
  4. David, 12. March 2018, 15:24

    I wonder what benefit the retailers get by propping up the Carter Observatory?

     
  5. Jeremy Smith, 13. March 2018, 10:32

    An interesting article and written from a retailer’s perspective. The DTL was never intended solely for the benefit of the CBD retailers, the goal was much wider than that. The article correctly points out that the DTL or Rate is paid by most CBD building owners and passed on to the building tenants. A large portion of the DTL is paid by the big hotels in the CBD. As the DTL is for special purposes, HospitalityNZ is of the opinion that the businesses paying the rate should be consulted on how the money is spent. We understand that over time there are different WCC projects and plans aimed at bringing visitors and Wellingtonians into the CBD. The money raised from the DTL should not always go to the same projects. And the WCC saying they need to raise more money (Targeted Rate) to pay for infrastructure costs such as the convention centre is not acceptable. HNZ is of the opinion that the WCC can’t keep on targeting the hospitality/retail sector for more money – a smarter holistic plan is required. As a suggestion, the following ideas could be looked at: the DTL money goes to other projects instead of funding the now successful Te Papa or other museums, the money saved from free weekend parking is also re-deployed, the 2,000 Air BnB operators pay a business rate on the rooms/ houses they rent out, the DTL coverage area is extended, rates in the CBD are normalised (there are a number of exclusions and rate differentials), cost savings in other areas and we are sure there are many other options.

    Overall Wellington with its arts, culture and entertainment heart has become a vibrant city, we want this vibrancy to continue but we need more say in how funds like the DTL are spent.

    [Jeremy Smith is Wellington branch president of Hospitality NZ.]