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From 9.2% down to 4.8% but not zero – city council debates rates increase for Wellington

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Wellington.Scoop
Wellington city councillors on Thursday will be considering a staff recommendation that the city’s rates be increased by 4.8 per cent in the next financial year. This is a change from the previous (pre pandemic) proposal for rates to increase by more than nine per cent.

The proposal for a 4.8 per cent rates increase is one of three options to be debated by councillors on Thursday.

Option 1): maintain current service levels and debt fund the one-off impact of $45m lost revenue in 2020/21 and $11m impact of not increasing fees, along with $12m of funding adjustments, a total of $68m, with a resulting average rates increase of 4.8% percent. Option 1 provides a pragmatic balance between managing the pressures on current ratepayers and ensuring the Council remains financially sustainable into the future, whereby the actions of today do not impact unfairly on ratepayers in the future. The borrowing proposed is for a specific purpose, in funding the one-off shortfall in operating revenue anticipated in 2020/21. While this does not meet the S100(i) balanced budget provision of the Local Government Act, it can be resolved that it is financially prudent due to the one off nature, with revenues recovering and repayment of the debt occurring over a 10 year period to avoid a significant one off impact on future ratepayers. It is also considered the most prudent and transparent of the three options. Officers recommend this option.

The second option would increase rates by only 2 per cent, but council staff do not recommend it.

Option 2): the same as option (1) and also debt fund additional depreciation costs incurred from the 2020 infrastructure revaluation. This could achieve a rates increase of circa 2% percent in 2020, but risk insufficient funding for infrastructure in future years. This would result in additional borrowing of $11m, resulting in total debt funded operating costs of $79m. Option 2 proposes debt funding a specific operating expense to lower the prospective rates increase, by not increasing rates funding for additional depreciation resulting from the 2020 infrastructural asset revaluation. This option is similarly challenging to option 3, as it doesn’t meet the balanced budget requirement or the Council’s financially prudent Revenue and Financing Policy. Funding of depreciation is how we fund the replacement of infrastructural assets. Reducing depreciation funding at a time when the city has an expectation of increased funding of infrastructure, is not recommended. If this was considered as a one-off solution it would also pass a significant rates impost onto future ratepayers. Officers do not recommend this option.

The third option is for a zero rates increase. It’s a popular idea, but staff are not recommending it, warning that it would involve austerity measures and a reduction in service levels.

Option 3): the same as option (1) above, and additionally introduce austerity measures / reduction in levels of service to enable a lower rates increase. To achieve a zero percent rates rise would require a further $16m of savings compared to option 1. Alternatively without service level reductions an additional $16m of debt funding would be required, resulting in total debt funded operating costs of $84m.

Option 3). At the request of Councillors, officers have reviewed the option of a zero rates increase without reducing service levels. Officers’ advice is that we cannot reduce the costs by the $16m required, while maintaining current service levels. If service level cuts were to beproposed, it is likely that significant changes to service levels in community based services would be required. This would trigger a Long-term Plan Amendment. There is insufficient time to complete an LTP amendment process. If Council attempted to achieve a zero rates increase by arbitrarily debt funding $16m of operating costs this would not be financially prudent, and therefore would not be consistent with Council’s Revenue and Financing Policy or Section 101, (Financial Management) and section 100 (Balanced Budget) of the Local Government Act. At a practical level it also poses a significant rates impost onto future ratepayers. Officers do not recommend this option.

March 17: council to debate 9.2 per cent rates increase
April 2: what can we afford?
April 2: Council facing shortfall of $60m – $70m
April 3: Mayor wants to defer next rates payment

Statement from Mayor Andy Foster
Our top priority at Thursday’s meeting is to minimise any impacts Council rates and charges have on businesses and residents who have lost some or all their income at this unprecedented time. The proposals include a six-month rates holiday, plus the adoption of a Pandemic Response Plan – it has a wide range of initiatives to soften the financial blow of the lockdown.

There are also three possible rates increases for the 2020/21 financial year – either a 4.8 percent rise; a 2 percent, rise; or a zero increase.

Council management have recommended the 4.8 percent rates increase, accompanied by significant ‘rainy day’ Council borrowing to cover expected major revenue shortfalls from things like parking, the closure of our pools and venues, and the likely loss of the Wellington Airport dividend.

I’m aware that some people are anxious that we look for lower increases. But I’ve also had strong feedback that we need to look to the future and not overburden future generations.

The papers are also clear that a rates deferral has far greater benefit for ratepayers in terms of cash flow than changes in the normal headline rates number.

Personally I think we also need to undertake some intelligent review of expenditure over the next month and a bit.

14 comments:

  1. jamie, 7. April 2020, 20:22

    My word what sort of bubble are they living in. Look at option 3 zero rates increase – Council employees say we can’t do it as it would trigger a LTP amendment process Blah Blah and contravene section 100 and 101 of the LGA, and there’s not enough time.
    This is like war time. Make the changes, use the political capital and go for zero – otherwise you’re just kicking the can down the road. I am all for a prudent council but this is not the time to hide behind council officers and their red pens. Enough of the whinging. Get some of the absolutely positively wellington in yah.

     
  2. Andrew, 7. April 2020, 22:17

    How come there’s talk of insufficient funding for infrastructure, when there’s plenty of funding for a white elephant which isn’t needed or wanted by anyone except the council. Stop the Convention Centre, fund the infrastructure and keep rates increases to a minimum by only spending on things that are necessary.

     
  3. Andrew II, 7. April 2020, 22:50

    Not enough time to sort out reducing service levels? Tighten the belt, reduce service levels to reduce spending. I bet a high percentage of Wellingtonians have already taken measures to reduce ‘service levels’ within their households for the same reasons.

     
  4. Northland, 7. April 2020, 23:17

    The Council seems blindfolded against the pain that is occurring in the private sector in Wellington as hundreds of people lose their jobs or see their income drop to subsistence levels. If they can’t save money through cutting vanity projects (Convention Centre) or tourism related activities (where are the tourists), they may need to consider shedding some staff and cutting some salaries.

     
  5. michael, 7. April 2020, 23:59

    We are expected to pay more for infrastructure funding because the council has acted irresponsibly for years in this regard. Before you hike up the rates yet again WCC, how about joining the rest of us and take a cross-the-board 20% pay cut for a start, cut the excess fat within the council and terminate construction of the convention centre. There you go, intelligent review of expenditure, and it only took 5 minutes.

     
  6. Kara, 8. April 2020, 9:00

    Anything except a zero percent rise in 20/21 rates will result in an increase in rents once level zero is reached. Besides – an increase in rates is just like an increase in rent. Something that is not permitted at the moment. So WCC think what is really needed and what is frivolous.

     
  7. Don M, 8. April 2020, 9:03

    What a contrast with Auckland, where Phil Goff has proactively taken hard decisions to cut spending. Here it’s more cost-plus business as usual, and the Mayor is leaving it up to Council staff to identify the options. Of course they will put forward options that involve pain for others (read: hard pressed ratepayers) but no pain for them (eg hiring and pay freezes, prioritising expenditure and killing pet projects).

     
  8. Power pole, 8. April 2020, 9:13

    They need to change their mindset. The council can’t carry on business as usual. If a working couple went down to one income, they’d have some pretty big decisions to make about cutting expenditure; the still-employed person couldn’t go and ask for a pay rise to cover the shortfall. There must be savings to be had across all council departments. Example – our street was due to be resealed the week the lockdown started, it hasn’t been done obviously, and it could easily last another few years without it. Apart from the obvious cancellation of the convention centre, postpone all the cycleways planned for the next year, don’t plant tulips in the gardens, there must be plenty of non essential items that can be delayed.

     
  9. Jeff, 8. April 2020, 10:59

    Anything other than a zero rates increase is tone deaf considering many ratepayers have either lost their jobs or have had reductions in pay. No one cares about the convention centre so boom there’s savings for the upcoming year. All ratepayers need to tighten their belts It’s about bloody time the WCC does the same.

     
  10. Groggy, 8. April 2020, 11:08

    Disestablish WREDA, stop the convention centre, leave Frank Kitts Park alone. Cut the consultants. There’s a couple of hundred million in savings without even trying, for a council that’s badly out of touch with its ratepayers.

     
  11. James, 8. April 2020, 11:29

    Since we’re all in this together, WCC staff can maintain the same service level by taking a solidarity cut in pay. Voila: zero rates increase.

     
  12. TrevorH, 8. April 2020, 14:25

    I’m with Groggy and everyone else: stop the convention centre, scrub WREDA and any consultancies and live within your means. There’s plenty of fat in the WCC. Zero increase!

     
  13. michael, 8. April 2020, 17:37

    A realistic intelligent review of expenditure? Obviously needed, as reported today on Stuff the city council “wants to freeze $8 million for events spending over the next 12 months despite predictions public gatherings will continue to be banned for over a year”. But Stuff also reports that councillors are likely to vote against this plan, wanting the money to be spent on businesses and workers.

     
  14. Pam, 8. April 2020, 21:12

    Any money saved, by necessity, should go to reducing the excessive rates burden.
    Very hard to understand how redevelopment of Frank Kitts Park is a top priority for the council, given most Wellingtonians are opposed to it and sewerage would seem to be a much greater concern.