Appendix 8 : Rating
This paper deals with the likely outcome of a union of Tasman District and Nelson
City should amalgamation eventuate
Currently, the two Councils have diverse approaches to setting rates. Tasman
District uses mainly capital value along with a range of targeted rates, whereas
Nelson City mainly employs a land value Basis with differentials for commercial
and rural activities.
Both Councils have separate charges for wastewater, and both charge for water on a
volumetric basis.
Definitions
Capital value is the ‘all up’ property value including both land and any improvements
such as a house.
Land value is the unimproved value of the property land only.
Targeted rates are applied where a council decides that the cost of a service or
function should be met by a particular group of ratepayers (possibly even all
ratepayers) on a basis different from that of its general rate. There is considerable
scope for local authorities to target functions in specific areas and to set different
levels of rates for different properties. For instance, a targeted roading or water
supply rate might be specific to a particular town or locality, or it might apply to the
whole council area.
Targeted rates are often used as a proxy for a user charge where the costs of
individual charging (such as water meters) may be prohibitive. Tasman District
Council has a wide range of targeted rates. Nelson City Council has only a few.
Differentials occur when local authorities set different levels of rates for different
types of properties with the same property value. These are usually expressed as
multipliers of the residential rate. For example, if the residential rate is $1.00 per
$1,000 of property value and the business rate is $2.40 per $1,000 of property value,
the business differential is said to be 2.4.
Differentials may be used for various reasons, but are most often used to:
increase the incidence of rates on business properties
decrease the incidence of rates on rural properties
ease the burden on high-value properties
Tasman District Council has no general rate ‘differentials’, whereas Nelson City
Council has 12 classes of general rate ‘differentials’. In Nelson commercial
properties pay premiums of up to 240% on the general rate, while rural properties
get a discount of 35% on the general rate.
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“Best practice” for rating systems
Three years ago the Government set up a special inquiry to investigate how local
government in New Zealand should be funded. In August 2007 the ‘Report of the
Local Government Rates Inquiry’ recommended that;
“Rating differentials be removed from the Local Government (Rating) Act from
an operative date of 1 July 2012.”
“That a common rating system based on capital value be promoted across the
country for general rates.”
It is therefore likely that should an amalgamation be recommended it will
commence with a rating system based on capital values and no differentials,
plus targeted rates.
While the rating system in Tasman would probably be unchanged, there would be a
radical change in Nelson. A change to capital values and no differentials would be of
major benefit to Nelson commercial ratepayers, but seriously disadvantageous to
Nelson residential ratepayers.
Assessed Impact on Rates of Amalgamation
It is inevitable that any change in a rating system will result in some rates going up
and some rates coming down.
At the moment the portion of each Council’s operating costs (that is to be recovered
from rates) is spread across two separate pools of ratepayers.
Tasman District has a pool of 22,684 rateable properties with total unimproved land
value of $7,169,453,200, and a total capital value of $11,683,355,838.
Nelson City has a pool of 20,511 rateable properties with a total unimproved land
value of $4,339,232,700, and a total capital value of $8,632,554,200.
Nelson City Council total operating costs for 2010/2011 are
$79,665m
Tasman District Council total operating costs for 2010/2011 are
$86,018m
Combined Total operating costs for 2010/2011
$165,683m
At present rates have to be levied to cover a portion of the operating costs of each
Council. (The rest of the operating costs are recovered by way of fees and charges,
and some government subsidies.)
In the 2010/11 year Nelson Council plans to recover 64.21% of its operating costs by
way of rates totalling $51.150million and Tasman Council plans to recover 61.16% of
its operating costs by way of rates totalling $52.605million.
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Combining these sets of figures, all other things being equal, means that a new
amalgamated Council would need to find $103.755million in rates to fund 62.62% of
the amalgamated operating costs.
That combined rates portion of combined total operating costs would then be
recovered by rates levied on either:
the combined unimproved land values ($11,508,685,900), or
the combined capital values ($20,315,910,038)
As demonstrated above, when a single new Council is created it has to combine two
sets of values to create a new value basis for levying the new rate(s). The problem is
that:
Tasman District Council’s combined land value is 1.6522 times that of Nelson
City Council.
Tasman District Council’s combined capital value is 1.3535 times that of
Nelson City Council.
This means that after amalgamation, present Tasman ratepayers will have to pay a
greater proportion of the combined cost of operations. If land values are used
Tasman ratepayers become responsible for roughly 5/8ths (62.5%) of the costs. If
capital values are used Tasman ratepayers become responsible for roughly 4/7ths
(57.14%) of the combined costs.
If we assume that (all other things being equal) the new amalgamated Council
decides that it needs to levy $103.755m in rates, then the effect of that rates shift
would vary depending on whether land value or capital value rating basis is chosen.
If the new amalgamated Council uses combined capital values then on the basis of
the 2010/11 figures:
Rates needed
$103.755m
x
1
$11,683,355,838 (Tasman
combined CVs)
$20,315,910,038 (Both Councils
total CVs)
= $59.668m
If capital values are used for rates post amalgamation the former Tasman
District ratepayers would pay an extra $7.063m. This would be a permanent
rates shift of 13.4%.
If the new amalgamated Council uses combined land values then on the basis of
the 2010/11 figures:
Rates needed
$103.755m
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x
$7,169,458,200 (Tasman combined
LVs)
$11,508,685,900 (Both Councils
total LVs)
= $64.635m
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If land values are used for rates post amalgamation the former Tasman District
ratepayers would pay an extra $12.030m. This would be a permanent rates
shift of 22.87%.
Because detailed figures are not available it is not possible to estimate the detail of
benefit to Nelson ratepayers. However if there is a change to capital values with
no differentials, then virtually all the benefit will flow to the Nelson commercial
sector.
Rates Comparison and Relative Efficiency
Comparisons of rates and efficiency between Councils are extremely difficult. Each
Council operates in different geographic circumstances, and community expectations
are very noticeably different, especially between urban and rural areas.
However, it is possible to make some generalised comparisons.1
1.
How much does each Council collect in rates per resident?
Nelson City Council
Tasman District Council
2.
$1136.67
$1124.04
How much does each Council collect in rates per rateable property?
Nelson City Council
Tasman District Council
$2493.78
$2319.04
As an alternative to rates, Councils also recover money from ratepayers by way of
‘fees and charges’ for council services.
3.
How much does each Council collect in fees and charges per resident?
Nelson City Council
Tasman District Council
$538.58
$357.64
4.
How much does each Council collect in fees and charges per rateable
property?
Nelson City Council
Tasman District Council
$1181.61
$737.88
The above figures lead to the conclusion that, on average, Nelson City
residents and ratepayers currently pay more per head and more per property,
than do Tasman District residents and ratepayers.
1
The figures quoted are based on each Councils 2010/2011 Annual Plans, the Statistic Department’s latest (2009) population
figures and the number of rateable properties at 1 July 2010.
4
On average each Nelson rateable property pays a total of $3675.39 in rates and
fees and charges.
On average each Tasman rateable property pays a total of $3056.92 in rates
and fees and charges.
“Comparative” Running Costs” Tasman District Council and Nelson City
Council
Nelson City Council’s 2010/2011 Annual Plan predicts total operating costs of
$79.665m.
Tasman District Council’s 2010/2011 Annual Plan predicts total operating costs of
$86.017m.
This means that:
Nelson City Council plans to spend $3,884.01 per rateable property
Tasman District Council plans to spend $3,791.97 per rateable property.
Across New Zealand urban populations resident within cities tend to have different
needs to those of rural populations resident in the districts, which probably led to the
distinction between. ‘city’ councils and ‘district’ councils being established in 1989
when nationwide local government reform occurred.
There are distinct differences between Tasman District Council and Nelson City
Council.
Tasman District is a very large land mass of 9,643 square kilometres. Instead of a
single city it has 17 different and unique settlements spread around the District.
Overall, its population is roughly balanced 50/50 between urban and rural.
Tasman has a big roading network 915 kilometres of sealed roads and 765
kilometres of unsealed roads. The population density is only 4.85 persons per
square kilometre. Tasman District Council is committed to maintaining the viability of
all 17 settlements and the rural hinterland. In practical terms this means that as a
council its spending is biased towards the provision of core infrastructure that is
spread out and replicated numerous times across the District.
In terms of regional council responsibilities, Tasman’s 22,684 ratepayer properties
also have to look after a combined land and sea area of 14,812 square kilometres.
In comparison, Nelson City is a small land mass of only 432 square kilometres, with
a single city. Its population is almost entirely urban. The roading network is limited to
248 kilometres of road, only 16 kilometres of which is unsealed. The population
density is 106.38 persons per square kilometres.
Nelson’s needs tend to be concentrated into single large infrastructure components
that enjoy an economy of scale not possible in Tasman. As a result, Nelson is able to
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fund a wider range of non- core activities in accordance with the wishes of its urban
population.
In terms of regional council responsibilities Nelson’s 20,511 ratepayer properties only
have to look after a combined land and sea area of 1,235 square kilometres, that is,
only one twelfth of Tasman’s.
As a result of these differences, different cost structures emerge.
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