Rates Increases

Originally published 5 August 2019

Most of us got our rates bills on Friday for the new financial year. This is the first rates bill after the most recent revaluations, so if your property rose in value by more than the average, there is definitely some particular pain there.

I’ve already started to get people contacting me to ask why their increases are as large as they are. It even came up in a friendly way on the football pitch yesterday! I’ll use ours as a ‘modest’ example – City rates up 4.6% and Regional rates up a staggering 15.7%. Overall that’s 6.2%. Other people, undoubtedly with greater proportionate rises in Capital Value in the last revaluation, have even higher numbers. Normally I don’t get this feedback on rates. I suspect the cause is the combination of rates increases and new property valuations.

The bad news is that there is a lot more proposed. Wellington City Council’s Chief Executive’s Pre-election summary shows that over the 10 years of our Long Term Plan (LTP) City Council rates are expected to rise by 48.2% and if you add in a targeted tourism rate (targeted to relevant businesses) currently planned for next year the rise is 52.2%. That is after accounting for a growing ratepayer base – a perfectly reasonable deduction because rates are then spread across more ratepayers. Add that back in and the raw number is 66.0%.

CPI is currently running at 1.7% which if continued would equate to 18.4% over 10 years.

It gets worse. That does not include remotely enough money for Let’s Get Wellington Moving or for Civic Square. Based on the information to date LGWM will cost City and Regional ratepayers in the order of $1.2 billion in today’s money, while Council’s placeholder in the LTP is just $120 million. The annual cost seems to be (the LGWM numbers are a bit inconsistent) around $90 million of which some 62% appears to be expected to be paid through rates. It’s not entirely clear whether this properly factors in the loss of significant carparking revenue either. My calculations remain naturally a bit rough at this stage but that winds up at around 18%. Add 48% and 18%, factor in something for Civic Square – it’s not a pretty picture.

This is exactly what I said in last year’s Long Term Plan debate and why I put up a raft of possible savings, and ended up voting against the budget as a whole. I just do not think that rates trajectory is remotely affordable, nor is a debt line that has city debt rising from $550 million to $1.2 billion over 10 years, and that again without LGWM and Civic Square even close to being fully provided for.

We are in my view just trying to do too much in too short a time. We aren’t being clever enough in some areas either.  Freddie Mercury and Queen sang ‘I want it all, and I want it now’. We – you – cannot afford that luxury. We are often told to ‘live within our means.’ Actually that means living within your means and therefore affordability becomes utterly crucial.

We are making progress to save money in some areas, largely unseen as yet. I chair the Finance, Audit and Risk Management Committee. This is engine room stuff. We’ve been taking a hard look at insurance, at reducing the ongoing liabilities of leaky buildings, at our tender and contract management processes, at management of contingencies. We’ve made some savings but there are more substantial savings to be made over time. Not sexy stuff, but very important. The numbers are very large.

Yesterday there was a Stuff article written by somebody who was a victim of a leaky home in Auckland. This involved poor workmanship and materials including cladding designed to last only 15 years. Leaky buildings are an ongoing nationwide disaster for everyone: property owners, Councils, sometimes liable suppliers and builders and architects (if they are still around). Council’s annual report last year shows Council has paid out $15 million on leaky building settlements in the two years 2016-18, and we had to add $17 million over those two years in actuarial provision for current and future settlements. This problem has a long and very expensive tail, and it has become clear that we are still building problem buildings all over the country. I have been talking with some very skilled building practitioners about practical techniques to reduce or eliminate future problems. There are system and legal changes required. We will need Government as the rule setters to step up on this too and are planning to bring the parties together to find real solutions.

I believe there is also potential for savings in some parts of the organisation. Council is a very complex beast. Sometimes you have to pry the information you need out, never forget anything, and don’t give up. Simplistic propositions generally don’t work.

That’s the inside the organisation stuff. I also think we have to dial back some of the expenditure expectations, focus on finishing things, and doing the things that have to be done. There is a lot of debate still to come about Let’s Get Wellington Moving and getting some realistic plans, costs and funding arrangements. I think we have to push back some of those big cost items like arenas and runways. We need a clearer framework around investing in the community and recreation area, unless we can offset the costs. We need to be looking at value for money across the board. This absolutely doesn’t mean not doing anything new or anything that makes change. It does mean not doing everything though! We will certainly need to invest in assets necessary for accommodating predicted population growth.

Alternative revenue sources are critically important. Our development contributions (DC’s) need updating. DCs are the way in which new development pays for the costs of infrastructure, facilities and reserves that it causes to be needed. A single dwelling or commercial building will probably have little impact on the need for bigger pipes, enhanced roading, more sewage treatment, a new reservoir or park, but when you think that we have around 76,000 existing dwellings and we are expecting to need up to 30,000 new dwellings and associated non-residential development over the next 30 years, it is clear that growth will result in significant costs, and growth should pay for that.

Let’s Get Wellington Moving includes some thinking about capturing some of the value uplift from properties around any mass transit route. It also looks at levies on parking spaces. In my view we need to differentiate between levying long stay parking spaces and avoiding levying short stay parking spaces which are important for business and retail customers. Government appears to have ruled out congestion pricing, and have certainly ruled out fuel taxes. None of these things are popular but if the alternative is a massive – permanent – rise in rates then they need to be explored. Long stay parking levies and congestion pricing in particular also incentivize transport behaviour change and were built into the original LGWM models. Without them, and much of the roading proposed, of course the model needs changing.

As with so many things about Council there are a complex mass of moving parts to be put together. These are often matters of real substance, and often take time to work through, but work through them we must if Wellington is to stay affordable and livable for many of us.

I would always welcome informed feedback.