Agenda of Finance Committee

Finance Committee

18 July 2016

Part A Reports

Financial Result - Period Ended 31 May 2016

Department: Finance

EXECUTIVE SUMMARY

1 This report provides the financial results for the period ended 31 May 2016 and the financial position as at that date.

RECOMMENDATIONS

That the Finance Committee:

a) Notes the Financial Performance for the period ended 31 May 2016 and the Financial Position as at 31 May 2016.

BACKGROUND

2 This report provides a commentary of the financial performance of Council for the period ended 31 May 2016 and the financial position as at that date.

DISCUSSION

3 The net deficit (including Waipori) for the eleven months to May was $3.685 million or $2.095 million better than budget.

4 The favourable variance against budget was due to the following:

· $2.030k – Waipori Fund, resulting from fair value gains in investments, partially offset by losses on the disposal of some international equities.

· $1.055 million – higher than expected other operating revenue. Favourable variances included: Solid Waste due to additional tonnage through the Green Island Landfill; Transport where community road safety and corridor access revenue was greater than budget; Improved property revenue including higher than expected residential occupancy; an unbudgeted recovery for the service level agreement with Dunedin City Treasury Ltd; and additional revenue from the Regional Partner Network contract in Economic Development. These favourable variances were partially offset by lower parking enforcement revenue, and lower water sales revenue.

· $644k – contributions due to the early timing of recoveries from developments in Mosgiel.

· $3.000 million - assets operations and maintenance expenditure was less than expected largely due to savings related to transport work including drainage works, traffic services maintenance, paving maintenance and non-subsidised general maintenance. In addition property maintenance was running behind budget. These favourable variances were partially offset by unbudgeted expenditure re the Ocean Beach holding pattern and expenditure on a condition assessment of the Green Island Waste Treatment digester and repairs to the Mosgiel Waste Treatment clarifiers.

· $1.563 million – lower than expected interest costs, primarily due to the lower than expected loan balances.

5 These favourable variances were partially offset by:

· $2.877 million - depreciation costs were higher than expected due to the revision of useful lives for the Council property portfolio as a result of the June 2015 building asset revaluation exercise. The useful lives were adjusted to reflect the component nature of building assets.

· $3.463 million - lower than expected grants revenue mainly as a result of Transport undertaking less capital projects than expected.

6 Capital expenditure was less than budget by $7.236 million. Project delays have arisen across a number of portfolios while project scoping is finalised. These favourable variances were partially offset by earlier than expected expenditure on water and waste services projects.

7 Total Council debt as at 31 May 2016 was $226.052 million or $25.636 million lower than budget. This variance reflected a better than expected opening position for the 2015/16 financial year, strong operating cashflow for the year to date reflecting the lower than expected operating expenditure and funds received from property disposals (Caledonian Bowling Club, Union Street and the Emerson's Brewery site).

OPTIONS

8 Not applicable.

NEXT STEPS

9 Not applicable.

Signatories

Author:

Lawrie Warwood - Financial Analyst

Gavin Logie - Financial Controller

Authoriser:

Grant McKenzie - Group Chief Financial Officer

Attachments

	Title	Page
a	One Page Financial Summary	9
b	Statement of Financial Performance	10
c	Statement of Financial Position	11
d	Statement of Cashflows	12
e	Capital Expenditure Summary by Activity	13
f	Borrowing and Investment Policy	14
g	Statement of Public Debt	15
h	Statement of Operating Variances	17
i	Financial Review	19

SUMMARY OF CONSIDERATIONS

Fit with purpose of Local Government

The financial expenditure reported in this report relates to providing local infrastructure, public services and regulatory functions for the community.

Fit with strategic framework

	Contributes	Detracts	Not applicable
Social Wellbeing Strategy	☐	☐	☒
Economic Development Strategy	☐	☐	☒
Environment Strategy	☐	☐	☒
Arts and Culture Strategy	☐	☐	☒
3 Waters Strategy	☐	☐	☒
Spatial Plan	☐	☐	☒
Integrated Transport Strategy	☐	☐	☒
Parks and Recreation Strategy	☐	☐	☒
Other strategic projects/policies/plans	☐	☐	☒

This report has no direct contribution to the Strategic Framework, although the financial expenditure reported in this report has contributed to all of the strategies.

Māori Impact Statement

There are no known impacts for tangata whenua.

Sustainability

There are no known implications for sustainability.

LTP/Annual Plan / Financial Strategy /Infrastructure Strategy

This report fulfils the internal financial reporting requirements for Council.

Financial considerations

Not applicable – reporting only.

Significance

Not applicable – reporting only.

Engagement – external

There has been no external engagement.

Engagement - internal

The report is prepared as a summary for the individual department financial reports.

Risks: Legal / Health and Safety etc.

There are no known risks.

Conflict of Interest

There are no known conflicts of interest.

Community Boards

There are no known implications for Community Boards.

Finance Committee

18 July 2016

Attachment I

Financial Review

For The Eleven Months ended 31 May 2016

This report provides a commentary on the Council’s financial results for the eleven months ended 31 May 2016 and the financial position at that date.

net surplus/(Deficit) (including waipori)

The net deficit (including Waipori) for the eleven months to May was $3.685 million or
$2.095 million better than budget.

The favourable variance against budget was due to the following:

· $2.030 million – Waipori Fund, resulting from fair value gains in investments, partially offset by losses on the disposal of some international equities.

· $644k – contributions due to the early timing of recoveries from developments in Mosgiel.

· $1.563 million – lower than expected interest costs, primarily due to the lower than expected loan balances.

These favourable variances were partially offset by:

· $3.463 million - lower than expected grants revenue mainly as a result of Transport undertaking less capital projects than expected.

REVENUE

The total revenue for the period was $221.967 million or $1.580 million less than budget.

The major income variances were as follows:

Other Operating Revenue

Actual $54.250 million, Budget $53.195 million, Favourable variance $1.055 million

Solid Waste revenue was favourable $638k primarily due to additional tonnage processed through the Green Island landfill.

Transport revenue was favourable $340k due to community roading safety receiving an unbudgeted amount of $86k relating to the cycle way network and safer schools, and corridor access way revenue being $264k favourable to budget.

Finance revenue was favourable $284k due to the unbudgeted service level fee recovery from Dunedin City Treasury Ltd ($275k).

Economic Development revenue was favourable $124k due to receipt of Regional Business Partner Network contract revenue.

Property revenue was favourable $233k. This primarily related to higher than expected residential revenue with higher occupancy levels.

These favourable variances were partially offset by:

Parking Enforcement revenue was unfavourable $336k with both infringement fees and court fines recoveries being less than expected. This was in part due to fewer infringement notices being issued along with a higher number of referrals for court collection.

Three Waters revenue was unfavourable $349k due to water consumption being lower than expected.

Grants

Actual $13.994 million, Budget $17.457 million, Unfavourable variance $3.463 million

Transport grants and subsidy revenue was unfavourable by $3.653 million due to less than expected NZTA funded work (operating & capital) taking place year to date.

This unfavourable variance was partially offset by:

$108k favourable variance in Civic due to donations received related to the June Flood Relief fund.

Events and Community Development grants were favourable $49k due to an unbudgeted grant from the Ministry of Youth Development and the timing of Creative New Zealand grants.

Contributions

Actual $1.520 million, Budget $876k, Favourable variance $644k

Development contribution revenue was favourable due to the early timing of recoveries from Mosgiel developments.

Expenditure

The total expenditure for the period was $231.037 million or $1.645 million less than budget.

The major expenditure variances were as follows:

Personnel Costs

Actual $45.544 million, Budget $44.926 million, Unfavourable variance $618k

The unfavourable variance was due to higher than expected recruiting costs, increased fringe benefit costs associated with the private use of Council vehicles, and unbudgeted salary costs funded from external recoveries.

These unfavourable variances were partially offset by under-expenditure on staff training ($103k) and a number of position vacancies across Council.

Asset Operations and Maintenance Costs

Actual $38.054 million, Budget $41.054 million, Favourable variance $3.000 million

Transport costs were favourable $1.536 million largely due to timing differences with the completion of routine drainage work ($128k), pavement maintenance ($384k), traffic services maintenance ($419k), cycleway maintenance ($137k) and non-subsidised general maintenance ($219k). There will be savings in this area at year end.

Property costs were $1.276 million favourable with planned work on hold while a new operational method of assessing required maintenance for the housing portfolio is commissioned. This will result in savings at year end.

BIS costs were $513k favourable due mainly to delayed outsourcing of non-production environments as part of the Infrastructure as a Service project.

These favourable variances were partially offset by:

Parks expenditure was ahead of budget $355k due mainly to unbudgeted work on the Ocean Beach Holding Pattern ($286k).

Water and Waste Services expenditure was unfavourable $246k due to higher than expected water network maintenance costs and plant maintenance costs associated with an unplanned expenditure on the Green Island Treatment plant thermophillic digester, which is now complete. There have been a number of other unscheduled maintenance expenses for emergency repairs, including for example repairs on the clarifiers at the Mosgiel WWTP.

General Administration Expenses

Actual $4.042 million, Budget $4.478 million, Favourable variance $436k

This favourable variance reflected savings across a number of departments including promotional costs, travel expenditure, telecommunications, printing & stationery and sundry expenditure.

Grants & Subsidies

Actual $7.319 million, Budget $7.839 million, Favourable variance $520k

This favourable variance resulted from the timing of various community and civic grants across Council including Heritage Rates Remission grants, GigCity grant and Waste Strategy grants.

Depreciation

Actual $51.714 million, Budget $48.837 million, Unfavourable variance $2.877 million

Depreciation costs were higher than expected primarily due to a change in useful life for buildings as a result of the June 2015 building asset revaluation exercise. The useful lives were adjusted to reflect the component nature of these assets.

Interest

Actual $15.085 million, Budget $16.648 million, Favourable variance $1.563 million

The favourable variance in interest costs was primarily due to the lower than expected level of debt.

WAIPORI FUND NET OPERATING RESULT

Actual $5.385 million, Budget $3.355 million, Favourable variance $2.030 million

The Waipori Fund net operating result was favourable for the year to date mainly due to unrealised gains in investments, partially offset by losses associated with the disposal of some international equities.

Consistent with the overall market, gains were recorded in May across most investment types (equities and property), albeit the gain on international equities was impacted by the stronger New Zealand dollar.

Statement of Financial Position

A Statement of Financial Position is provided as Attachment C.

The value of fixed assets was less than budget as at 31 May 2016, due to lower capital expenditure (2014/15 and 2015/16), a net write down of investment properties 30 June 2015 and a negative revaluation adjustment processed across building and infrastructural assets again effective 30 June 2015.

Terms loans were less than budget primarily due to a lower than expected loan balance at the start of the current financial year and proceeds from asset disposals being used to pay down debt and savings in capital expenditure.

Statement of Cashflows

A Statement of Cashflows is provided as Attachment D.

Net cashflow from operations was better than expected reflecting the impact of the lower operating expenses (including interest paid).

Cash outflows from investing were less than budgeted mainly due to asset sales being greater than anticipated (Caledonian Bowling Club site, Union St and the Emerson’s Brewery site), a lower level of capital expenditure and delayed capital contribution payments to subsidiary companies.

Capital Expenditure

A summary of the capital expenditure programme by Activity is provided as Attachment E.

Total capital expenditure for the period to 31 May 2016 was $31.766 million or 81.4% of the year-to-date budget of $39.002 million. Note that the budget includes allocations of
$3.061 million of carry forwards from 2014/15.

Arts and Culture capital expenditure was $142k favourable

This variance was due to an under-spend on collection acquisitions across the group and delays in completing the air conditioning project at the Art Gallery. Library acquisitions are expected to be on budget at year-end while Art Gallery expenditure is partly dependant on external funding.

Community and Planning Group capital expenditure was $400k favourable

The 2015/16 City Wide Amenity Upgrade has been delayed until 2016/17.

Corporate Services capital expenditure was $687k favourable

A number of corporate systems upgrades and other ICT projects were delayed while scoping work is carried out. Some of these projects are now underway.

Finance capital expenditure was $3.835 million favourable

A number of building capital projects are in the investigation and design stages. As such they will not be completed in the current financial year.

Parking meter and fleet replacement programmes are also running behind budget ($176k and $88k respectively). These are expected to be spent by year end.

Transport capital expenditure was $6.865 million favourable

Cycle Network expenditure was $1.643 million favourable. Options are being considered around how best to deliver the remaining works.

Footpath Resurfacing was $858k favourable. Some of this work is now underway including footpaths (North, South and Central) and kerb and channelling.

Other renewal work was favourable with projects at various stages of development. Some expenditure will carry over to 2016/17.

The Turnbull’s Bay slip repairs were $1.072 million unfavourable. The contract has reached practical completion stage, although buttressing is yet to be completed.

Water and Waste Services capital expenditure was $1.904 million unfavourable

The delivery of the capital programme continues to progress well. The renewals budget is fully committed for the year, and any further tenders let will have a start date after
1 July 2016.

A budget carry-forward of $2.300 million from the unspent Tahuna Biosolids project has been signalled to fund the Biosolids project requirements in 2016/17, along with reallocation to switchboard upgrades and Portobello Road stormwater screens.

Debt

Refer to Attachments F and G.

Attachment F provides a summary of the debt servicing ratios for the year to date.

All of the ratios met the specified targets. These ratios are impacted by the timing of revenue which is not necessarily spread evenly throughout the year compared with the cost of servicing debt.

Term debt was below expectations for the year to date due to no new loans raised in the 2014/15 and 2015/16 financial years. Asset sales in the current year have also contributed to a reduction in debt.

Note that both the actual and budget figures include the $30.0 million transferred from Dunedin Venues Limited effective 30 June 2015.

Debtors and rates outstanding

Sundry debtors outstanding as at 31 May 2016 totalled $15.522 million. This included long term debt of $3.568 million, and debt associated with Warm Dunedin of $2.781 million.

Of the $3.568 million long term debt, $3.100 million was for debt relating to the sale of Carisbrook. This is due for repayment July 2016.

Debtors outstanding for more than four months (excluding long term debt and Warm Dunedin) totalled $460k, compared with last year’s total of $310k as at 31 May 2015.

Rates arrears relating to prior year rates totalled $394k. This was higher than the $226k total as at May 2015. Of this total $69k was being recovered under formal arrangements with Council, while the balance was being actively pursued.

Comments from group activities

Attachment H, the Summary of Operating Variances, shows, by Group Activity, the overall net surplus or deficit variance for the period ended 31 May 2016. It also shows the variances by revenue and expenditure type.

Community and Planning Group - $417k Favourable

The favourable variance was mainly due to the delayed timing of the payment of Community, Arts, Civic and Events grants that will be paid in June.

Corporate Services Group - $405k Favourable

This favourable variance was due to underspends across the group including 2 GP Hearing Costs and Council wide advertising expenditure.

Enterprise Dunedin Group - $303k Favourable

This favourable variance related primarily to delayed project based expenditure (including Export Education Uplift), and the timing of Regional Partner Network expenditure.

Finance Group - $1.542 million Unfavourable

Depreciation was unfavourable $3.142 million due to the change in useful lives of Council building assets resulting from the June 2015 asset revaluation.

External revenue was $635k favourable primarily due to an unbudgeted recovery for the service level agreement with Dunedin City Treasury Limited, and higher than expected residential property revenue with good occupancy.

Operating costs were favourable $547k due mainly to planned property expenditure on hold while a new operational method of assessing required maintenance for the housing portfolio is commissioned.

Parks and Recreation Group – $1.290 million Unfavourable

Operating expenditure was unfavourable $600k due to deferred building maintenance and expenditure on the Ocean Beach holding pattern project, for which there was no budget. Energy costs at the crematorium and new propagation facility at the Botanic Garden were also slightly greater than budgeted.

External revenue was unfavourable $416k due to lower than expected revenue across a number of areas - development contributions (budget overstatement), and burial revenue (move to cremations).

Customer and Regulatory Services Group – $292k Unfavourable

The unfavourable operating variance was primarily due to lower than expected revenue across a number of operating units - Building inspection fees due to lower recoverable activity and parking infringement fees and court fine recoveries due to fewer infringement notices being issued along with a higher number of referrals for court collection.

Transport Group - $921k Unfavourable

External revenue was unfavourable $3.119 million mainly due to less than expected NZTA capital and operating work taking place resulting in grants revenue being down on budget. The unfavourable variance was partially offset by unbudgeted road safety revenue and an increase in revenue from corridor access ways.

Operating expenditure was favourable $2.059 million primarily due to delayed timing of traffic services maintenance, drainage works, pavement maintenance and non-subsidised general maintenance.

Personnel costs were favourable $124k due to a number of vacancies in the group.

WWS Solid Waste – $1.537 million Favourable

Landfill revenues were favourable due to the combination of increased waste tonnages from out of the district, and higher than expected sludge volumes.

WWS Three Waters – $1.051 million Favourable

Revenue was $359k favourable, largely due to unbudgeted development contribution revenue, partially offset by a shortfall in water sales and trade waste revenue.

Total expenditure was favourable primarily due to savings in depreciation costs.

Finance Committee

18 July 2016

Rating Adjustment Possibilities for Māori Freehold Land

Department: Finance

EXECUTIVE SUMMARY

1 This report discusses rating adjustment possibilities for Māori freehold land.

2 Councillors have requested a report on this topic following a submission from Ngāi Tahu Māori Law Centre, requesting changes be made to the Council’s current remission of rates policy for Māori freehold land.

3 A revised policy could be developed in consultation with key stakeholders and feedback from the Finance Committee.

RECOMMENDATIONS

That the Committee:

Decides whether or not to develop a revised policy for the remission of rates on Māori freehold land.

BACKGROUND

4 The Council received a submission from the Ngāi Tahu Māori Law Centre as part of the 2016/17 Annual Plan consultation requesting a change to the rating policy regarding the remission of rates for Māori Freehold Land. As a result of this and other submissions, the Council moved the following resolution:

"Moved (Cr Richard Thomson/Cr Hilary Calvert):

That the Finance Committee seeks reports for its meeting on 18 July 2016 on:

· Rating adjustment possibilities for:

· retirement village licence to occupy houses;

· Maori freehold land

· Consideration of rating policies for residential properties being used for short term commercial rental and/or multiple studio rooms.

Motion carried (AP/2016/017)"

5 This report discusses rating adjustment possibilities for Māori freehold land.

Māori Freehold Land

6 Māori freehold land is defined in the Local Government (Rating) Act 2002 (LGRA) as “land whose beneficial ownership has been determined by the Māori Land Court by freehold order”. There must be an order in the Māori land court records that confers the status of Māori freehold land upon the particular block of land.

7 The factors that make Māori freehold land “different” relate to its different tenure arrangements, the restrictions on alienability, and the fact much of it cannot be put to economic use.

8 As a general rule, Māori freehold land is liable for rates as if it were general land. There are, however, certain unique requirements for the assessment and enforcement of rates on Māori freehold land, and a requirement to have a policy on the remission and postponement of rates on Maori freehold land.

9 The two major differences in the enforcement provisions between Māori freehold land and general land are:

· Māori freehold land cannot be sold for unpaid rates

· Unpaid rates generally have to be recovered through the charging order process in the Māori Land Court system. There is a minimum timeframe and minimum amount of rates required to access this process.

10 Each local authority must have a policy covering remission and postponement of rates on Māori freehold land.

Remission and Postponement of Rates

11 The Council’s existing policy, as stated in the 2015/16-2024/25 Long Term Plan for remission of rates for Māori freehold land is that there is no specific policy; however other Council rates remission policies may apply. The same policy is in place for the postponement of rates for Māori freehold land.

12 Provided that the Council can demonstrate it has considered the objectives and criteria of schedule 11 of the Local Government Act 2002 (LGA), a policy of no remissions and postponements is in accordance with both the letter and spirit of the legislation.

13 The objectives to be considered are:

· Supporting the use of the land by the owners for traditional purposes

· Recognising and supporting the relationship of Māori and their culture and traditions with their ancestral lands

· Avoiding further alienation of Māori freehold land

· Facilitating any wish of the owners to develop the land further for economic use

· Recognising and taking account of the presence of waahi tapu that may affect the use of the land for other purposes

· Recognising and taking account of the importance of the land in providing economic use

· Recognising and taking account of the importance of the land in providing economic and infrastructure support for marae and associated papakainga housing (whether on the land or elsewhere)

· Recognising and taking account of the importance of the land for community goals relating to

· The preservation of the natural character of the coastal environment

· The protection of outstanding natural features

· The protection of significant indigenous vegetation and significant habitats of indigenous fauna

· Recognising the level of community services provided to the land and its occupiers, and

· Recognising matters relating to the physical accessibility of the land.

14 The Council must consider:

· The desirability and importance of the above objectives

· Whether, and to what extent, the attainment of any of these objectives could be prejudicially affected if there is no remission of rates or postponement of the requirement to pay rates on Māori freehold land

· Whether, and to what extent, the attainment of any of these objectives is likely to be facilitated by the remission of rates or postponement of the requirement to pay rates on Māori freehold land, and

· The extent to which different criteria and conditions for rates relief may contribute to different objectives.

DISCUSSION

Ngāi Tahu Māori Law Centre Submission

15 The submission by the Ngai Tahu Māori Law Centre (attached) suggests that while the current policy is compliant with the LGA, the lack of a specific remission policy is having a detrimental effect on the potential rates the Council could be collecting from Māori Freehold land, and that the rates currently being charged are hindering the development and utilisation of some of the land.

16 They stressed that they are not requesting a blanket remission of rates on all Māori freehold land as some of this land is developed, being used and therefore should be responsible for the payment of rates, but rather that remissions be applied, on a case-by-case basis for land blocks where funds cannot be generated to pay rates from working the land itself, and that meet specific criteria.

17 The submission stated that listing Māori land as ‘abandoned’ is highly insensitive, and does not show adequate respect or consideration to the nature of Māori freehold land.

Dunedin City Council Māori Freehold Land

18 Historically, the assessment and enforcement of rates on Māori freehold land has not been an issue for this Council.

19 Dunedin City does not have a significant amount of Māori freehold land. There are currently more than 55,000 rateable properties in the Dunedin City Council’s rating area.

20 The Council doesn’t have a list of properties classified as Māori freehold land. However a search of the legal description in the property database for any reference to ‘Māori Land’ (ML) identified 261 properties. Reference in the legal description to ML means the property was originally surveyed as Māori land. It does not mean that it is still Māori land because it could have been passed into private ownership. Without a title search on the 261 properties we cannot be certain how many are Māori land and/or how many are Māori freehold land.

21 The properties identified with ML in the legal description are summarised in the table below. The table shows Māori land, non-rateable Māori land, Māori land considered ‘abandoned’ for rating purposes and ‘low value’ Māori land.

	Number of Properties	Rates 2015/16	Capital Value
Māori Land	193	306,647	70,494,600
Māori Land - Non-rateable	36	0	18,176,450
Māori Land - ‘Abandoned’	31	16,900	2,844,300
Māori Land - Low Value	1	7	2,950
Total	261	323,555	91,518,300

Non-rateable Māori Land

22 Schedule 1 of the LGRA defines certain Māori land as non-rateable. This land includes land that:

· Is Māori customary land

· Is used for a Marae or meeting place

· Has a meeting house erected

· Is non rateable by virtue of an order of the Council by the Governor General

This land is non-rateable for all rates except those rates set solely for water supply, sewage disposal or waste collection.

Abandoned Land

23 Where ownership of any land is not certain and the land appears to be unoccupied, or “abandoned”, the annual rates are written off. This is the case with all properties that the Council considers “abandoned”. There are approximately 118 abandoned properties in Dunedin city where rates of approximately $27,000 are written off each year because the ownership is not certain and the properties are not occupied. In the 2015/16 year, 31 of these properties were Māori land.

24 “Abandoned land” is any rating unit on which rates have not been paid for three years or more, and where the ratepayer:

· Is unknown, or

· Cannot be found after due inquiry and has no known agent, or

· Is deceased and has no known agent, or

· Has given notice that they have abandoned the land or intend to abandon the land.

25 Local authorities can sell abandoned land. They cannot sell abandoned Māori freehold land.

26 While the treatment of Māori land properties as abandoned, in most cases, is appropriate and practical, an instance has been highlighted to the Council where it was not an appropriate solution and, as the submission from the Ngāi Tahu Māori Law Centre highlighted, a different remission policy could be more appropriate.

Low Value Rates

27 Rates classified as ‘low value’ are written off where the amount of rates levied is less than the cost of debt collection. There are approximately 60 low value properties in Dunedin city where rates of approximately $350 are written off each year because the cost of collection of the rates exceeds the debt. In the 2015/16 year, 1 of these properties was Māori land.

Other Remission Policies

28 In addition to the remission and postponement policies on Māori freehold land, the Council has the following policies:

· Remission of rates for extreme financial hardship

· Postponement of rates for extreme financial hardship

· Remission of penalties

· Remission for certain targeted rates on farmland

· Remission for certain targeted rates on farmland and commercial land used by the same ratepayer as a single entity

· Remission of rates on land voluntarily protected for conservation purposes

· Remission of rates following a natural calamity.

Consultation

29 Consultation on any change to the remission policy on Maori freehold land will be undertaken with key stakeholders. This will include local iwi via the Maori Participation Working Party, Kāi Tahu ki Otago Limited and the Ngāi Tahu Māori Law Centre.

30 A draft policy could be developed with feedback from these stakeholders and the Finance Committee. A draft policy could then be presented to the incoming Council later in the year for their consideration and then formally approved for consultation during the January 2017 Annual Plan Council meeting.

31 A draft policy could be consulted on concurrently with the 2017/18 Annual Plan consultation.

OPTIONS

Option One

32 The Council could develop and implement a comprehensive policy allowing for the remission of rates for Māori Freehold land, on a case-by-case basis, under appropriate circumstances.

Advantages

· A specific policy allowing for remission of rates owing could create scope for some Māori freehold land owners to develop or utilise the land in question, meaning it could eventually become usable and able to pay rates.

· Clear policy and criteria would help remove any doubt on what could be remitted.

· Remission of rates could end the need for land to be classed as ‘abandoned,’ when rates are unable to be paid – which is of cultural significance for Māori freehold land owners.

Disadvantages

· Additional administration – application for remission will require annual consideration on a case by case basis.

Option Two – Status Quo

33 Maintain the current policy regarding remission of rates on Māori Freehold land, which is that there is no specific policy; however other Council rates remission policies may apply.

Advantages

· Administrative requirements are unchanged.

Disadvantages

· The current policy is not specific enough to help meet the needs of some Māori freehold land owners.

NEXT STEPS

34 If the Finance Committee agree to develop a revised policy on the remission of rates on Māori freehold land in consultation with key stakeholders, a draft policy could be developed and provided to the new Council to consider later in the year.

Signatories

Author:	Carolyn Allan - Senior Management Accountant
Authoriser:	Grant McKenzie - Group Chief Financial Officer

Attachments

	Title	Page
a	Submission from the Ngai Tahu Māori Law Centre during consultation on the 2016/17 draft Annual Plan	36

SUMMARY OF CONSIDERATIONS

Fit with purpose of Local Government

This decision/report/proposal enables democratic local decision making and action by, and on behalf of communities by considering a different approach to unpaid rates on Māori freehold land.

Fit with strategic framework

	Contributes	Detracts	Not applicable
Social Wellbeing Strategy	☒	☐	☐
Economic Development Strategy	☒	☐	☐
Environment Strategy	☒	☐	☐
Arts and Culture Strategy	☐	☐	☒
3 Waters Strategy	☐	☐	☒
Spatial Plan	☒	☐	☐
Integrated Transport Strategy	☐	☐	☒
Parks and Recreation Strategy	☐	☐	☒
Other strategic projects/policies/plans	☒	☐	☐

Aspects of a draft policy may touch on the strategies selected including the Revenue and Financing Policies.

Māori Impact Statement

Consultation will be undertaken with key stakeholders including local iwi via the Maori Participation Working Party, Kāi Tahu ki Otago Limited and the Ngāi Tahu Māori Law Centre.

Sustainability

There are no implications for sustainability.

LTP/Annual Plan / Financial Strategy /Infrastructure Strategy

If a revised policy is developed it could be consulted on concurrently with the 2017/18 Annual Plan.

Financial considerations

There are no financial impacts at this stage.

Significance

The significance of this decision is low.

Engagement – external

There has been no external engagement at this stage.

Engagement - internal

Advice and information has been sought relevant departments.

Risks: Legal / Health and Safety etc.

There are no identified legal or health and safety risks.

Conflict of Interest

There are no known conflicts of interest.

Community Boards

There are no known impacts for Community Boards at this stage.

Finance Committee

18 July 2016

Part B Reports

Rates Rebate - Occupational Right Agreements

Department: Finance

EXECUTIVE SUMMARY

1 The Council has requested a report on the provision of a rates rebate for residents of retirement villages whose property ownership is governed by an "Occupational Right Agreement (ORA)" or "Licence to Occupy Agreement (LTO)".

2 The report identifies the potential pool of residents who may seek to apply for this rebate based on a survey of the affected retirement villages, along with estimated costings of the proposal.

3 A private members bill related to this topic has been developed and is awaiting its first reading in parliament.

1 RECOMMENDATIONS

That the Committee:

a) Notes the Rates Rebate – Occupational Right Agreements Report and that an update on the Private Members Bill will be provided to the incoming Council.

BACKGROUND

4 The Council received submissions from retirement villages, local members of parliament, Grey Power Otago and individual retirement village residents as part of the 2016/17 Annual Plan consultation. The submitters requested a change to the Rates Remission Policy for residents of retirement villages who would qualify for the central government rates rebate scheme, except they occupy their property under an Occupation Right Agreement. As a result of this and other submissions, the Council requested that reports be prepared for the 18 July 2016 Finance Committee as per the following resolution:

"Moved (Cr Richard Thomson/Cr Hilary Calvert):

That the Finance Committee seeks reports for its meeting on 18 July 2016 on:

a) Rating adjustment possibilities for:

· retirement village licence to occupy houses;

· Maori freehold land

b) Consideration of rating policies for residential properties being used for short term commercial rental and/or multiple studio rooms.

Motion carried (AP/2016/017)"

5 This report discusses rating adjustment possibilities for retirement village licence to occupy houses.

Rates Rebate Scheme

6 The central government offers a rates rebate scheme to low income households. The scheme is administered by the Department of Internal Affairs (DIA) which offers a maximum rebate of $610 for the 2015/16 and 2016/17 rating years.

7 Applications to the scheme are administered by Council, with the rebate assistance coming in the form of a deduction on the rates bill. This rebate or deduction is then reimbursed to Council by the DIA.

8 The rebate scheme is only available where the resident is the owner or lessee of the rating unit i.e. the resident must be directly liable for the payment of local authority rates and hence the residents name must appear on the rate account. Other low income households that have tenancy agreements or a right to occupy the property but are not the identified ratepayer are excluded from the scheme. This is the case even if the occupants are responsible for paying the rates through the terms of their occupancy agreement.

9 This is a particular issue for retirement villages where the property ownership is held under an occupational rights or licence to occupy agreement. Residents under these arrangements cannot access the rebate scheme as they would if ownership was via full title to the property.

10 The long term solution to this issue would be to redefine ‘ratepayer’ in the legislation. In the interim a number of Councils including Auckland City, Thames Coromandel District, New Plymouth District and Kapiti District have implemented rebate schemes for retirement villages operating under the occupancy right arrangements, with the available rebate being a direct cost to Council.

11 A private members bill addressing this issue has been developed and is awaiting first reading in parliament. The general policy statement from this bill outlines the key issue as shown below:

a) “The rates rebate scheme was introduced in 1973 to allow ratepayers of residential properties who are on low incomes to receive a rebate on their rates. This was before the expansion of retirement villages and occupation right agreements (ORAs). Residents of retirement villages with ORAs pay rates but, in most circumstances, pay indirectly (i.e. to the retirement village owner) rather than directly to the local authority. Under the Rates Rebate Act 1973, these residents are not entitled to a rates rebate. It is this anomaly that this Bill addresses.”

b) “Some local authorities have changed their rating practice so that individual residents with ORAs are billed directly for their rates. In these instances, the residents are entitled to apply for a rates rebate. This amendment would ensure that, regardless of the billing practice of the local authority, residents are recognised as paying rates, and are therefore entitled to apply for a rates rebate.”

12 Clause 4 of the Rates Rebate (Retirement Village Residents) Amendment Bill proposes replacing the definition of ‘ratepayer’ with one that recognises as ratepayers not only those persons defined as ratepayers under the Local Government (Rating) Act 2002, but also those residents of retirement villages who pay rates, directly or indirectly, in connection with their occupation right agreements.

DISCUSSION

13 A survey was conducted of retirement villages within Dunedin City. Five villages were identified and contact was made to obtain the number of dwellings, type of dwellings and the property rights for each dwelling.

14 The survey was conducted by resident Diane Carnie and her assistance has been greatly appreciated.

15 The following table summarises the number of dwellings in each of the property categories, i.e. the number of townhouses, apartments, unit titled and ORAs.

Retirement Village	Townhouses	Apartments	Unit Titled	ORAs
Brooklands	135		49	86
Chatsford	187	81	96	172
Frances Hodgkins		74	48	26
Summerset	61	40		101
Yvette Williams		32		32
Total	383	227	193	417

16 The following table provides an analysis of the potential direct cost to Council if they were to adopt and hence fund a rebate scheme for ORA or LTO residents.

Retirement Village	ORAs #	Rates Rebate Maximum $	Rates Rebate Likely Scenario $
Brooklands	86	52,460	18,361
Chatsford	172	104,920	36,722
Frances Hodgkins	26	15,860	5,551
Summerset	101	61,610	21,564
Yvette Williams	32	19,520	6,832
Total	417	$254,370	$89,030
Cost to Council (excl GST)		$221,191	$77,417
Full Rebate (2015/16)		$610	$610
Percentage Eligible		100%	35%

17 The table shows the maximum rebate if all 417 ORA dwellings received the full $610 rebate. This is an unlikely scenario due to the other rates rebate scheme restrictions. The table also shows a more likely scenario based on an assumption that 35% of the 410 dwellings would be eligible for the rates rebate. The cost of this scenario is $77,417.

18 Note that there would also be an additional administrative cost to introduce a Council funded rates rebate scheme. While it is difficult to estimate, if we assumed 1 hour per rebate and an hourly rate of $40 this would equate to a cost of between $6k and $17k.

19 The actual cost would be dependent on the level of applications to the scheme and whether or not the processing commitment can be met with current levels of resourcing. The Council currently engages temporary staffing to deal with the applications made to the DIA funded rebate programme.

Development of a new Remission Policy

20 Option one below discusses the development of a new remission policy specifically for the provision of rates rebates for retirement village ORA or LTO residents.

21 To be eligible for the remission the following criteria would need to be meet:

a) Be a resident of an approved retirement village (i.e. the five identified above) under an occupational right or licence to occupy agreement

b) Reside in a unit or apartment that is identified by the Dunedin City Council as a separately used or inhabited part of the retirement village to which separate rate charges are applied

c) Have resided on the property at the beginning of the rating year (1 July)

d) Be an individual, rather than an organisation or trust

e) Only one application per unit or apartment would be accepted.

22 In terms of the conditions for granting the rebate this would be in line with the criteria used by the DIA including reference to the rates applicable to the property, the applicants gross household earnings, and the rebate thresholds set by the DIA.

23 The rebate would be made on the consolidated rate account for the retirement village, who would then have the responsibility to pass back to the resident concerned – in line with the current process used for these villages.

Financial Implications

24 The budget estimate for the implementation of the likely scenario shown in paragraph 15 is $77,417. These costs, along with any administration costs are unbudgeted.

25 If the Council approved a new remission policy for this purpose, in the 2016/17 year this expenditure would need to be funded from savings elsewhere and/or reprioritised budgets. A specific budget would need to be provided for in the draft 2017/18 budget.

Consultation

26 A new remission policy can be developed at any time. Consultation does not require a special consultative procedure, however it does require consultation with affected parties where access to the relevant information is provided along with the opportunity to present their views to the Council. Consultation could be initiated via direct correspondence with the retirement villages and other interested parties.

OPTIONS

Option One

27 Develop a new rates remission policy to include a rates rebate/remission for retirement village residents where property ownership is through an occupancy right or licence to occupy agreement. In this option the rebate would be offered in line with the current criteria used for the DIA funded rebate programme.

Advantages

· Provides a temporary solution to the anomaly in the legislation that prevents this form of property ownership accessing the current low income rates rebate scheme.

Disadvantages

· There would be a direct cost to Council in implementing the rebate.

Option Two – Status Quo

28 In this option the Council would not introduce a Council funded rebate scheme for the affected residents of retirement villages but would revisit the options when the outcome of the private members bill is known.

Advantages

· There would be no additional cost to Council.

Disadvantages

· The legislative anomaly that prevents this form of property ownership accessing the current low income rates rebate scheme would remain. This anomaly would not be addressed in this option, until/unless legislative change occurs.

NEXT STEPS

29 An update on the private members bill will be provided to the incoming Council.

30 The recommended option is to wait until the outcome of the private members bill is known. An update would then be provided to the Finance Committee for consideration.

Signatories

Author:

Carolyn Allan - Senior Management Accountant

Gavin Logie - Financial Controller

Authoriser:

Grant McKenzie - Group Chief Financial Officer

Attachments

There are no attachments for this report.

SUMMARY OF CONSIDERATIONS

Fit with purpose of Local Government

The proposal to offer a rates rebate/remission to residents in retirement villages relates to providing a public service and it is considered good-quality and cost-effective. Adoption of option one would seek to address an anomaly in the current rating legislation related to the ownership model used by retirement villages and how that impacts access to the current government funded rebate scheme.

Fit with strategic framework

	Contributes	Detracts	Not applicable
Social Wellbeing Strategy	l☒	☐	☐
Economic Development Strategy	☐	☐	☒
Environment Strategy	☐	☐	☒
Arts and Culture Strategy	☐	☐	☒
3 Waters Strategy	☐	☐	☒
Spatial Plan	☐	☐	☒
Integrated Transport Strategy	☐	☐	☒
Parks and Recreation Strategy	☐	☐	☒
Other strategic projects/policies/plans	☒	☐	☐

A rates rebate/remission to residents in retirement villages would have relevance to the Revenue and Financing Policies and the Social Wellbeing Strategy.

Māori Impact Statement

There are no known impacts for tangata whenua.

Sustainability

There are no implications for sustainability.

LTP/Annual Plan / Financial Strategy /Infrastructure Strategy

If a rebate scheme is adopted there will be an on-going annual cost to Council until the legislation is updated to recognise the use of occupational right agreements for retirement villages.

Financial considerations

If a rebate scheme is adopted there will be an on-going annual cost to Council until the legislation is updated to recognise the use of occupational rights agreements for retirement villages.

Significance

The significance of this decision is low.

Engagement – external

In preparing this report, Council through a third party has contacted retirement villages where the property right of residents is covered by an occupational right or licence to occupy agreement.

In addition submissions were made through the 2016/17 annual plan consultation process. Submitters included: Retirement Villages, local MPs, Grey Power Otago and individual retirement village residents.

Engagement - internal

There has been no internal engagement on this matter.

Risks: Legal / Health and Safety etc.

There are no known legal and/or health and safety risks.

Conflict of Interest

There are no identified conflicts of interest.

Community Boards

There are no known implications for Community Boards.

Chairperson	Cr Richard Thomson
Deputy Chairperson	Cr Hilary Calvert
Members	Cr David Benson-Pope	Cr John Bezett
	Mayor Dave Cull	Cr Doug Hall
	Cr Aaron Hawkins	Cr Mike Lord
	Cr Jinty MacTavish	Cr Andrew Noone
	Cr Neville Peat	Cr Chris Staynes
	Cr Lee Vandervis	Cr Andrew Whiley
	Cr Kate Wilson