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COUNCIL

CCC proposes average rate rise just over five per cent
Wednesday 5 March 2008, 5:29PM
By Christchurch City Council
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CHRISTCHURCH

The Christchurch City Council is proposing an average residential rate rise of just over five per cent in its draft Annual Plan 2008/09 which will be released for public consultation on 17 March.


The proposed rate increase includes funding a new kerbside collection system which will be funded partly in the general rate and partly by a fixed annual charge of $82.


Christchurch Mayor Bob Parker said he was delighted the Council was able to keep the proposed increase to around five per cent.


“This is half the rate increase signalled in the 2006/-16 Long Term Council Community Plan. The Council has been very clear that rate increases were to be kept down to that five per cent level.” The LTCCP had predicted a 9.14% increase with a further 2.8% for the collection scheme.


The 2008/09 Plan signals an average 5.1% rate increase for residential properties (which includes the cost of the new three bin collection system), 8.34% average increase for businesses (plus an $82 annual charge for the collection system where it operates), and an average 3.1% increase for rural properties (which includes the cost of the new collection system).


Some rates will increase above the average while others will be below. This depends on the capital value increase of each property compared to the average.


The commercial sector rate increase is higher than the residential because following the 2007 revaluation of the city, the increase in valuations for the commercial sector was by comparison on average much higher. Also, the business sector is apportioned a higher proportion of roading costs, which continues to be an area affected by large cost increases.


The average house in Christchurch valued at $377,000 (this property was last year valued at $260,000 based on the 2004 valuation) will pay $1,362 a year in rates, compared with its rates bill last year of $1,255. This equates to about an extra $2 a week. Christchurch’s residential rates are still lower than any of New Zealand’s other major metropolitan areas.


Savings have been made on costs estimated in the LTCCP through a number of factors including increasing the dividend from Christchurch City Holdings Ltd ($3.5m), delaying sending biosolids to Kate Valley, reducing the amount paid in insurances ($1.4m) and a reduction in interest costs.


The biggest contributors to the rates increase are depreciation, staff costs, and inflation impact on capital works and contracts.


The Council is required to revalue its assets on a rolling three year basis. Last year streets were revalued, and this year it will be land and buildings. In both cases the increased value has been considerably higher than was anticipated. As part of the Annual Plan, depreciation (writing off the asset over its useful life) is provided for and if the revaluation is greater than planned, the resulting depreciation is greater. As a result, depreciation for the Annual Plan is projected to be $7.1million over the LTCCP.


The increase in maintenance contracts due to inflation was estimated in the LTCCP to be 2.9%. That estimate has since been lifted to 4.5%, with the impact on contracts estimated to be $7.6 million above the LTCCP. The change is because maintenance contracts are linked to the Construction Price Index rather than the Consumer Price Index.


The Construction Price Index measures price changes in the kinds of goods that councils buy (fuel, concrete, plant and machinery etc). These costs have gone up year on year for the past three years with many of these items going up considerably more than the Consumer Price Index which measures costs for things like clothing, food, and entertainment.


“These costs are out of the Council's control and are being experienced across New Zealand, and for that matter, the rest of the world,” Mr Parker said


Fifty five per cent of roading costs are applied against the business sector under the rating differential rules and so the increase in construction material and contract costs along with the impact of streets revaluation has resulted in a significantly higher increase in commercial rates over those in the residential sector.


“We will know we will be judged on how we provided the services that our residents value, while at the same time making sure that rate increases are affordable,” Mr Parker said.


“As a Council we are focussed on providing services in an affordable and innovative manner. We are focussing particularly on the basics – roading, water, sewerage, rubbish. Council services should function well and be accessible to our citizens.”


What is the Annual Plan?

The Annual Plan is how the Council updates the LTCCP forecast for the fiscal year commencing 1 July using the most up-to-date financial and project information available. The LTCCP shows what the Council will be doing over the 10-year period of the plan, why it is going to do these things, and what the costs will be. 



Rates and revaluation


The rates base for Christchurch is relative capital values. Properties that are worth more pay proportionately more of the required rate take


The city was revalued in 2007 at $72 billion, up from $50 billion in 2004. This does not mean the Council will charge more rates as a result of revaluation. The capital values drive the distribution of those rates


Rates in total will only increase if and as the cost to run Council services increases. The revaluation in itself does not generate one extra dollar of rates for the Council


Property revaluations have affected many landowners ‘ rates. The revaluation reflects property value movements which are set by market sales.


The rate required to pay for the 2008-09 Annual Plan has increased over the 2007-08 Annual Plan by $23 million (plus GST)



Previously the LTCCP had predicted a 9.14% increase with a further 2.8% for the collection scheme.


The combined effect of both revaluation and rates impact for some are greater than the average. In those cases the increase in capital value is the main driver.


In itself a higher valuation does not mean a corresponding hike in rates. On average city values rose by about 50 per cent, but no ratepayers face increases in that order.


Savings and Expenditure



The draft Annual Plan shows that increased dividends, a trimming of costs, and full recovery of costs in commercial services, mean the Council has been able to keep the rate increase down


The result is that the average residential property owner will be looking at a rate increase of around 5%. This is an average figure; some properties with lower-than-average valuations will have a lower-than-average rates increase, whereas higher valuation properties will have a higher-than-average increase.


The 2008/09 Plan signals an average 5.1% rate increase for residential properties (which includes the cost of the three bin collection system), 8.34% average increase for businesses plus an $82 annual charge for the collection system where it operates, and an average 3.1% increase (which includes the cost of the new collection system) for rural properties.


The commercial sector rate increase is considerable more than the residential because the revaluation for the commercial sector was by comparison on average much higher, and because the 55% of roading costs are applied against the business sector, which was an area of major increased costs.


The average house in Christchurch valued at $377,000 will pay $1362 a year in rates, compared with its rates bill last year of $1255. This equates to about an extra $2 a week. Christchurch’s rates are still lower than any of New Zealand’s other major metropolitan areas.


Savings have been made on costs estimated in the LTCCP through a number of factors including increasing the dividend from Christchurch City Holdings Ltd ($3.5m), delaying sending biosolids to Kate Valley, reducing the amount paid in insurances ($1.4m) and a reduction in interest costs.


The biggest contributors to the rates increase are depreciation, staff costs, and inflation impact on capital works and contracts.


The Council is required to revalue its assets on a rolling three year basis. Last year streets were revalued, and this year it will be land and buildings. In both cases the increased value has been considerably higher than was anticipated. As part of the Annual Plan, depreciation (writing off the asset over its useful life) is provided for and if the revaluation is greater than planned, the resulting depreciation is greater. As a result, depreciation for the Annual Plan is projected to be $7.1million over the LTCCP.


The increase in maintenance contracts due to inflation was estimated in the LTCCP to be 2.9%. That estimate has since been lifted to 4.5%, with the incremental impact on contracts estimated to be $7.6 million above the LTCCP. The change is because maintenance contracts are linked to the Construction Price Index rather than the Consumer Price Index.


The Construction Price Index measures price changes in the kinds of goods that councils buy (fuel, concrete, plant and machinery etc). These costs have gone up year on year for the past three years with many of these items going up considerably more than the Consumer Price Index which measures costs for things like clothing, food, and entertainment.


Fifty five per cent of roading costs are applied against the business sector under the rating differential rules and so the increase in construction material and contract costs along with the impact of streets revaluation has resulted in a significantly higher increase in commercial rates over those in the residential sector.


Of increased staffing costs, $1.5m is associated to staffing required for the new Jellie Park complex becoming operational in 08/09, while most of the balance is associated with the continuing market pressures around the labour force.



The Annual Plan is how the Council updates the LTCCP forecast for the fiscal year commencing 1 July using the most up-to-date financial and project information available. The LTCCP shows what the Council will be doing over the 10-year period of the plan, why it is going to do these things, and what the costs will be.




Key milestones for the Draft Annual Plan 2008/09


Council finalises the Draft 2008/09 Annual Plan 4 and 5 March
Draft Annual Plan is released for consultation from 17 March – 21 April 2008
Draft Annual Plan hearings and Council deliberations are proposed for 12 May – 16 2008
Council is expected to adopt the Annual Plan/Amendments to the 2006-16 LTCCP on 25 June 2008






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