Auckland Council warns of 8.5% rates hike and $480 mln of debt due to Govt changes on development contributions

The muppets threatening us with higher debt and rates should stop wasting money on absolute tripe.

They've recently put up a small artificial beach close to my office in the Viaduct - they're "trying something new" apparently. No doubt it cost 250 rate payers their entire contribution for the year.

Cut the crap, deliver the basics please Auckland council.

Question : If the current very high development contributions are "essential" and will have to be made up via rate hikes, how did previous councils survive when development contributions were a fraction of what they are now?



Does the council not realise that every home built provides another permanent income stream for them via rates. The value of that income stream is huge and should more than cover the changes to the development contributions. Unless the council has spent so irresponsibly that they are already relying on rates from houses not yet built to balance the books?

It looks like a good old fashioned supermarket tantrum to me. No longer can they misdirect funds to their pet vote winning and backscratching photo-ops or pad the ranks with more very educated clipboard carriers while introducing levies,charges, fees on those who dare to trade on their turf.

Government sees spoiled brat and says "NO", brat convulses and cries for maximum effect.

Tell them to cut their cloth accordingly, and that they need to get rid of the fat .

All tiers of Government need to live within their means like the rest of us ordinary Kiwis.

I was astonished to see how may civil servants in Auckland City employ earn over $100k per annum, that in itself in an inordinate sum for an individual to earn no matter what his or her proffession , let alone a public servant in sheltered employment .

Expecting ratepayers to bail-out or fund  the largesse of the Auckland City council is quite unacceptable .

This confirms my long-held suspicion that councils have been misusing development contributions to subsidise spending that should come out of the general rates pool.  

Development contributions are a soft target as the number of people directly affected is smaller than the overall number of ratepayers.  When you add $40,000 of development contributions (which I understand is standard in Auckland) on top of already inflated section prices and the infrastructure costs of development, it is not surprising housing is so expensive.  

Development contributions must rank alongside urban growth boundaries as one of the biggest factors holding back housing development in New Zealand.  They also constitute a massive transfer of wealth from the young to those who owned houses before their introduction. 

Go back in my comments ON THIS SITE  for the past three years , and you will have seen me bangiing on endlessly aboput this DC RORT by Auckland City  Council and its fore-runners WCC, MCC AND NSCC

Dont we ever learn from recent events ? Look at what happened in Mangawhai to see what happens when a Local Authority runs away with itself with grandioise plans and extravagant expenditure  .

It all collapses in a terrible mess .

Now, if only there was some way of not letting the same self serving or inept people from screwing you over in perpetuity, Hmmmmmm.....

I wryly noted this exact sequence, around the time the first proposals to reel in the Coincils (Freudian slip, Councils of course), was being talked about.

It's toys being thrown from cots, and this reporting also highlights one of the Eternal Trooths:

Hell hath no fury like a bureaucarcy as wot's getting its funding throttled.

Bring it on.  Councils have had their wicked way with costs (amongst other things) for the better part of a decade, ever since the Sandra Lee LG Act 2002 amendment, gave them the 'Four Well-beings' - a mandate to spend whatever it takes on whatever ya likes.  There's literally no human activity that couldn't be fitted nicely under one of Infrastructural, Economic, Social or Cultural.

Well, That punchbowl has been removed from the party.

And the partygoerz have just started to wake up (LG types are not the owners of the fastest neurons on the block, generalising magnificently).

And as for the argument that 'extra people cause extra costs', thats anything but a linear relationship.

It depends on a number of reasonably hard-to-establish parameters:

• how much spare capacity the said infrasttructure has
• how close (in a congested facility) to the 'knee of the curve' current usage is (not the same as 'capacity' - read up on queuing theory before ya take me to task on this one)
• what ratio of fixed to variable costs
• what effective useful life said facility has left
• What current maintenance regimes are in place
• what absolute values of costs, depreciation etc exist for said facility
• what LTP plans, capex, changes or other events could affect any of the above already.

My take on much infrastructure is that it is generally well-specified when built - engineers conservatism - and has only a distant, step-function relationship to its immediate catchment. So pinging each extra household, $XXX, bears little to no specific relationship to either the actual eventual use of the $, or the capacity of the infrastructure.

But the revenue stream certainly does get spent, and the $XXX does certainly transmit into land, house+land, and general suburb values.

After all, if ACC tripled the DC charges, on the grounds that 'rich prick developers pay them, not ratepayers', think how long that would take to add to the value of Your leetle castle, just around the corner.  Woo Hoo - instant CG.  So are You gonna vote that down??

Thought not.

So ignore the fat-cat-Council-stafferista.  And applaud a strong-arm approach by Gubmint.  For once.  And note whose arm is doing the strongering. Yup, the Westie.

I am going to go against the grain. I think the whole development contribution system is a nonsense. It should be abolished. If the government really wanted to deliver affordable housing they would have limited developers obligation to providing the amentities within the new urban area only. They would give another source of ongoing revenue (tax) to Councils in exchange. So local taxpayers can pay for new infrastructure from ongoing tax revenue.

Further Councils should be legally obligated and their performance measured by their ability to provide new areas of affordable housing and the means to efficiently travel to/from these areas. See Alain Bertaud for a discussion of this. The core function of cities is to provide a large pool of mobile workers. It is local government's responsibility to create the public infrastructure for workers to affordably mobilise from home to work.

If we fail to do this our urban economies will gradually collaspe.

Restricted urban growth boundaries and development contributions are linked, with the common denominator being Council monopoly that enables them to keep raising revenue (which are a cost to us) hidden under the umbrella of rising prices.

 It is in their best interest to keep prices up as most costs are rated as a % of value.

While they are throwing the Supermarket tantrum, they already have a Plan B, and are planning to implement other revenue gathering measures like Shared Value Uplift Zoning. Council have far more experience at how to manipulate things, and we pay them to sit around tables to discuss ways on how to game the system. 

First rule of thumb in any bureaucratic organisation, is do not do anything that would effect your employment, second rule of thumb is to do things that secure your employment, third rule of thumb is to do things that increase your standing and income in said organisation.

Notice that the word customer is never mentioned.

This much quoted Adam Smith quote sums it up beautifully,

 People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices…. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.

The ratepayer is only necessary as to the money they are obliged to pay. We are no more than cash cows on the council dairy farm.

The reality is that our local government cannot afford to provide the infrastructure that their residents need.

Even succesful places like Ashburto/Tinwaldn that has grown strongly on the back of the Canterbury dairy farm conversion boom cannot afford a new bridge and SH1 bypass that the townships desperately need. Anyone who has travelled the 10+ km stopping at lights and going 50 km/hr through Ashvegas knows it is just wrong.

NZTA was therefore willing to pay a projected 56 per cent of the cost of the new bridge, leaving ratepayers to pay between $12 million to $15m.

Rawlinson said the bridge action group was not against a second bridge being built, but wanted the NZTA to fund the entire project and another route with fewer effects on residents to be chosen.

"There is no simple answer, and I know a lot of people that don't know anything about it might look at that and think, ‘Well why do they object to it', but it's just that they could do it a lot better,"  Ashburtons second bridge battle

The whole system of our local government needs to be reformed.

May the select committee present the middle finger to Auckland Council.

I am completely in favour of development contributions in principle but they have become too much of a slush fund for staff to enjoy outside the scrutiny of elected members. So I agree with the general direction of the proposed legislation in constraining the purposes for which DC's can be collected and applied.

There is nothing wrong with DC's in principle. You already pay for a huge amount of public infrastructure in your section price apart from the DC. It's the developer who forms the street, lays water pipes gives up a section or two for a neighbourhood park. You pay for all that and then the developer hands the lot over to the local council. DC's contribute to infrastructure upgrades outside the development itself. Also as a matter of principle remember that when you build outside a serviced area (i.e. a farm) you have to pay upfront for water, sewer, drainage, driveway etc. You will get no change out of $50K for water and sewer alone.

When it's bigger water mains or a wider collector road to cope with the effects of the new dwellings it's really obvious that the spend is growth related so a DC makes some sense. If i read this bill right it seeks to stop the practice of collecting DC's to help fund library, aquatic centre, sports ground extensions. This is the right move for two reasons:

1. the gap between handing over the DC and seeing the new facilities can be quite long -  a decade or more. This is too long so the linkage between you building your new house and the need for a new library, say, becomes too weak; and

2. since December 2012 councils are supposed to be more sure about the need for future assets before they plan to build them. All councils have been a big fail so far in applying the new legislation. Councils would comply with this legislation much better if they did not collect DC's and deferred funding decisions until they reached the time they were thinking about the big spend. The future need for libraries, pools and parks in their current form is no longer as sure as it once was and councils can't just fly along on automatic pilot any more.

One final point. AC wants to have its cake and eat it too. It's very unlikely that they would spend anything on the dispute process if DC's were only collected for 3 waters and roads. The DC policies that all councils must put in their Long Term Plans are supposed to make the application of DC charges transparent and consistent. So as long as they comply with their own policies to collect DC's for visible growth-related projects who will dispute it?

AC's submission is a bit too whiny child for my liking.

Surely this all comes down to how we provide trunk infrastructure. Read Alain Bertaud below and Hugh or Kumbel or someone tell me how we will sensibly do this.

It is time for planners to abandon abstract objectives and to focus their efforts on two measurable outcomes that have always mattered since the growth of large cities during the 19th century’s industrial revolution: workers’ spatial mobility and housing affordability.

As a city develops, nothing is more important than maintaining mobility and housing affordability.

Mobility takes two forms: first, the ability to travel in less than an hour from one part of a city to another; and second, the ability to trade dwellings easily with low transactions costs.

Housing mobility allows households to move to the location that best maximize their welfare. Affordability is the ability for any urban household to be able to rent a dwelling for less than a 25% of its monthly income, or to buy one for less than about three time its yearly income.

The mobility and affordability objectives are tightly related. A residential location that only allows access to only a small segment of the job market in less than an hour commuting time has not much value to households, even if it is theoretically affordable.

Land use regulations and the availability of trunk infrastructure heavily constrain the supply of developable land. Planners, therefore, have a key role to play in ensuring an elastic supply of land by auditing land use regulations and by planning new trunk infrastructure that would allow the development of new areas or faster travel time to already built-up areas.

Kumbel - are you confirming that councils have a fund that this accumulated depreciation, over the years, is going into, eg a sinking fund, and none of this CAPEX is used for OPEX?

Of course none of us may be talking about the same thing. Just in case here is a handy guide to funding new infrastructure:

1. Conditions attached to a resource consent: engineering conditions require the developer to form roads, lay pipes etc to council standards within the boundaries of the development. When the development is signed off ownership of the infrastructure assets passes to the council. The costs of this work form part of the section price.

2. Financial Contributions are defined in the RMA as a way of mitigating the impacts of a development. FC's are specific to a development (i.e. "arbitrary"), negotiated by the parties and can probably be contested in court. There has to be a clear linkage ("nexus") between the development and the need for the remedial work. Typically the developer pays part and the council the rest and the developer can seek return of the contributions if the work is not carried out by the council within five years. Typically used to upgrade roads (roundabouts, traffic lights, sealing etc) just outside the development.

3. Development Contributions are defined in the LGA as a general levy on newly created lots to contribute to paying for capacity upgrades. The link between a specific development and the capacity projects is much weaker both in time and location. Typically used for utility networks and social infrastructure such as parks, sports facilities, libraries, museums, art galleries, aquatic centres. The charge is standardised and the workings for the charge must be published in the Long Term Plan. Draft LTP's are audited before they are released so both the formula and the nominated growth projects are independently checked. DC's can only be returned if a proposed development lapses.

And when these funds are not enough the rest comes from rates - directly or via debt.

All of these mechanisms can be and are appllied simultaneously and all are passed on to end buyers through the section price.

Kumbel: the LGA 2002: what does the following mean to YOU? I know what it means to me.

199 Basis on which development contributions may be required

(1) Development contributions may be required in relation to developments if the effect of the developments is to require new or additional assets or assets of increased capacity and, as a consequence, the territorial authority incurs capital expenditure to provide appropriately for—

(a) reserves:

(b) network infrastructure:

(c) community infrastructure.

(2) This section does not prevent a territorial authority from requiring a development contribution that is to be used to pay, in full or in part, for capital expenditure already incurred by the territorial authority in anticipation of the development.

204 Use of development contributions by territorial authority

(1) A development contribution—

(a) must be used for, or towards, the capital expenditure of the reserve, network infrastructure, or community infrastructure for which the contribution was required, which may also include the development of the reserve, network infrastructure, or community infrastructure; but

(b) must not be used for the maintenance of the reserve, network infrastructure, or community infrastructure.

209 Refund of money and return of land if development does not proceed

(1) A territorial authority must refund or return to the consent holder or to his or her personal representative a development contribution paid or land set aside under this subpart if—

(d) the territorial authority does not provide the reserve, network infrastructure, or community infrastructure for which the development contribution was required.

(End of LGA excerpts)

The term "nexus" is not used in the Act; you are correct about this; but surely you know this this term comes from the judicial guidance in the case in Neil Construction and Anors v North Shore City Council (2008)?  

A High Court Judge interpreted the relevant sections of the LGA2002 to mean what I am saying they mean, and came up with the term "nexus" to describe its intentions. 

Late Payment Fees are illegal an Austrlian Judge has ruled:

Telecom....... stop doing it

Big banks could be forced to refund more than $55 million to their customers, after the Federal Court found ANZ Bank had charged "extravagant, exorbitant and unconscionable" late payment fees on

credit cards.

The ruling also raises doubts about fees that telecommunications and utilities companies charge customers who fail to pay their accounts on time.

In a decision that could affect tens of thousands of customers, the Federal Court on Wednesday found late payment fees charged by the bank were illegal, while four other types of fee were legitimate.

Some 43,500 customers have challenged ANZ in a multimillion-dollar class action alleging certain fees were illegal because they exceeded the cost to the banks of customers overdrawing their accounts or missing repayments.

Justice Michelle Gordon ruled that most of the fees charged by the bank were legitimate, but its late payment fee of up to $35 was ''extravagant, exorbitant and unconscionable.''

The case against ANZ has broader ramifications because is being used as a template for a 185,000-strong class action against major lenders including the Commonwealth Bank, Westpac, NAB and Citi, which proponents say could be worth more than $220 million. It is being billed as the largest class action in Australian history.

The finding paves the way for customers to take action against any company with a late-payment regime, including telecommunications and energy providers.

It also throws out ANZ's six-year statute of limitations, meaning anyone who has ever been charged a late fee by ANZ can potentially now claim those fees back.

''Wherever there are other late payment regimes, they will need to be examined carefully,'' Maurice Blackburn's national head of class actions Andrew Watson said.

Mr Watson told customers to wait for the firm to assess the full implications of the decision before coming forward with new claims.

''There will be a significant amount of interest by those consumers in getting that money, which was unlawfully taken from them, back,'' he said.

''For years and years and years, their banks have been charging them these exorbitant fees.''

''We are now considering the ramifications of the decision.''

Gerard Brody, chief executive of the Consumer Action Law Centre, said companies charging late fees should examine whether they were at risk of breaking the law.

''Telcos especially should examine this judgment and determine whether their fees are similarly excessive, extravagant and unconscionable,'' he said.

Choice chief executive Alan Kirkland said energy companies should also question whether their fees are legal.

''Any business that relies on late payment fees as part of its business model needs to be very worried about this judgment,'' he said.

Both Telstra and Optus charge a flat late-payment fee of $15 on any bill worth $70. AGL and Origin Energy charge a late-payment fee of $14 and $12 respectively.

Telstra said on Wednesday that its late payment fee was ''cost recovery for Telstra as we incur large administration costs when our customers do not pay on time.''

''For example we send reminder notices, text messages and our call centre staff telephone our customers.''

Read more: http://www.smh.com.au/business/banking-and-finance/anz-late-payment-credit-card-fees-illegal-court-20140205-3205g.html#ixzz2sVIgq9eG

Now is the time to scrap the current development contributions regime; it conflicts, in part, with the LGA and there are better ways to achieve the same outcomes. We still need some form of capital contribution it just needs to work better than the current one.

 A thought experiment: I own my own active sewage system. Imagine I had won it in a raffle so it cost me nothing. My neighbor asks to connect to it and share all future costs 50/50. It turns out when she connects that the system can’t handle the load so we have to buy and install a larger model. I am annoyed not because she is getting something for nothing from my existing system but because, if she had not connected, the system would have lasted me for decades without having to spend the thousands for the upgrade. The reasons behind development contributions are no more complicated than that.

I was not persuaded that DC’s are in some way immoral or distortionary. In fact because they put all building whether rural or urban on the same footing they partially remove a distortion from the market. DC’s did not cause house price rises. DC’s did not fully kick in until July 1 2006 by which time the housing price bubble was well under way. Development is not a cost plus industry anyway; developers will charge what the market will bear and will exit if the numbers go against them. Houses prices are what they are because buyers are willing to pay those prices and, as has been noted in other posts, the market is currently clearing. When we see lots of developers going to the wall or lots of developments stalling at the RC stage then we will know there is a problem with input costs. So, it is not clear to me how elimination of DC’s will lead to lower section prices as opposed to windfall profits for developers.

So it’s OK to just carry on? No, not that either. The DC charge can include funding for projects up to ten years in the future. For some asset groups it’s just too long. The DC legislation does not require a strong connection between a specific development and a DC-funded project but I am uncomfortable when it gets too weak too. The government made an important change to the LGA late 2012 (which has been completely ignored by everyone) that required that infrastructure be “appropriate to present and anticipated future circumstances” (LGA s10(2)(c)). Looks like fluffy language but I believe it raises the decision-making bar higher for councils to do more than just put a proposal up for consultation. Under the DC regime there can be a 12 year gap between a staff member deciding to put a project on the DC list and it actually going into service. For some assets like libraries, pools, sports facilities there is no way you can say you know what is “appropriate” 12 years out.

The other major problem with DC’s is that they have acted as a relief valve for the pressure on rates. Over the last decade or so council input costs have risen way faster than consumer prices leading to rates rising faster than CPI – which does tend to get noticed. Waymad has eloquently noted that councillors only care about rates so will source as much revenue from other sources as they can to limit rates rises. While councils have had the relief valves of DC’s and debt they have not had to make the truly hard decisions. While there haven't been that many high-profile acts of lunacy (Dunedin Stadium) Cowboy’s note on how all the little bits of excess add up is absolutely right (guilty as charged). This is one reason why restricting costs is hard when that mentality is replicated across hundreds of accounts. Councils have reached the point where they have to face up to the decision to raise rates further, cut out unnecessary expenditure or start cutting back on services. A slightly generous DC regime helps them avoid the problems.

We still need a form of capital contribution it’s just a question of who provides it, how much and when it is paid. There is often a suggestion on this site that communities should subsidise/invest in newcomers because of the income stream they represent. Except that councils make no income off any ratepayers. Hold fire! Income is revenue minus expenses and councils aim to break even only. LGA s100 requires councils to set operating revenues at a level that matches operating expenses but I think they also interpret s100(2)(c) as meaning “but no more” so they don’t get any profit (=income) from ratepayers. This is what makes councils different from all other infrastructure providers (lines companies, ports, airports, telecoms companies) who cheerfully rack up profits off today’s customers to pay for tomorrow’s customers’ needs.

I would like to see DC’s broken up into multiple charges with different rules for the different asset groups:

The three waters are a no-brainer. There is a whole lot of statute covering them so there will never be a dispute over the need for them. Go back to connection charges but separate into the operational component and the capital contribution. Calculate and justify and use the capital component exactly the same way we do DC’s now.

Roading isn’t statutory but it’s not very discretionary either. Here I would take Brendon’s suggestion and increase government funding. Slight increase in the proportion of petrol tax that is currently returned to local government but ring-fenced into a DC-type account. Expenditure justified in the same way as DC’s now. Not all councils to be eligible – i.e. they would be the metropolitans and/or high growth areas. Rural councils are already heavily subsidised through NZTA.

Reserves are a bit trickier. I think a ward-based system could work so contributions would vary depending on where you live. Basically if there is massive development in one area you can collect contributions for new reserves but an infill in the centre of the city, say,  wouldn’t attract a charge.

I would also levy these charges at the time of occupation of a house and take them away from developers completely. This would greatly increase the transparency of the contribution.

Everything else – libraries, sports facilities, aquatic centres, art galleries, museums, council buildings, dog pounds, town centre upgrades etc. – is out. Councils have to make those decisions on their merits when they think a need has arisen. To conform to the amended LGA they need to do the research on current and future needs for the proposed asset at the time and make the decision in the full view of their community. What we don’t need is the kind of self-fulfilling prophecy that the DC regime encourages where a council collects money because they think they might need it and then “has” to spend the money because it’s there.

Kumbel: That resonates. Loud and clear. Most people do not understand the conssequences of your example of you new neighbour wanting to connect to your sewer system and overloading it, costing everyone in the neighbourhood

An indirect example of central decision making and social costs and the subsequent effect on previous lifestyle decisions and government generated cost increases, inflation, how you pay for their mistakes

Leading up to and culminating with the Black Saturday Fires in 2009, Melbourne had been going through a 15 year drought. Metropolitan Water supply was stressed, at a premium, the entire Metropolitan area was on stage 4 water restrictions, couldn't water your garden, wash your car, dont flush the toilets. Dont use water.

The boffins and many others agonised over solutions. Under pressure from green groups the state government vetoed establishing new and further potable water catchment areas. One of the main alternative areas of discussion was harvesting of storm water. The soils in Victoria are anhydrous which do not easily soak up and absorb natural rainwater. The run-off into streams and riverways is enormous. Much of the stormwater in the inner city and suburbs within a radius of 50 kilometers is discharged into Port Phillip Bay

Tests were conducted into the quality of the water from the suburbs to the east of Melbourne which discharges into the Yarra River which runs down through the CBD into the Bay. Those tests revealed there was an excessive content of pollution and ecoli from animal waste, from residents taking their pets out for their nightly latrine run.

It was estimated there is approximately 100 tonnes of amimal waste excreted every night on the latrine runs. In deference to the greens, it was decided to build a de-salination plant 100 kilometres to the south of Melbourne CBD at a place call Wonthaggi. Note: Wonthaggi is down on the southern coast on the southern ocean. Doesn't use the sea-water from the Bay. Of course.

The initial estimated cost to build was $3 billion

The cost of which would be borne by all ratepayers in their water rates

All ratepayers throughout Victoria, not just Melbourne Metro residents and users.

The construction of the plant went over time and over budget

It has now been completed

It has never been used

The final cost of the plant is now $30 billion. That's Capital cost only.

Doesn't include operating costs of power, electricity (brown coal), energy, if and when it's used

Water rates have just doubled.

Kumbel do you agree that in exchange for giving extra taxation power to fund roading we do it in such as a way the leglislation says the purpose is as Alain Bertaud says;  

It is time for planners to abandon abstract objectives and to focus their efforts on two measurable outcomes that have always mattered since the growth of large cities during the 19th century’s industrial revolution: workers’ spatial mobility and housing affordability....

Land use regulations and the availability of trunk infrastructure heavily constrain the supply of developable land. Planners, therefore, have a key role to play in ensuring an elastic supply of land by auditing land use regulations and by planning new trunk infrastructure that would allow the development of new areas or faster travel time to already built-up areas.

My only concern about your suggestions is that by not saying what the purpose is it would be easy to water it down until it ends up like Nationals other housing interventions.

Too little too late.

Go to Bernard Hickey says the Commerce Commission and the Govt need to help the RBNZ and consumers by cracking down harder on the monopolies and taxes that drive endemic inflation to get the bigger picture of concentrated centralised power versus cheaper localised power.

Any body,  Corporate, or National or  Local Government   that spends your money faster than you can aquire it, is to be deplored.

That it is criminal not to do so, should be changed by law. There is no need for inflated prices, to justify inflated egos. No need for Council largesse at my expense.

Getting this world back on the straight and narrow, would be so easy, if the laws were not so lax.

And what is it about Chapelle, who is gonna be a multi-millionairess for having the temerity to import drugs.

Even Indonesia is bewildered by the stupidity of man, who rewards such endeavours, though they have given her parole early.

Is this world nuts, or just me.

We reward the wrong people.

The honest mugs pay for the sins of the sinners.