Draft long term plan 2012 – 2022

Andrew Beatson, Partner and Bianca Tree, Senior Associate | Friday 16 March 2012

The Council has big ideas for the future of Auckland as set out in the Draft Auckland Plan, and now the Council has set out in the Draft Long Term Plan 2012-2022 (Draft LTP) its budget, and when and how the priority projects are going to be funded. The combined financial base of the former district and regional councils is significant, but it is still not enough to achieve all of the aspirations in the Draft Auckland Plan. There is always going to be the harsh reality of what we can afford. The key project on the Council's agenda, the City Rail Link, assumes that the Government will contribute 50% of the cost, while the Government hasn't given any assurance of funding to date.

The Draft LTP runs to 900 pages and includes an overview of the next 10 years (volume 1), the activities, services, projects and programmes that are going to be delivered, how they are to be funded, and how performance will be measured (volume 2), financial statements and financial / non-financial policies (including rates and development contributions) (volume 3), and local board information and agreements (volume 4).

Big ticket overview

• Forecast capital expenditure of $20.2 billion and operating expenditure of $38.2 billion over the 10 year period.

• Expenditure is funded primarily through rates, user charges and borrowing. Rates revenue is forecast to rise from $1.27 billion for 2012 to $2.21 billion by 2022. Fees and user charges to be collected are $15.56 billion over 10 years. Debt is forecast to rise from $4.6 billion to $12.5 billion in 2021/22, with the peak debt level being 219.4% of total revenue, and a net interest cost of 13.8% of total revenue. Borrowing is also to cover the Council's liability for weather-tightness claims which is budgeted at $487 million.

• Transport is the biggest cost for capital expenditure ($9.6 billion or 47.7%) and operating expenditure ($12.7 billion or 33.2%), with the split between roads and public transport approximately 60:40 for capital expenditure and relatively equal for operating expenditure. This balance between the Government's preference for roads and the Council's desire to provide public transport infrastructure will be eroded if the City Rail Link at a cost of $2.86 billion does not proceed.

  The City Rail Link is contingent on the Government contributing 50% of the cost, and the Council lobbying for legislative changes to allow for alternative funding to raise a further $377 million.

• Assets of the Auckland Council group are expected to grow from $34.3 billion to $57 billion over the period. The Council has stated that it is committed to retaining its stake in Auckland International Airport Limited and ownership of Ports of Auckland Limited, while asset sales for under performing investments are budgeted to receive $468 million.

• Efficiency savings by just amalgamating the former councils has reduced costs by $81 million to date, and a further $97.2 million is expected to be permenantly reduced over the next 10 years.

Development Contributions

It is anticipated that development contributions will fund $1.9 billion of the projected cost of growth over the period of the LTP. A new integrated Auckland wide development contributions (DC) policy has been proposed to replace the policies of the former councils. 

The key aspects of the DC policy are:

• contributions are either set at a regional or a sub-regional level for specific activities (specific funding areas are identified eg. North, Central, West, South, Rural, Urban, Auckland wide);

• a range of demand factors are used to reflect the demand expected from different forms of development;

• contributions will be payable as late as possible in the process to take account of funding realities (ie. land use consent DCs are payable at the time of notification of commencement of the consent or commencement, whichever is the earlier).

Despite the LTP endorsing the simplicity of the DC policy it is fairly complex, and a series of calculations are required to confirm the DC's payable.

To provide an incentive for residential intensification a distinction has been made between detached dwellings, low rise attached dwellings (development of up to 4 levels and 3 or more units), and medium to high rise attached dwellings (development of 5 or more levels and 3 or more units), with contributions reducing for more intensive development. Residential developers may want to run the numbers to see if this does provide an incentive relative to the greater cost of high rise development.

The DC policy also distinguishes between contributions due at a sub-regional or Auckland wide basis. However, the explanation to the DC policy is unclear and states that regional funding areas are applicable in addition to sub-regional contributions, but also that particular projects will either be associated with a regional or sub-regional funding area to avoid duplication of charges.  It appears that both regional and sub-regional charges apply, which for example in the South funding area would mean paying a transport contribution of $5,091.00 per household unit equivalent (HUE) (excl. GST) being $2,775 (for the South funding area) plus $1,090 (for Auckland wide), plus $1,226 (for public transport).   

There is no reference in the DC policy to the Council's ability to enter into private developer agreements. Private developer agreements have been used effectively by the previous councils, particularly to help enable staged development projects. Although the lack of reference to the Council's ability to enter private developer agreements may not preclude the Council from entering into these agreements, to be consistent with the Council's business friendly objectives as set out in the Draft Auckland Plan and the Draft Economic Development Strategy, the Council should confirm private agreements are an option to enable flexibility and the ability to work with developers where this provides mutual benefit.

In addition to development contributions, an infrastructure growth charge for water and wastewater infrastructure levied by Watercare Services Limited since 1 July last year should also be taken into account when costing new development.

We recommend that you test various development scenarios against the DC policy to assess the amount of contributions that would be payable. This understanding will be particularly important for those businesses that cannot pass the cost of development contributions onto subsequent purchasers.

Rates

A big challenge has been merging the rating systems of the former councils into one system. This may cause a substantial rate increase for some residential and business properties. To alleviate this impact the Council has proposed a rates transition scheme which will apply to properties with a rate increase above a set limit. It is important to check how the new rating system will affect your property.

The Council also proposes to limit the average general rate increase to 3.6% for the first year of the LTP, and 4.9% for remaining years.

Rates differentials are also to be applied to the general rate with a higher percentage payable by business properties. In 2012/13 it is proposed that urban businesses will contribute 2.63 times more rates than urban residential properties of the same capital value. The business differential has been set so that the Council collects the same proportion of rates revenue from businesses as it collected in 2011/12. The Council proposes to lower the business differential and shift some of this cost to residential ratepayers at a level of about $2.8 million per year over the LTP period. However, we expect that businesses owners will still challenge the equity of the business differential.

The LTP also puts forward the Council's proposal for a uniform wastewater tariff which will be payable in addition to rates. A fixed and volumetric tariff for domestic and non-domestic customers is proposed. For non domestic customers this would be a fixed charge of $313 plus a volumetric charge of $3.637 per 1,000 litres of wastewater. The waterwater volume will be based on wastewater audits or a percentage of water used based on the relevant industry category (ANZSIC codes). The new single system may result in a significant change for businesses with high water use.

Other funding sources

The Council is also reviewing a range of other funding sources to pay for the Council's expediture, particularly for public transport. The funding sources being reviewed include regional fuel taxes, road (network) pricing, tolls and congestion charges, and local sales tax (including bed charges).

Submissions

Submissions close on the LTP on 23 March 2012. Submitters will be heard by the Council between 10 and 27 April, and the final LTP is to be adopted in June to commence on 1 July 2012.

Please contact the resource management team if you require further information on the Draft LTP and submission process.

For further information, please contact your usual Bell Gully adviser or:

Andrew Beatson
Partner

Marija Batistich
Senior Associate