Core costs push rates take to $1b

The cost of rebuilding New Zealand's core infrastructure - rather than shiny new stadiums or glory projects - is to blame for the country's first $1 billion rates bill, Local Government New Zealand says.

Figures released yesterday by Statistics New Zealand showed the quarterly rates take for the country's local authorities, including the Dunedin City Council, had topped $1 billion for the first time.

Rates revenue reached $1.003 billion in the three months to December last year, up nearly $400 million on the $637.3 million in the three months to March, 2003.

There had been a steady rise in the intervening years, with only five quarters showing declining overall rates takes, the Statistics NZ figures showed.

However, LGNZ governance manager Mike Reid, of Wellington, told the Otago Daily Times it was wrong to blame rates rises on the cost of stadiums or councillors' pursuit of non-essential projects.

Instead, the increasing cost of building and renewing core infrastructure - water pipes, drains and roads - remained the real driver of council costs and rates increases, he said.

An estimated 60%-80% of council expenditure was on core infrastructure, and prices had "gone through the roof" because of the influence China's demand for raw materials could have on prices, he said.

While that pressure had eased during the period of global economic turmoil, allowing "most" councils to achieve proposed rates increases of around 2% for 2010-11, the pressure on prices was again starting to build as the economy improved, he said.

New Zealand's steadily growing rates take also reflected the country's rising population, particularly in faster-growing centres like Auckland and its need for new pipes, roads and other infrastructure, he said.

About 40% of the rates take was paid by Aucklanders, he said.

"What that tells you is just how fast Auckland is growing, and the demands being made [on infrastructure]," he said.

Other New Zealand centres' core infrastructure was also "starting to wear out" and needed to be replaced, including water infrastructure in Dunedin, he said.

Forecasts showed $31 billion would be spent by local authorities on infrastructure over the next decade, almost double the amount spent in the previous 10 years, Mr Reid said.

The cost of compliance with Government legislation - such as the Building Act 2004 - also added between 2% and 5% to council costs, which were passed on through rates and user-pays fees, he said.

Despite the figures, the average rates bill amounted to less than 4% of an average household's income, compared to 40% for central Government taxes, he said.

Dunedin City Council chief executive Jim Harland said the affordability of ever-increasing rates was the key consideration.

Continual rates hikes created a "perception issue" for councils, as ratepayers wondered whether they were getting value for money, as well as an "affordability" issue for some households, he believed.

Local authorities could benefit from having a target band to aim for, for example setting a hypothetical band of rates as a proportion of average household income of 4-6%, he suggested.

However, it was "difficult to foresee" a year in which rates would decrease overall, as base increases were needed to cover councils' rising operating costs, including energy, fuel and staff remuneration, he said.

Since 2003, Dunedin's ratepayers had helped cover the cost of borrowing for capital projects ranging from the upgrade of the St Clair sea wall and the Settlers Museum, construction of the Chinese Garden and improvements to roading and water and waste services, he said.

"When you add them altogether, there's some quite big expenses to service the debt, and then you have got the [Forsyth Barr] stadium in there as well.

"There's always that tension in there, between keeping costs down and providing services people want."

Mr Reid said he believed councils across New Zealand tried "very hard" to keep costs under control, with typically greater scrutiny the smaller the council.

Asked what impact council spending on non-essential projects was having, Mr Reid was blunt: "zero."

The Local Government Rates Inquiry had, in 2007, found no evidence councils were wasting money on non-essential projects, and Mr Reid argued projects like Dunedin's new stadium could be considered core infrastructure.

The stadium would provide a piece of amenity infrastructure that was only going to benefit the local economy - a traditional council role - and merely added to other Dunedin sporting facilities already owned by the council, he said.

Other councils - such as the Wellington City Council - had also already invested in stadiums, he said.

"The [Dunedin City] council is really just joining the mainstream there. Whether the community wants it to or not is another issue. But it's not a council moving outside of core activities," he said.

Local Government Minister Rodney Hide was not available for comment yesterday.

- chris.morris@odt.co.nz