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The idea, raised by Cr David Benson-Pope at yesterday's 2019-20 annual plan meeting, would result in a targeted rate used to raise extra money from central city businesses and property investors, and possibly even the University of Otago.
Those required to pay the one-off rate would be those who benefited financially from the council's planned $60 million central city upgrade and $20 million tertiary upgrade.
The idea would be subject to the results of a special consultative procedure (SCP) process, giving the public - including those expected to pay the extra bill - the chance to have their say.
Councillors at yesterday's meeting voted 10-2 to note the proposal, which would be considered through the SCP, outside the council's draft annual plan.
Cr Benson-Pope said his idea followed the approach taken in the 1980s and 1990s, when businesses benefiting from street upgrades along George, Princes and Stuart Sts - still in place today - were asked to make a financial contribution.
The charge then was a fee per linear metre of street frontage, used to calculate the value of the benefit each business received from the upgrade, he said.
Upgrades in the Exchange later used a special rating area to recoup the costs there, he said.
Cr Benson-Pope said his new proposal aimed at something similar, initially by asking the community if they felt it was appropriate.
If it went ahead, the bill could be based on the capital value of a property instead, he said.
The targeted rate would be used to pay only for streetscape improvements - such as new paving and furniture - and not the cost of underground work such as new power cables, Cr Benson-Pope said.
It would also be levied just once, when the work was finished, he said.
''I think it's a modest amount to be asking for,'' he said.
Yesterday's proposal initially focused only on central city businesses, while excluding the planned tertiary upgrades.
However, the exclusion was dropped by Cr Benson-Pope, after Mayor Dave Cull questioned the rationale of excluding property investors who could also benefit financially from the North Dunedin upgrades.
Cr Jim O'Malley also wanted the university to be covered by the targeted rate, even though it did not pay full rates, in the hope it would be a ''good citizen'' and contribute voluntarily.
The university paid full rates on commercial properties, but only targeted rates - and not the general rate - for properties used for educational purposes.
Cr Lee Vandervis could not vote for the proposal without more information, saying the ''new tax'' was ''ill-considered'' and risked becoming ''an enormously complex can of worms''.
Deputy mayor Chris Staynes agreed with the aim in principle, but was worried the costs involved could be ''too scary'' for businesses.
Cr Benson-Pope said more information from council staff would be presented as part of the consultation process, which would not begin until after annual plan deliberations concluded.
Councillors voted to include the SCP proposal in the annual plan for consultation. Crs Vandervis and Doug Hall voted against the move.