Financial settings
We propose the Draft LTP includes some changes to our financial settings.
This will support the Council to be on a sustainable financial path to ensure we can deliver basic infrastructure and services to our communities.
Where does our money come from?
Rates are the main source of funding for the Council’s activities. This is supplemented with funding from fees and charges, Government subsidies, borrowing, development contributions, interest and dividends from Christchurch City Holdings Limited subsidiaries.
The financial impacts of the earthquakes, and more recently the COVID-19 pandemic, have reinforced the need for us to be in a financial position where we can respond to unexpected events.
To achieve financial resilience, we need to retain the ability to borrow funds at short notice to soften the impact of any fiscal emergency. This will ensure we can continue to deliver appropriate services without a big immediate impact on rates.
In the short term, we have the ability to borrow $600 million to deal with any unexpected events without exceeding our debt limit or impacting our capital programme.
We have carefully considered how we can minimise rates through reducing operating costs and/or increasing revenues from users of services. Initially, we considered operational efficiencies of $182 million over the period of the LTP. However, following consideration of public feedback to maintain existing levels of services, we settled on a net position of $41 million including both increased revenue and savings.
Proposed changes to how we fund our asset renewals
We currently borrow to fund some of the cost of our annual asset renewal programme. Since 2015 we've been transitioning to fully fund these renewals from rates by 2031.
Given the cost pressures we’re currently facing, we are proposing to increase the level of rating for asset renewals in the first two years of the LTP by significantly less than our existing Financial Strategy proposes. This approach has helped reduce the rates increase by 1.8% in year one. It also means a reduced rates increase of 1.2% in year two.
We propose to continue incrementally increasing rates for funding asset renewals to 100% and will now reach the target by 2032. This will ensure that current ratepayers are meeting the full cost of existing assets requiring renewal or replacement.
However, this short-term solution to reducing rates does have longer term consequences. While the amount of work done on renewals will not change, how we fund that work will change. It will mean we are now borrowing $93 million net more through to 2031 than we initially planned, which will result in an additional $19 million in interest costs during that period. It also means we don’t meet the Balanced Budget benchmark for the first three years of the LTP. This benchmark is a measure required by the Department of Internal Affairs to help councils manage their financial capability and direction over the longer term.
Having an unbalanced budget means that we are effectively borrowing for some operational expenditure. This action would only be acceptable if it is for a short time and for a specific intention. In the Council’s case, it is just for the first three years of the LTP and is a purposeful action to assist the Council to manage the hump of increased rates in the first two years of the LTP. We would return to having a balanced budget in years 4–10 of the LTP.
Where our funding will come from over the next 10 years
We normally use debt to finance new long term assets that benefit future generations of residents. This ensures the upfront cost is shared fairly across the generations who’ll be using them.
Our net debt levels are in line with those planned in the LTP 2021–2031, and we can service the current and forecast debt, although the cost of doing this has increased – we’re currently paying an additional $14 million in interest in year one. We’ve also kept the ability to respond to unexpected events by giving ourselves at least $600 million of borrowing ‘headroom’ – this is an amount we can borrow comfortably before we reach our limit. The first table below shows our proposed net debt and the resulting debt headroom we would have. The second table shows our proposed gross debt and how close it is to our borrowing limit.
As a large borrower, we take a prudent approach to interest rates. We borrow at fixed rates over a variety of time periods, to help reduce the volatility of interest costs.
However, we cannot do this indefinitely. As market rates are likely to stay higher for longer over the period of the LTP, our interest costs will be higher than we previously expected.
Our rates proposal
We’re very aware that many of our residents and businesses are hurting financially as a result of the rising cost of living, so we’re focused on meeting community expectations while keeping rates as low as possible. We aim to strike the right balance, while continuing to provide core services, invest in our city and adapt to the impacts of climate change.
In the 2024/25 financial year we’re proposing to collect $788 million in rates.
Like every household and business across the city, the Council is operating in a tough economic environment, and facing rising costs. We have limited control over a significant proportion of our proposed average rates increase – approximately 12% of the 13.24% – due to factors such as inflation, insurance and interest costs.
Average rates increase
- The overall average rates increase to existing rate payers for 2024/25 is 13.24%. The reasons for the significant increase in this year are significantly increased costs due to inflation, insurance and high interest rates, coinciding with investment in Te Kaha and a reduction of $19 million in the CCHL dividend.
- We’re proposing an average residential rates increase of 12.4% for 2024/25. For an average house with a value of $764,364 the proposed increase is an extra $416.23 a year or $8 a week.
- For an average commercial property with a value of $2,442,382 the proposed increase is 14.2%, or an extra $2,316.74 a year or $44.55 a week.
- For an average remote rural property currently paying land drainage rates and with a value of $1,557,204 the proposed increase is 15.4%, or an extra $435.34 a year or $8.37 a week.
- Over the course of the 10 years of this LTP, the proposed rates increases average 4.72% a year, or 57.76% cumulatively.
Our total rates income includes rates from new development in the city. More development means more ratepayers, and that means the rates burden becomes shared amongst a bigger group. As long as the number of rateable properties keeps growing, the rates increase for existing ratepayers will be lower than the year-on-year total rates increase.
Find out what the proposed rates increase is for your property.
Average annual rates increase to existing ratepayers
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Proposed changes to how we rate...
What is City Vacant Differential Rating?
On 1 July 2022, the Council introduced a new general rating category on the commercially zoned vacant land in the central city.
The City Vacant Differential:
- is set at a multiplier of 4.523 times the standard general rate.
- currently applies to vacant land in the Central City Business Zone and the Central City Mixed Use (South Frame) Zones. Its application in these areas reflects the concentration of vacant land in this well-serviced area of the city.
Vacant land for the purposes of the City Vacant Differential is defined as land being with no active or consented use. The definition excludes sites:
- that are permanently developed or under construction, or
- in a temporary use that is a permitted activity under the District Plan (e.g. supporting adjacent construction) or has an approved and fully implemented resource consent (e.g. temporary car parking).
- We also offer a rate remission for sites which have been improved in line with our published Vacant Site Improvement Guide.
Vacant land is a resource for the city’s future growth but leaving it undeveloped comes with a cost. The Council still has to pay for and operate the infrastructure that serves vacant sites, including pipes, streets and public facilities. With much lower capital values, vacant sites pay a fraction of the rates paid by owners who’ve invested in permanent development, despite enjoying an increase in value of the land and the benefit of enhanced public environments on their doorsteps.
Since we started charging this rate, action by owners in the central city has seen the number of sites that pay this higher rate fall from 150 to 81 (at 1 July 2023), with the improvements making a real difference to the city’s appearance.
What are we proposing in this Long Term Plan?
Feedback from the community as part of our Annual Plans in 2021/22 and 2022/23 suggested that we should use this approach in other centres where there are concentrations of vacant land. Research found that in four centres – Linwood Village, Lyttelton, New Brighton and Sydenham – vacant land makes up more than 10% of the commercially zoned area.
As part of this Draft LTP, the Council is proposing to extend the use of City Vacant Differential rating from 1 July 2024 to vacant sites on land designated in the District Plan as:
- Commercial Core in Linwood Village, New Brighton and Sydenham, and
- Commercial Banks Peninsula in Lyttelton.
There are no changes to the key elements of the category definition, other than its extension to properties in Linwood, New Brighton, Sydenham and Lyttelton. This extension is expected to affect around 40 properties. Their rates impact would depend on the value of the land – for example, a $750,000 plot would have a rates increase of about $3600 per year (or about 71%); a $1.5 million plot would have a rates increase of about $7300 per year (or about 75%).
As in the Central City, exemptions and rates remissions will be available to sites where construction is underway, are in permitted/approved temporary or have been improved in line with our published Vacant Site Improvement Guide.
What do you think about this proposal? Are there any matters in the four centres (Linwood Village, Lyttelton, New Brighton and Sydenham) that the council need to consider in making a decision about this proposal?
You can find out more about the Council’s work in this area, including the vacant sites programme, at: ccc.govt.nz/vacant-sites
Short term unhosted residential accommodation (such as Airbnb, Bookabach, and similar) is a business activity, so we think it’s appropriate for it to be charged the ‘business differential’ in our general rates, in the same way as other businesses that are run out of residential properties.
We propose a change in our rating policy, to clarify that residential properties may be charged at the business differential if they’re used for unhosted short term accommodation for more than 60 nights per year, have a resource consent for such activity, or are predominantly used for such. We consider this clarification equitable because it will result in such properties being rated in the same way as other short term accommodation providers such as motels.
For a property with a capital value of $750,000 (the approximate value of the average house), a change to a business classification would increase rates by approximately $2,273 per year.
This proposal won’t affect hosted accommodation (i.e. people who accept paying guests in their primary place of residence while they’re living there), unless we consider the property is predominantly used for commercial accommodation purposes.The Council has a long-standing policy of postponing rates for ratepayers facing significant financial hardship, although only 10 such postponements are currently in place. Recent policy has stated that ratepayers aged 65 years or older will automatically qualify for a postponement (as long as we’re satisfied that they understand that postponement is effectively a debt that will reduce the amount of equity they own in their home over time).
We propose ending this automatic age-based qualification, so that ratepayers of any age will need to demonstrate significant financial hardship to qualify. This change would not affect any of our existing postponements and is intended to make sure that only those ratepayers in significant financial hardship need to apply for a postponement.
The Council has a long standing policy of remitting up to 100% of the rates payable on properties used by not-for-profit community-based groups. However, the current policy wording is unnecessarily complex and may restrict our flexibility to provide the remissions we consider to be appropriate.
We’re proposing to simplify the wording of our Remission Policy 1 (not-for-profit community-based organisations) and Policy 2 (land owned or used by the Council for community benefit) to give us more flexibility to grant remissions that are consistent with the Council’s objectives and the extent of the ratepayer’s financial need.
We don’t expect this change to have a material impact on the total amount of remissions granted, or on the rates revenue we require to pay for them.
We’re also consulting on two smaller proposed changes to existing rates, including:
- Incorporating our separate Heritage Targeted Rate into the general rate. This makes it consistent with the treatment of other capital costs borrowed for, with rating only commencing when borrowing occurs. This proposed change produces a rates timing change which will reduce rates in 2024/25 by $2 million.
- Incorporating the Active Travel targeted rate into our Uniform Annual General Charge (UAGC). We’re proposing this for simplification and clarity only, as the charge doesn’t portray the full cost of Active Travel. The $20 charge will remain a fixed charge as part of the UAGC.
You can find out more information about our proposed rates changes from Volume 1, page 19 of the Draft LTP.
Proposed changes to...
One of the ways we can help minimise the rates increase is by passing on the costs to people who use the service directly, rather than all ratepayers. We’ve incorporated some changes to the Council’s fees and charges in the Draft LTP. In most cases they add less than a dollar or two to the amount paid and reflect the increased costs of operating. In some cases, fees are going up to cover the full cost of an individual service or are for a new service.
One of our more significant proposals is to introduce parking charges at the Botanic Gardens and Hagley Park. The approximately 620 carparks would generate $2 million a year (based on $4.60 for three hours). If we don’t proceed with this proposal, there would be an additional 0.31% rates increase in the first year, with no impact in subsequent years.
You can find more information about all the proposed changes to our fees and charges from Volume 1, page 223 of the Draft LTP.
All councils are required to include performance standards, or ‘levels of service’ in their LTPs. As part of the LTP development process, we’ve considered whether the Council should reduce our services to produce savings in rates.
We’ve taken into account feedback from the What Matters Most campaign and Residents Surveys, which give us useful information about what residents expect from the Council and how we’re performing. By and large the feedback we’ve received is that residents value the current range of services, want us to “look after what we’ve got” and to improve in some areas. Judging by feedback to previous LTP and Annual Plan consultations, reducing services is not something residents would support. We are therefore proposing only minor changes to our levels of service. We’re proposing to change the level of service for drinking water losses to 20% by 2030 and 15% by 2034.
If there are services you think you might manage without, or areas where you see an opportunity for efficiencies, considering both today’s needs and future growth, please see the opportunity Potential to reduce or cut services to help reduce rates and tell us what you think.
You can find out more information about all the proposed changes from Volume 1, page 39 of the Draft LTP.
