An error with the Wairoa District Council's formula for setting the district's rates has alarmed ratepayers who were expecting a 4.9 per cent average increase, but instead found themselves faced with a 7 per cent average increase.

At a meeting last week councillors were asked to approve resetting the rates for the year ending June 2018, to bring the increase back into line with the public and councillor expectations.

Acting chief executive John Freeman said the 4.9 per cent increase was taken to the public for consultation and followed what was in the Long Term and Annual Plans, but then an omission was made when conducting the manual formula to get the average.

"The staff and councillors were unaware that the figure was actually 7 per cent. The numbers in urban areas started coming through with increases of 9 to 11 per cent and alarm bells started ringing and it became clear that the issue was widespread."

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He said members of the public started coming to the council questioning why they were seeing such high figures.

This prompted Mayor Craig Little to write an open letter to ratepayers explaining that the error had occurred in the financial model.

"I have to say as mayor and councillors we are certainly not happy that this has occurred, we make our decisions on what we believe is good information before us. Somehow within the complex system of accounts an error has occurred," he said.

"When deciding on rate increases, we take into account our community's affordability along with the necessary revitalisation of our district.

"We would not have accepted an average increase of 7 per cent when we set the rates, because that would have been too high."

He promised the rates would be returned to the average 4.9 per cent increase, noting there would be fluctuations above and below that figure, and that the process of resetting the rates fit within legal requirements.

Mr Little said some planned spending would need to be deferred because of the $250,000 shortfall in expected revenue.

"A lot of councils have money left over at the end of the year, we are just going to have to be more clever without so much to spend. We may have to scrimp on a few things like our lunches or we may not replace cars - we just have to sharpen the pencil."

He noted that over the past five years, Wairoa rates had only increased each year by 3.4 per cent on average, compared to 5.6 per cent in previous years.

Some ratepayers would have variations from the average, and he said the council always heard from people paying above the average, but never from those paying below "saying gosh you are doing a great job".

Once approved, the council would give 14 days public notice of its intention to reset the rates, except the Mahia and Opoutama Wastewater Scheme targeted rates, and water by meter rates.

Mr Freeman said replacement rating assessments would be distributed, direct debit instructions would reset and customers using automatic payment facilities would be advised of the amended instalments. He said some refunds may be necessary.