Council rates — why and how they’re set: Neil Volzke

Setting rates is a complicated balancing act that is nowhere near perfect, says Stratford District Mayor Neil Volzke. Photo / 123rf

THREE KEY FACTS:

• Stratford District Council in July adopted its 10-year plan containing a 15.37% average rates increase for 2024-25.
• Councils are responsible for maintaining local roads in the district.
• Homeowners nationwide are facing sharp increases in their next council rates bill.

Neil Volzke is the Stratford district mayor

OPINION

In the past week or two, property owners in the Stratford district will have received their rates bill for the 2024-25 financial year. With most rates increases throughout the country hitting new highs — typically in the mid-to-high teens — I understand why some people are dumbfounded at the differing size of the increase they are facing. It is not a level playing field and not all rate increases are equal.

Largely, that is because not all properties are equal and the rates applied to each are a variable, complex, clumsy and non-sustainable mechanism for councils to gather revenue.

To say that councils are under financial pressure at present is an understatement of the highest magnitude. Delivering services, meeting new expectations, investing in infrastructure, balancing the accounts and at the same time keeping rates really low is a conflicting mix of factors that simply do not easily fit together. The reality is when rates are set, it is a compromised balancing act between needs, wants, sustainability and affordability.

For the 2024-25 year, the Stratford District Council has a budgeted income of $32.7 million of which $3.6m will come from user charges and fees, $9.9 million from subsidies and grants, $500,000 from investments and sundries, and the balance of $18.7m comes from rates revenue. The last figure is particularly important because that is the one the council refers to when it announces the rates rise each year. It is the total amount collected from rates and when the percentage increase is announced, this is the figure we are referring to.

This year the rates rise was 15.37%, meaning that’s how much the total rates collected has increased. It does not mean every property’s rate will increase by 15.37%.

As ratepayers we each pay a portion of that total figure and that’s where it’s complicated because every property is different. Ratepayers often ask why their rates increase isn’t exactly the same as the rates rise announced.

Within the rating system there are many categories of rates and the way they are calculated can vary for each. In Stratford district, every property pays a Uniform Annual General Charge, which is a set amount of $873 regardless of your property value, but in some cases where there are two or more houses, this will be charged per house.

If the property is connected to a town water supply, there is a set charged amount of $634 a property; if connected to the wastewater network, a set charged amount of $380 a property; and if kerbside rubbish and recycling are collected, a set charged amount of $490 a property. For properties not receiving these services, there is no charge.

Property values are not a factor in this, and have no impact on the amount charged for these particular rates.

As an example, Fred, who has a property receiving all services, would pay $2377 rates in total while his mate, Joe, who has a similar property but receives no services, would pay only $873. In this simple example, if the council were to significantly increase only the cost of services, Fred would receive a hefty rates rise but Joe, who has no services, wouldn’t be affected at all and notably, neither would he receive a 15.37% rate rise.

It gets more complex when we look at the other common rating categories. The general rate is charged to every property and for Stratford district, it’s calculated on the capital value of the property. The rating valuation is completed independently by Quotable Value NZ every three years.

The present charge is 0.15396¢ for every dollar in property value. In this category, with Fred’s property valued at, let’s say, $500k, the general rate would be $796 while lucky Joe’s property valued at say $250k, would pay a general rate of $384. When the council alters this particular category of rate, the impact can be significantly different for each property because of property value, simply because it’s calculated by percentages and not a set dollar amount.

The roading rate is also based on capital value and is based on a charge of 0.10440¢ for every dollar in property value. In this category Fred would pay $522 while Joe would pay $261. There is another variable within this roading rate that affects properties classed as forestry category, in which case the rate is substantially more. If Fred’s property were classified as forestry, his road rates would be about six times more at $3258.

Complex, right? In addition, there are other less-common variables to throw into the equation. Depending on the mix of these rates categories, the value of each property and how much change the council makes to each category, the actual percentage increase for rates applying to our 5000 approximate rating units will vary substantially and it is most unlikely to be 15.37%, some will be more and some will be less.

• Next week, why do rates keep increasing and the effects of changes to property values.