Government rates cap puts huge strain on councils like Ruapehu, mayor warns

Ruapehu’s small population but heavy visitor load require investment well beyond what local ratepayers alone can sustain, the mayor says. Photo / Visit Ruapehu

The Government’s new rates cap will hit the most vulnerable, infrastructure-stressed councils hardest, Ruapehu Mayor Weston Kirton says.

The cap landed hardest on districts like his that had ageing bridges, heavy tourism loads and major capital needs but no alternative funding tools, Kirton said.

He warned the district faced a widening funding gulf for essential upgrades just as several long-time sources of Government support disappeared.

“For Ruapehu, the main infrastructure pressure outside of water is land transport – particularly the replacement of ageing bridges – and maintaining the infrastructure needed to support high visitor numbers.

“Council would like to accelerate its bridge renewal programme, but we cannot do this without strong co-investment from NZTA Waka Kotahi [NZTA].

“A strict 2-4% rates cap makes this more difficult, as it limits our ability to fund our local share or major capital upgrades on our own.”

Tourism infrastructure presented a similar challenge. Ruapehu’s small population but heavy visitor load required investment well beyond what local ratepayers alone could sustain, he said.

“We’ve had to invest in facilities that serve far more people than our resident population – water treatment upgrades, the Park and Ride. These projects have only been possible because Government has previously co-funded them,” he said.

“With many of those funding streams now switched off, council will not be able to take on new large capital works without renewed Government partnership.”

Debt management under a capped model would add another layer of strain, he said.

Ruapehu’s current Long-Term Plan includes an average rates increase of 9% over the first three years (2024-27), followed by about 5% annually for the remaining seven years.

The council had raised its self-imposed increase limit from the Local Government Cost Index (LGCI) +2% to LGCI +3% to begin gradually reducing debt.

“How this will now look with rates capping and water debt transferring to the new entity is still to be determined,” Kirton said.

“Although water debt will not be on council’s book, it will be ring-fenced to Ruapehu water users who are facing significant affordability issues.”

Although storm- and weather-related repairs were expected to qualify as exemptions under the Government’s “extreme circumstances” clause, Kirton said councils needed the same type of support for other damaged assets as was available under NZTA’s emergency funding rules.

Under normal funding arrangements, Ruapehu has a Funding Assistance Rate (FAR) of 75%, meaning the local share of any roadworks is 25%.

In an emergency event, once spending reaches a specified limit, the FAR increases to 95%, meaning local share is only 5%.

“Unless Government supports councils with a similar arrangement for non-roading infrastructure, the affordability issues will severely limit any recovery.”

Kirton said Ruapehu had already begun modelling scenarios for the 2026-27 transition to the rates cap regime, but without service cuts, staff reductions, deferred projects or under-depreciation, achieving the rates cap target was “not possible”.

The council was now weighing which trade-offs ratepayers would face.

“While I fully support any initiative to minimise rates increases, without addressing the linked issues of council funding and ratepayer affordability issues, our ability to fund essential upgrades and long-term resilience planning is limited,” Kirton said.

When announcing the policy, Local Government Minister Simon Watts said ratepayers deserved councils that lived within their means, focused on the basics and were accountable to their community.

The cap excludes water charges and other non-rates revenue like fees and charges.

In extreme circumstances, councils will be able to apply to a Government-appointed regulator for permission to exceed the maximum cap.

Councils can also seek the regulator’s permission if they need to pay for things outside of extreme circumstances, such as catching up on past underinvestment in infrastructure.

LDR is local body journalism co-funded by RNZ and NZ On Air.