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NOTICE OF MEETING Notice is hereby given that a Special Meeting of the Devonport City Council will be held in The Council Chambers, on Monday 1 July 2013; commencing at 6.00pm. The meeting will be open to the public at 6.00pm. A Notice of the meeting was published in The Advocate Newspaper on 26 June and 28 June 2013. Council Minutes can be found on Council’s website www.devonport.tas.gov.au QUALIFIED PERSONS ADVICE ETC. I certify that with respect to all advice, information or recommendation provided to the Council in or with this agenda: i.
the advice, information or recommendation is given by a person who has the qualifications or experience necessary to give such advice, information or recommendation; and
ii.
where any advice is directly given by a person who does not have the required qualifications or experience that person has obtained and taken into account in that person’s general advice the advice from an appropriately qualified or experienced person.
Ian McCallum GENERAL MANAGER
AGENDA FOR A SPECIAL MEETING OF DEVONPORT CITY COUNCIL TO BE HELD ON MONDAY 1 JULY 2013 AT THE COUNCIL CHAMBERS COMMENCING AT 6.00PM Item
Page No.
1.0
APOLOGIES
2.0
LEAVE OF ABSENCE
3.0
DECLARATIONS OF INTEREST
4.0
TECHNICAL AND FINANCE REPORTS .............................................................. 4
4.1
General Rate Remission to High Value Residential Properties (D300262) ............................. 4
Ald Cole Ald Goodwin Ald Laycock
PAGE 4 Report to Special Council Meeting on 1 July 2013 Tec hnic al and Fi nanc e R eports
4.0
TECHNICAL AND FINANCE REPORTS
4.1 Gener al R ate Remis sion to High Value R esi denti al Pr operti es
4.1
GENERAL RATE REMISSION TO HIGH VALUE RESIDENTIAL PROPERTIES File: 27321D300262
RELEVANT PORTFOLIO Technical and Finance RELEVANCE TO COUNCIL’S PLANS & POLICIES Council’s Strategic Plan 2009-2030: Strategy 5.5.1
Provide financial services to support Council's operations and meet reporting and accountability requirements
PURPOSE To provide a rate remission to Devonport’s 341 highest valued residential properties and for Council to consider policy issues related to rating.
BACKGROUND Devonport City Council provides a remission to residential property owners whose general rate exceeds a set amount. This practice was introduced in 2005/2006 to address a significant rates increase for high valued properties resulting from a residential property price boom and subsequent property valuation increases. At the time this was considered the most effective method to address the issue. In 2012 the Local Government Act was amended and additional tools were provided to assist Councils in managing situations where property valuations vary significantly. A section in the Act allowing change caps has provided Council with the ability to limit the price shocks that may arise from significant variations in valuations with a phase in approach. The Local Government Act clarifies that rates are a form of taxation and not fee for service. It requires taxation principles to apply, one of which is that those who can afford it pay more than those who cannot. The Act and State Government rating guidelines acknowledge that property value is a reasonable measure to determine wealth and “ability to pay”. Obviously, like any taxation system, it is not perfect but generally those in higher valued properties are in a position to pay more than those in lower valued properties. Unfortunately the remission has now significantly distorted Devonport Council’s Assessed Annual Value (AAV) methodology, with higher valued properties in Devonport currently being heavily subsidised by the remainder of the rate base. This contradicts the intent of rating as defined in the Local Government Act. Devonport is one of only two Local Government Authorities in Tasmania which cap the maximum amount payable for a general rate. In 2012/13 Council initially established a budget based on a cap to the general rate of $2,280 however this was reduced at the October Council meeting to $1,976. Under the Local Government Act any decision to provide a rate remission must be made by absolute majority. ITEM 4.1
PAGE 5 Report to Special Council Meeting on 1 July 2013
COMMENTARY
Council’s 2013/14 budget adopted on 17 June 2013 has been prepared on the basis that no residential property will pay in excess of $2,223 in general rates. This equates to a 12.5% increase on the 2012/13 cap of $1976. Applying this cap required Council to pass a resolution remitting any rates applicable above the capped amount. At the June meeting an alternative to the recommendation was moved and passed as follows: That Council further consider at a workshop, a remission to the class of ratepayers liable to pay the General Rate identified in Clause 5.1.2(b) of Council’s rates resolution for the 2013/2014 financial year by remitting any amount levied in excess of the sum of $2,223 for the year. A workshop was held with Aldermen on 24 June 2013 and the recommendation in this report is an outcome of the workshop. The report recommendation is based on providing a remission to the 341 highest valued residential properties for any amount payable above $2,106. The value of the remission will vary depending on the property value, however the average remission granted for each eligible property will be $603. This equates to a 6.6% increase from the cap applied in the previous year. 6.6% is based on 1.6% being the increase applied to all other residential properties as part of the 2013/14 budget with a further 5% recognising the need to reduce the remission overtime ensuring equity for all rate payers and compliance with State Government rating principles. In addition to the $603 average remission, 75 of the 341 properties are eligible for a further $300 pensioner discount. In comparison to other Tasmania City Councils, Devonport’s rates are similar across the majority of the rate base. The exception being the 3% of high valued residential properties, which are rated substantially less than similar properties in all other Tasmanian Councils, both City and Rural. Rate Policy As a policy position an annual 5% realignment in addition to any general rate increase would still show consideration of the impact on higher valued properties whilst taking reasonable steps over time to reduce the remission and ensure equity across all rate payers. Council adopted an updated version of its rates policy at its meeting on 17 June 2013. It is recommended that the following clause be added to section 3.9 - Remissions and read as follows: 3.9.3 High Valued Residential Properties Council recognise the extra cost placed on high valued residential property owners as a result of AAV rating and will remit rates to these properties over a pre determined maximum. The maximum will increase by 5% per annum over the previous year in addition to any increase applied to the remainder of the residential properties. Hardship Policy Council currently consider hardship issues on a case by case basis under provisions provided within the Local Government Act. It is considered appropriate that Council adopt a formal hardship policy to assist any ratepayer having difficulty paying due rates. ITEM 4.1
PAGE 6 Report to Special Council Meeting on 1 July 2013
FINANCIAL IMPLICATIONS
The total cost to Council in providing this remission is $205,770. An allocation has been made within the 2013/14 budget of $171, 961 for remissions to high valued properties. Adopting this recommendation will have a negative impact of $33,809.00 on Council’s forecast operating position. At its meeting on 17 June Council adopted a 10 year long term financial plan. This plan was based on the cap to high valued properties reducing by 12.5% p.a. Revising the plan based on the proposed policy position of a 5% increase above any inflationary increase will negatively impact Council’s cash balance from the adopted position by $640,000 over the 10 year period.
RISK IMPLICATIONS
Legal Risk Council has previously received legal advice regarding the legality of providing this remission and this advice has been provided separately to Aldermen during budget deliberations.
Financial Risk The recommendation adds significant challenges for Council to ensure it remains financially sustainable over the long term. The LTFP identifies the need to cut costs in coming years to ensure a balanced operating position. This recommendation adds to the difficulty in achieving the required outcome.
Reputation Risk Council were lobbied heavily by high valued property owners last year. This group of rate payers may continue negative publicity against Council. Equally, Council risks potential negative publicity from the remaining 97% of rate payers who do not receive a remission. Aligning rating consistently with Council’s chosen rating methodology base (AAV) in a policy context gives Council a sound basis on which to justify its rates. Variations by applying broad remissions or rate differentials increase the risk in justifying Council’s methodology.
CONCLUSION Increasing the rate remission threshold by 6.6% will cost Council a total of $205,770 to provide a remission to 341 high valued properties who would otherwise incur a general rate in excess of $2,106. This limits the increase for these property owners to a reasonable level whilst acknowledging the need to address the burden this remission places on the remainder of the rate base. This is a deviation from the adopted budget and will cost an additional $33,809 than what has been allowed. Council should determine a policy position on how it applies increases to this class of properties going forward and could also benefit from formalising a hardship policy.
ATTACHMENTS Nil Recommendati on
RECOMMENDATION That Council: 1.
pursuant to Section 129(4) of the Local Government Act 1993, grant a remission to the class of ratepayers liable to pay the General Rate identified in Clause 5.1.2(b) of ITEM 4.1
PAGE 7 Report to Special Council Meeting on 1 July 2013
Council’s rates resolution for the 2013/2014 financial year by remitting any amount levied in excess of the sum of $2,106.42 for the year. 2.
develop a hardship policy.
3.
amend its Rates and Charges Policy adopted 17 June 2013 by adding a new clause 3.9.3 as follows: High Valued Residential Properties - Council recognise the extra cost placed on high valued residential property owners as a result of AAV rating and will remit rates to these properties over a pre determined maximum. The maximum will increase by 5% per annum over the previous year in addition to any increase applied to the remainder of the residential properties.
ITEM 4.1