Eurobodalla Council and its councillors have been keeping its ratepayers in the dark for several years over their intention to support NSW going to a Capital Improvement Value to determine future rates. In NSW, councils are currently required to use the Unimproved Value (UV) method to assess this value. However, in a number of other jurisdictions, councils have a choice of methods including Capital Improved Value (CIV).
The key difference between the UV and CIV methods is that: UV only considers the underlying land value of a property, whereas CIV considers the underlying land value plus capital improvements.
This difference means the two methods produce very different assessed values for properties with significant capital improvements, such as a block of apartments or other high density buildings.
For example, to value an apartment under the UV method, the aggregate land value for the entire apartment block is first derived. Then, the value for each individual apartment is calculated by dividing the total land value according to each apartment’s unit entitlement.
This often results in values much lower than the combined market value of all the apartments, because the underlying land value is only a small component of the total value of the unit block.
Under UV, the rates for the house and apartment block would be the same, so the rates for each apartment would be one-quarter of those for the house (on average). However, the four households in the apartments are likely to create higher total demand for council services than the single household in the house. And guess where we are heading? More and more apartments as our ageing population downsizes. Reliant on rates for income there needs to be either more subdivisions or more apartments to contribute to the bucket of money Council needs to run its massive juggernaut. Without bothering to engage the community in discussion the Council is now suffering a backlash as the community discovers that the staff have prepared a submission for councillors to support at the eleventh hour at next Tuesday's Council meeting. The wider community has strong opinions around CIV. For example, if a council considers using a CIV method it is of concern to those who believe this could discourage investment in improvements and redevelopments that are already overburdened with fees and charges.
Council however would argue that CIV better captures the demand for council services when comparing two houses, or for two apartments even suggesting that a ratepayer in a more expensive house would typically have a higher willingness to pay for the public goods funded by rates (eg, they will be willing to pay more for footpaths and street lighting). A reminder of previous media coverage of the intention that has been widely discussed in Council back rooms and corridors to only now see the light of day yet deny the community any say.
Prepare for massive NSW council rates shake up, says IPART
by Marie Sansom 22 August, 2016 (republished with permission from GovernmentNews - this article first appeared HERE) NSW apartment owners should pay higher council rates, pensioners should pay back rates concessions and there should be fewer exemptions, the Independent Pricing and Regulatory Tribunal (IPART) has said.
The Tribunal’s draft review of the NSW local government rating system out today (22 August, 2016) makes some key recommendations that are likely to give the state’s local councils something to smile about.
IPART has said that the review aims to make rates collection fairer and more efficient, keep services consistent and to make councils more sustainable long term and has insisted that it is not an attempt to increase the overall amount collected through local government rates.
Another objective is to reduce council’s reliance on special rates variations, where they must apply to the Tribunal if they wish to set rates above the agreed rates cap.
The review examines how rates are calculated, what exemptions are allowed and the rating categories used.
Here are the main points of the draft review’s recommendations:
Give councils the choice to set the variable component of rates based on the capital improved value (CIV) of land, not its unimproved value (UV). This means apartment owners are likely to pay higher rates where there is usually a high capital value relative to land value Change rate exemptions so they are based on land use, not ownership Dump some rate exemptions where land is used for commercial or residential purposes Replace current pensioner concession scheme with a NSW government-funded rate deferral scheme New rating categories if councils want them, including environmental and vacant land, business and farmland Let councils set different rates for different parts of a local government area, to reflect access and demand for services and the cost of providing them The NSW ratings system is central to the health of the state’s councils, who have long complained that rate capping, in place since 1978, combined with cost-shifting and the freezing of Financial Assistance Grants, have eroded their financial health and their ability to maintain and replace vital infrastructure.
Rates have been and will remain a critical battleground, with councils saying that too many organisations are claiming rate exemptions, apartment owners are living the high life at their expense and that they are stuck covering rate concessions from people on low incomes. But the idea of replacing pensioners’ rates concessions with a deferral scheme is liable to stir up a hornet’s nest of resentment among seniors and organisations representing them.
The IPART proposal is to allow eligible pensioners to defer their rates payment up to the current level of concession (or another amount set by the state government) and instead pay it back when their property is sold and a surviving spouse no longer lives there. The amount would be charged interest at the state government’s 10-year borrowing rate plus an administrative fee.
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Council intends to milk what it can right down to the last cent