Part 6: Ongoing administration
6.1
In this Part, we assess councils against our expectations of:
What we expected
Record-keeping
6.2
We expected all councils to ensure that documentation is properly completed and
filed.
Fees and interest
6.3
Section 88(2) of the Local Government (Rating) Act 2002 allows councils
postponing rates to charge a fee not exceeding the financial and administrative
costs to the council of the postponement. We expected that all councils would
comply with this requirement.
6.4
Councils offering rates postponement on the grounds of hardship may decide to
subsidise ratepayers’ access to this service by absorbing any extra administration
cost. However, councils offering optional rates postponement state in their
policies that ratepayers who choose to postpone their rates will bear the entire
cost of postponing rates. We therefore expected that these councils would:
- charge administration fees that reflect any additional set-up and ongoing administration costs of individual postponements; and
- charge a rate of interest that reflects the cost of the council’s borrowing to cover their cashflow shortfall.
6.5
We expected that all councils that charge interest and/or fees on postponed rates
would have a procedure for accurately calculating and recording interest and fees.
6.6
We expected that these councils would regularly and accurately inform ratepayers
of the balance of their individual rates postponement accounts, including a
breakdown of rates, interest, and fees.
Monitoring
6.7
We expected that councils would maintain an accurate overview of the total of
outstanding postponed rates owed to the council at a given time.
6.8
We expected that councils would monitor individual accounts so as to be able to
make informed decisions about whether it is prudent to continue to grant rates
postponement to individual ratepayers.
Ceasing to postpone rates
6.9
We expected that all councils offering rates postponement would have clear
policies regarding when postponed rates become due.
6.10
We expected that all councils offering rates postponement would allow
ratepayers to pay all or part of their postponed rates at any time without penalty.
6.11
Some councils offering optional rates postponement state in their policy that
ratepayers are able to transfer the value of their postponed rates from one
property to another. We expected that these councils would have established a
legal mechanism for implementing such a transfer.
6.12
We expected that all councils offering rates postponement would have clear
procedures for ensuring that the postponed rates are paid, including having
considered when it is appropriate to release the notification of charge over the
property.
Administration of optional rates postponement policies
Record-keeping
6.13
Generally, necessary documentation was on file and files were in good order.
6.14
However, one council offering optional rates postponement had not registered
the notifications of charge until the week before our visit. Another council did not
have a signed copy of one ratepayer’s acceptance letter on file.
6.15
The rates postponement consortium is creating a database and preparing a desk
file to assist with managing postponed rates. The desk file contains detailed
instructions for all steps of the rates postponement process.
6.16
It is intended that the database will:
- have a “process” form for recording that all the steps in the process of postponing rates have been completed;
- generate standard letters;
- have templates for special issue letters;
- link to the actuarial model;
- have a decision form for council staff to complete; and
- link to a spreadsheet that can be used to calculate interest.
6.17
The consortium is also considering including a “pop-up” to remind council staff to
do an annual insurance check.
6.18
This database will be distributed to members of the consortium when it is
complete, and will help councils cope with larger numbers of postponements in
the future. We encourage councils to use this resource, as well as the desk file
being prepared by the consortium.
6.19
We were told that council rating databases are not designed to record information
relating to postponement, so need to be updated manually each year.
Fees
6.20
The costs to the consortium councils associated with individual accounts are:
- the cost of the decision facilitation session(s);
- a fee payable to Land Information New Zealand to register the notification of charge (currently $50);
- a fee payable to Land Information New Zealand to release the notification of charge when the postponed rates have been paid (currently $50); and
- staff time to process applications and undertake ongoing administration.
6.21
There was significant variation between the four consortium councils we audited
regarding whether they charged fees to cover each of these costs.
6.22
Councils offering optional rates postponement also charge ratepayers:
- an annual 0.25% fee as a reserve fund fee; and
- an annual 1% management fee, which is paid to R P Scheme Managers, the company that manages the rates postponement consortium.
Decision facilitation fees
6.23
Councils charge ratepayers who are granted optional rates postponement a fee
of $300 to go towards the cost of decision facilitation. Ratepayers who undertake
decision facilitation but choose not to proceed with rates postponement are
not required to pay the $300 fee. Ratepayers are entitled to up to three decision
facilitation sessions. Relationship Services charges councils $133 for each session.
6.24
Councils set the $300 fee based on an estimate of ratepayers requiring an average
of 2.3 sessions of decision facilitation. So far, only one ratepayer has required more
than one decision facilitation session.
6.25
We were told that the fee paid by those ratepayers who choose to go ahead
with the scheme partly goes to offset the costs of decision facilitation sessions
undertaken by ratepayers who then choose not to postpone their rates. We were also told that the ratepayers who have so far applied for rates postponement are
“early adopters”, who quickly understood the benefits of the scheme for them
personally and had already decided that they wished to join before attending
a decision facilitation session. However, future applicants might be less certain
about their decision, and therefore require more facilitation sessions.
6.26
We discussed the fee level and the number of decision facilitation sessions with
Relationship Services. Relationship Services told us that it is very important that
applicants have access to more than one session, so that, for example, they can
return with family members if they wish to.
6.27
Given that the actual number of decision facilitation sessions required by
ratepayers has been below the expected average, we think that councils should
review the $300 flat fee.
| Recommendation 20 |
|---|
| We recommend that the rates postponement consortium councils review the fee charged for decision facilitation, to ensure that it is fair to applicants and covers councils’ costs. |
Fees for registering and releasing land charges
6.28
Land Information New Zealand may charge a fee for registering or releasing a
notification of charge on a title. The current fee for each service is $50.
6.29
Far North District Council, Gisborne District Council, and Rodney District Council
charge ratepayers a $50 application fee, which was originally intended to cover
the cost of registering the notification of charge.
| Recommendation 21 |
|---|
| We recommend that councils whose rates postponement policies state that the costs of postponement will be borne by the ratepayers concerned charge an initial fee to cover the cost of registering a notification of charge, and add a fee to postponed rates when they are paid to cover the cost of releasing the notification of charge. |
Annual fees
6.30
Councils estimated that administering individual postponed rate accounts
took two to five hours of staff time for each account each year. They considered
that, with the small numbers currently involved, administration could easily be
absorbed by existing staff. However, if the numbers of ratepayers postponing rates
grew substantially, they might need to employ part-time staff to administer the
scheme.
6.31
Far North District Council and Gisborne District Council both charge a $50 annual
administration fee, which is added to the postponed rates. Rodney District Council
and Western Bay of Plenty District Council do not charge an annual administration
fee.
| Recommendation 22 |
|---|
| We recommend that councils offering optional rates postponement monitor the administration load created by rates postponement, and consider imposing an annual administration fee to cover the cost of staff time spent on rates postponement where they do not already do so. |
The reserve fund fee
6.32
Councils offering optional rates postponement add 0.25% to ratepayers’
outstanding balance each year. This fee is intended to cover the cost of any cases
where the value of postponed rates is greater than the amount realised by the
sale of the property that they have been postponed against.
6.33
In our view, it is reasonable for councils to charge this kind of fee, because the
general rating base would otherwise bear the risk of postponed rates not being
paid.
6.34
We were told that the level of this fee will be reviewed in several years, when there
will be more data available to make a more reliable estimate of the fee needed to
offset the risk to the council of bad debts.
Management fees
6.35
Consortium councils add 1% each year to ratepayers’ outstanding balance. This fee
covers the councils’ payments to the company responsible for managing the rates
postponement consortium.
6.36
Currently, the management costs are absorbing the whole of this fee. However,
once the initial management costs have been paid, councils may be able to remit
a portion of this fee back to the ratepayers.
6.37
We discuss the use of this fee further in Part 7.
Interest
6.38
All four councils we audited charged interest on postponed rates to cover their
financial costs.
6.39
Councils varied in how they set this interest rate, but all councils aimed to
approximate it to their cost of borrowing.
6.40
In the future, councils offering optional rates postponement will be able to use
the database currently being created to assist staff in calculating interest.
6.41
The councils we audited continue to send rates invoices to ratepayers who have
postponed their rates. These invoices show the total amount of rates outstanding,
including postponed rates, interest, and fees. However, they do not separately
show interest and fees that have been charged to the account.
6.42
The rates postponement administration database will include a facility for
generating annual statements for ratepayers that will show interest, fees,
and regional and district/city council rates separately. It is intended that each
ratepayer will receive a copy of this statement at the end of the financial year.
Compliance with section 88(2) of the Local Government (Rating) Act 2002
6.43
As noted in paragraph 6.3, section 88(2) of the Local Government (Rating) Act
allows councils postponing rates to charge a fee not exceeding the financial and
administrative costs to the council of the postponement.
6.44
Councils offering optional rates postponement set their fees in accordance
with the information available at the time they adopted the policies. However,
financial and administrative costs incurred by councils for rates postponement
may change over time. For example, councils’ cost of borrowing may change, and
the costs associated with management of the consortium may vary over time. We have noted that the decision facilitation fee needs to be reviewed to ensure
that it complies with section 88(2) of the Local Government (Rating) Act. Councils
therefore need to regularly review all fees and interest to ensure that they
continue to comply with section 88(2).
| Recommendation 23 |
|---|
| We recommend that all councils offering residential rates postponement regularly review all fees and interest to ensure that they continue to comply with section 88(2) of the Local Government (Rating) Act 2002. |
Monitoring
6.45
All the councils offering optional rates postponement were able to provide us with
information about the total amount of postponed rates currently outstanding.
6.46
As optional rates postponement has been offered for only two years, no
ratepayers have substantial outstanding postponed rates. Therefore, the risk of
any ratepayer’s outstanding rates nearing the 80% equity cap is currently very
low. However, as the scheme continues, councils will need to ensure that they are
monitoring individual accounts, so they can consider stopping postponement if
the value of outstanding rates is likely to breach the 80% cap.
6.47
Gisborne District Council has an “equity check” spreadsheet that compares the
current postponed rates to the equity in the property, to check the 80% equity cap
has not been breached.
6.48
It would be good practice for all councils offering optional rates postponement
to have similar equity check mechanisms, and make sure these are updated on a
regular basis.
6.49
We note that Gisborne, Western Bay of Plenty and Far North District Councils’
optional rates postponement policies explicitly state that “Council reserves the
right not to postpone any further rates once the total of proposed rates and
accrued charges exceeds 80% of the rateable value of the property as recorded
in Council’s rating information database”. In our view it is sensible for councils to
include this explicit provision in their policies.
| Recommendation 24 |
|---|
| We recommend that councils offering optional rates postponement monitor individual accounts so that they can consider stopping postponement if the value of outstanding rates is likely to breach the 80% equity cap. |
Ceasing to postpone rates
6.50
The four councils offering optional rates postponement that we audited had clear
statements in their policies regarding when postponed rates become due. In the
case of death of the ratepayer, the policies allow between three and 12 months for
the rates to be paid.
6.51
All four policies explicitly stated that ratepayers could pay their postponed rates at
any time without penalty.
6.52
Gisborne, Western Bay of Plenty, and Far North District Councils all have provisions
in their policies allowing ratepayers to transfer the value of postponed rates from
one property in the district to another. So far, none of these councils have been
approached by a ratepayer wishing to exercise this option. Rodney District Council
does not have this provision in its policy.
6.53
It is not yet clear what mechanism councils could use to transfer debt from one
property to another.
| Recommendation 25 |
|---|
| We recommend that councils whose policies allow ratepayers to transfer the balance of postponed rates to a new property clarify the mechanism they would achieve this through, to confirm that their policy is practical and legally sound. |
6.54
Councils register a notification of charge on the title of properties that they have
postponed rates against. This notification of charge needs to be released once the
council receives payment of the postponed rates. If the rates are paid without the
property being sold, councils can release the notification of charge after receiving
payment.
6.55
The desk file being prepared by the consortium includes a section detailing
the procedure for councils to follow when releasing a notification of charge
if a property is being sold. This procedure requires the council to find out the
settlement date and calculate the total payment, including interest, that will
be due on that date. On settlement day, the council should confirm receipt of
payment and then, on that same day, send the notice of release of notification of
charge. This procedure ensures that the notification of charge is not released until
the postponed rates are paid.
Administration of hardship rates postponement policies
Record-keeping
6.56
The files we examined at Christchurch and Wellington City Councils were in good
order and contained all the documents we expected to see.
6.57
Wellington City Council has a thorough desk file that records the procedures for
processing rates postponement applications. The council also has a deadline for
approving or declining applications 15 working days after receiving them.
Fees and interest
Fees
6.58
Wellington City Council charges a $200 application fee for the first year a
ratepayer applies to postpone their rates. This fee can be paid separately or added
to the postponed rates. We were told that this fee is to cover administration costs. There is no annual administration fee.
6.59
Christchurch City Council does not charge any application or administration fees
for rates postponement.
Interest
6.60
Wellington City Council and Christchurch City Council both charge interest on
postponed rates. They set the interest rate based on the councils’ respective
borrowing rates.
6.61
Both Wellington and Christchurch City Councils calculate interest manually on
postponed rates. They told us this system was practical for them, as they had very
small numbers of ratepayers postponing their rates.
6.62
Christchurch City Council sends its ratepayers a rating invoice, showing the total
outstanding rates. The invoice is annotated to show the amount that has been
added for the year. Interest is not noted separately.
6.63
Wellington City Council sends each ratepayer a full breakdown of their account
every year, in addition to their rates invoice. The additional breakdown shows the
interest rate and the accrued interest.
| Recommendation 26 |
|---|
We recommend that all councils offering residential rates postponement send ratepayers an annual statement showing:
|
Monitoring
6.64
Wellington City Council and Christchurch City Council were both able to
provide us with information about the total value of postponed rates currently
outstanding.
6.65
Neither council has a cap on the total value of rates that could be postponed,
either as a percentage of a ratepayer’s equity in their property or as an absolute
figure.
6.66
Wellington City Council requires ratepayers to reapply for postponement each
year. The balance of outstanding rates and the equity available in the property are
scrutinised as part of this process.
6.67
Christchurch City Council has a spreadsheet that allows them to check individual
outstanding balances. While the total amount of rates postponed for any one
ratepayer is small, we note that the ratepayer’s equity is not included on this
spreadsheet.
| Recommendation 27 |
|---|
| We recommend that all councils offering residential rates postponement monitor individual accounts so that the council can make informed decisions about whether it is prudent to continue to grant rates postponement to individual ratepayers. |
Ceasing to postpone rates
6.68
Christchurch City Council’s policy contains unclear wording regarding the term
of postponement. In particular, if a ratepayer ceases to meet hardship criteria,
it is not clear whether they need to pay all postponed rates, or whether already
postponed rates will remain postponed, even though the ratepayer reverts to
paying current rates as they become due.
6.69
Ratepayers who are granted rates postponement by Christchurch City Council are
advised the term of their postponement when they are advised the outcome of
their application.
6.70
It is clear from Wellington City Council’s policy that postponement is for only one
year at a time. Council staff told us that most ratepayers reapply annually, and
have rates postponement granted on an ongoing basis.
6.71
However, if a ratepayer does not reapply or is not granted further postponement,
all postponed rates become payable. This is not clear from Wellington City
Council’s policy; nor from other available information.
| Recommendation 28 |
|---|
| We recommend that all councils review their residential rates postponement policies to ensure that it is clear when, and under what circumstances, postponed rates must be paid. |
6.72
Councils offering rates postponement on the grounds of hardship do not allow
ratepayers to transfer the debt from one property to another.
6.73
Wellington City Council has a clear procedure for releasing the notification of
charge on the title, but their practice is to release the notification of charge before
the postponed rates are paid.
6.74
We acknowledge that councils have a statutory right to collect rates from a
property even if a notification of charge is not registered on the property’s title.
6.75
However, the notification of charge on the title acts as an alert to anyone
searching the title that the rates have been postponed. In our view, Wellington
City Council should consider amending its procedure, to not release the
notification of charge until the postponed rates are paid.