Rates Postponement Project

Rates Postponement Project A Western Bay of Plenty Perspective

Overview • Why did Western Bay of Plenty District Council get involved? • What have we done? • McKinlay Douglas Limited involvement • Investigation of other examples • Progress to date

Why Did Western Bay of Plenty District Council Get Involved? • Profile of the District • population growth • high elderly population • asset risk, cash poor • Growing communities & provision of infrastructure

Our Population “The People” 1991 – 29,871  2001 – 39,900  2051 – 72,700 • 15% retired • Income lower than national average • High home ownership – home equity • Dependant on GRI and market investments

Average Rate - Residential • Waihi Beach $1,834 • Katikati $1,620 • Te Puke $1,454 • Omokoroa $1,307 • Maketu $1,069

Infrastructure • Dispersed communities – 5 towns • High cost of sewerage $750 - $1000 extra p.a. • For many 100% increase • Waihi Beach • 1992 - $850 • 2004 - $4,500 • Resistance because of cost • Elderly do not want to invest in future

Options • Rates • DIF (Development Impact Fees) • Lump sums for capital projects (under old Rating Act) • Conflict with intergenerational equity • Time payment • Installments • Direct debiting – monthly • Discount for early payment of rates

Where Did The Idea Come From? • CEO visit to Vancouver, Canada • Engaged McKinlay Douglas Limited to investigate global options • Mayor & CEO investigated USA • Options paper to Council

Western Bay of Plenty District Council Options for Unlocking Ratepayers Equity

Introduction • Impact of ageing population is growing nationally & internationally • Demographic shift towards ageing population will have a profound impact on quality of life, health & provision of services

Introduction Cont… • Life expectancy has increased some spending 1/3 of their lives in retirement • 12% of New Zealand population is over 65 – projected to increase to 25% by year 2051 • For Western Bay 14.3% (5,475) over 65 years

Issues • How will older people on fixed incomes meet rates increases? • Council is required to upgrade services to meet environmental and quality of life issues • Making rates affordable

Issues Cont… • New Local Government Act “meeting their environmental, social, economic and cultural needs” • Impact of increasing demand on health care and quality of life and Council’s role

Current & Future Concerns • It is clear that the cost of meeting what aged New Zealander’s regard as their ‘reasonable needs’ is increasing beyond the ability of either the taxpayer or ratepayer to fund

Current & Future Concerns Cont… • Older persons generally “asset rich, cash poor” • Their preference is to retain their independence • Living in their own home for as long as possible

Current & Future Concerns Cont… • Lack of resources for older persons • Their incomes are limited • No acceptable means to unlock equity in their property • Support services for independent living

Options • Rates postponement • Home equity conversion • Market based financial instruments that allow the owners of property to release some equity without prejudicing their ability to remain in ownership • Discount for early payment

Options Cont… • Council could, subject to legal confirmation, offer an alternative to Home Equity Conversion • Postpone rates • Charge against property • Fund by loan • Charge interest & rates to property • Recover funds when property sold or transferred

AdvantagesRates Postponement • Frees-up home owner’s cash • Ensures ownership & independence • Improves disposable income • Allows for intergenerational issues • Council assisting in community social outcomes

DisadvantagesRates Postponement • Have to limit numbers participating • Council’s cashflow • Increase debt (but backed by substantial assets) • Only allowing rate relief to older persons

Is This Happening Elsewhere? • Four countries were considered: • Canada • United States of America • United Kingdom • Australia • Consideration in New Zealand

Canada • British Columbia • Running since 1974 • Total property tax postponed • Must be over 60, widowed or disabled • Deferred as long as person lives in house and qualifies

Canada • British Columbia Cont… • Property tax plus interest repaid before property can be transferred • Repayment at anytime with no penalty • No income limit • 11,000 people taking advantage

United States of America • Widespread use of deferred property tax • Usually age restricted • Defer on principal residence until owner dies or sells • Usually some kind of fee • Not necessarily interest • Often income limit or tested

United States of America • Minnesota • 65 or older • Own or occupy the property as principal residence for at least 15 years • Household income not more than $60,000 • Total debt against the property cannot exceed 75% of the property’s estimated market value

United Kingdom • There does not appear to be any form of rates postponement • Dwellings are exempt if • Occupied by students or people under age 18 • Occupied by severely mentally impaired people (not including where the landlord or care-home owner is liable) • Dwellings with an annex occupied by a relative over 65

Australia • The Local Government Act permits Council to remit rates on the basis of hardship if hardship is proven to qualify. • Many Councils offer a concession on rates for people who hold a pension or seniors card

New Zealand • The Rating Powers Act made provision for rates to be postponed on grounds of hardship • This required a Council to apply an assets and income test. Generally this provision is not used because: • Older people have resistance to the intrusiveness of the assets and income test • Few Local Authorities advertised that this postponement was available

Rates Relief • A government funded Rates Relief Programme is available through Local Authorities: • Eligibility is income based • The maximum relief available has not been adjusted so that, currently, very few people meet in eligibility test • New options allowed in new legislation

Actions Required • Council agree to investigate further • Check legal issues • Check new act and provisions • Investigate including study tour of applicable sites

McKinlay Douglas Limited Involvement • Initial investigation • Undertake significant research • For local government, not just Western Bay of Plenty District Council • Collaborative approach • Management company to administer

What Has Been Done? • Developed proposal • Discussions with Government department agencies and providers • Discussions with service providers • Preparation of documentation • agreement for consortium • legal agreement • budgets • timeline and milestones

Next Step • Develop and agree consortium • Complete implementation plan • Agree budgets and contributions • Structure and Management

Operational Structure • Joint Committee oversees project. • Individual councils run their own rates postponement policies and rating systems within the scheme parameters. • Generic issues - promotion, policy, scheme services, future development - handled by the management company.

What’s Involved? • Establishing “best practice” - based on local and international experience. • Identifying components of a successful scheme - a postponement policy, risk management, actuarial services, counselling, insurance, legal, government policy, community acceptability, funding/banking, scheme extensions. • Consortium approach.

Postponement Policy • Model policy developed with WBOPDC - out for consultation in its draft LTCCP. • The focus has been on issues such as eligibility, security (types of property etc - retirement villages) and cost. • The scheme has been designed on the basis that all costs should be internalised to ratepayers benefiting from postponement.

Risk Management • The basic principle is to minimise risk to participating local authorities. Doing this includes: • Establishing a reserve fund to meet any shortfalls in repayment. • Engaging independent actuarial services. • Requiring that all properties subject to postponement are insured. • Developing robust contracting and audit arrangements.

Actuarial Services • Actuarial services are being provided by John Melville of Melville Jessup Weaver - a former government actuary. • A model has been developed for use both by ratepayers and by councils incorporating assumptions on mortality, interest rates and charges, rates increases and changes in the value of land and improvements. • The assumptions will be reviewed periodically to ensure that they reflect best current understandings of expected future changes.

Counselling • International best practice and experience highlights the importance of independent counselling. • Negotiations are well advanced with Relationship Services to provide the counselling service. • The management company and Relationship Services will develop counselling guidelines and protocols.

Insurance • 15-25% of houses owned by older people are uninsured. • Compulsory insurance will protect councils against risk of loss. • Negotiations are underway to establish a group insurance policy to cover uninsured properties. Proposed cover is all risks with a $10,000 excess. • The premium will be paid by the council and incorporated in administration charges.

Legal • Two separate matters: • Brookfields have been engaged to advise the consortium. They have drafted heads of agreement and prepared a quotation for completing the contracts necessary to establish the scheme. • A technical problem was encountered with the Statutory Land Charges Registration Act. Negotiations are underway with the Department of internal Affairs to change this.

Government Policy • The scheme is of obvious interest to government agencies, especially those dealing with older people: • We have met with the Office of Senior Citizens. They are supportive and will help with ensuring smooth introduction of the scheme. • The Retirement Commissioner sees the scheme as an important additional means of assisting older people cope in retirement. • One role of the management company will be to continue monitoring government policy.

Community Acceptability • It is expected that attitudes towards the scheme will vary - from those who will welcome it to those who see it as a sinister plot to deprive older people of their hard earned wealth. • Contact is being established with a range of community groups such as Age Concern, Grey Power, the NZ Council of Christian Social Services, and Citizens Advice Bureau.

Funding / Banking • Funding will create a gap in council cash flow - small initially, but eventually very substantial. • A collective approach to funding should have substantial transactional and cost of money benefits. • The scheme will also provide a lever to improve the nature and quality of banking services to local government and to communities. • Discussions already underway support this.

Scheme Extensions • WBOPDC and MDL have discussed the possibility of extending the scheme into: • Specific services for older people to support independent living, funded through a targeted rate. • Using leverage on the banking system, as the scheme grows, to encourage the development of more conventional home equity conversion products.

Heads of Agreement • The purpose of the heads of agreement is to establish a non-binding but comprehensive understanding over the purpose, structure and operation of the rates postponement consortium. • A draft heads of agreement has been prepared by Brookfields and amended substantially under WBOPDC’s oversight to reflect the scheme arrangements preferred by WBOPDC - eg avoiding CCO status.

Contracts • Two contracts will be required to establish the scheme: • A contract amongst participating councils constituting the joint committee to manage the scheme and setting out its suggested powers and obligations. • A contract between the joint committee and the management company covering matters such as the responsibilities of the management company, funding, and council control (mechanisms here include budget approval, no expenditure outside budget, and audit).

THE END

Rates Postponement Project