It has been a sobering few weeks for Waitematā Local Board as we discuss the implications of the Mayor’s proposal for the Long Term Plan 2015-2025 (LTP). The LTP is Council’s budget for the next ten years and it is being shaped primarily to keep the average rates rise to between 2.5% and 3.5% for the next three years. At the same time, Council will be attempting to eliminate the differential between residential and business rates. This will require major cuts to Council spending. The ‘theme’ that will be most hard hit is ‘Parks, Community and Lifestyle’ (PC&L). This includes Parks and Recreation and Community Development and Culture (CDaC) which includes libraries. The proposed budget reduction to the capital programme in this theme is a massive 39% for the next 5 years. This goes beyond a temporary reduction in spending; it will cost jobs and as a result will seriously reduce capacity for much longer than the 5 years for which spending is cut. There is a plausible connection between this and a plan to significantly lower development contributions that property developers pay to fund council facilities for the use of all ratepayers.
What part do Development Contributions play in all this?
Development contributions are a charge, authorised under s198 of the Local Government Act 2002 (LGA), imposed on a developer by a ‘territorial authority’ to recover some of the capital costs incurred by the council when providing infrastructure services for the development. Development contributions can also include a transfer of land (for example for reserves). It is interesting to note that the PC&L theme is a grouping of the areas that are funded by development contributions. Development contributions have been clearly identified by the government as a contributor to high housing prices and they have committed to lowering them to improve housing affordability. With the passage in August of the LGA Amendment Act 2014, the government amended the LGA to restrict development contributions from a wide definition of ‘community infrastructure’ to a short list specifying only community halls, public toilets and play equipment. Contributions for reserves have been further restricted with a prohibition on charging development contributions for reserves where a particular development does not involve the creation of additional housing or accommodation. In addition to all this, the 2014 Amendment Act has added extensive provisions for developers to object to development contributions levied and to have them reviewed, with the appointment of commissioners to do so if necessary (ss199A-P of LGA Amendment Act 2014).
Support for greenfields developments
The Mayor’s proposal doubles down on the LGAA 2014 change in policy by proposing the biggest cuts to the LTP in the areas funded primarily by development contributions. Why would this be so? The key to understanding this move is that the level of Council funding for an asset depends on whether or not it is ‘growth funded’. If it is in a greenfields development, the asset will be 100% funded by development contributions. If it is elsewhere, the city centre for instance, a formula is employed to work out the percentage of funding from development contributions. Taking the Ellen Melville Hall in Auckland’s city centre as an example, because it sits in an existing population catchment but with some growth predicted it will be funded only for the predicted population growth on top of the existing population. This would mean that it would be funded, at a guess, for less than 25% of the total cost of renovations. The Council will need to find the other 75% or so from another source. If that other funding can’t be found, as is very likely when there is a drive to cut capital expenditure throughout the organisation, the project will be cancelled altogether. As development contributions must be justified and accounted for (now subject to objection and review), they can only be levied for projects already funded. So, the more projects are cut, the lower the development contributions will be.
A win for developers but will ratepayers be happy?
By cutting capital expenditure in the areas that are funded by development contributions, the Mayor’s proposal for the LTP will certainly deliver much lower development contributions for developers. But while the average cost of development contributions to building a new house is estimated at $14,000 per house, this pales in comparison to Auckland’s runaway land values. Will ratepayers really be the winners when the parks, libraries and community services they enjoy have their budgets slashed?