New Zealand: Local Goverment Bulletin II

Local Government Law Reform Bill – Lump Sum Contributions

One of the Acts proposed for amendment by the recently introduced Local Government Law Reform Bill (Number 4) is the Local Government (Rating) Act 2002 (LGRA).

On the minor side, an amendment to section 29 and new section 41A will clarify that challenges to the valuation of a rating unit must be brought under the Rating Valuations Act 1998 (ie not as an objection to the LGRA rating information database). Where such a challenge is successful, section 41A will require local authorities to issue an amended rates assessment.

The more significant changes, including an entirely new Part 4A, seek to establish a new local authority funding tool – ‘lump sum contributions’ (LSC regime).

With limited political comment on the proposed LSC regime to date, it is difficult to identify the drivers behind this attempt to introduce the idea. In 1999, a discussion document of the then National government – A Future Direction for Local Government Funding Powers – included the suggestion that:

Councils could be given limited powers to shift the liability to pay rates across time through ... a general power ... for councils, at their discretion, to form policies to allow ratepayers the option to pay lump sums ‘up front’ or to defer payment of rates. Such policies would have to include appropriate discount or interest rates.

The concept of lump sum contributions was not carried into the 2002 legislative reforms. Nor was the idea part of the Local Government Law Reform Bill (Number 3) package, about which the New Zealand First Party commented in 2004:

Also surprising was the inability to accept the submission made by the Marlborough District Council amending the Local Government Rating Act 2002, clarifying the ability for a council to fund localised projects by lump sum contributions.

New Zealand First intends to pursue the ability of Marlborough and other local authorities to be able to establish lump sum regimes by the preparation of a Private Member’s Bill.

It is therefore possible that the inclusion of a LSC regime in this Local Government Law Reform Bill springs from New Zealand First’s coalition deal with Labour.

How will lump sum contributions work?

The LSC regime is designed as a funding tool for specific capital projects, although local authorities will not be able to compel ratepayers to make lump sum contributions, so it is perhaps better thought of as a variety of targeted rate. The essential features of the regime are:

1. It may only be used to fund capital projects (ie not opex).

2. First, a ‘funding plan’ must be adopted as part of (or an amendment to) a local authority’s LTCCP.

3. The requirements of a funding plan will be set out in a new schedule 3A, and include:

3.1 A description of the capital project to be funded, together with estimates of its timeframe, cost, and the split between lump sum contributions and targeted rates.

3.2 The category of rating units that will be liable to pay the lump sum contribution/targeted rate (ie the class of ‘eligible ratepayers’).

3.3 How the lump sum contributions and targeted rates will be calculated, and (if necessary) recalculated upon completion of the project.

3.4 What matters the local authority must be satisfied of before proceeding with the project (including any minimum level of lump sum contributions).

4. Once adopted, a funding plan locks in a local authority’s funding decision and it may not fund the same project except in accordance with that plan (practically, funding plans will need to incorporate sufficient flexibility to avoid the need to change the plan itself by amending the LTCCP using the special consultative procedure).

5. After a funding plan is in place, the second stage is to invite eligible ratepayers to make a lump sum contribution. The requirements of this invitation will also be set out in schedule 3A. An LSC regime invitation can be compared to the publication of an investment statement: it must fully inform eligible ratepayers about the decision to either (a) elect to pay a lump sum contribution; or (b) pay targeted rates over a period of time.

6. Ratepayers then have a minimum of one month to complete the third stage: electing whether to pay a lump sum contribution or not. Once made, that election will run with the land, and unpaid lump sum contributions can be recovered as a debt.

How will lump sum contributions be used?

Local authorities can already recover the cost of infrastructure assets from a limited class of ratepayers under sections 16-18 of the LGRA. A fixed rate per rating unit can be assessed on categories of rateable land defined by the ‘provision or availability to the land of a service provided by, or on behalf of, the local authority’. Given this existing power, and that the LSC regime will not allow compulsory lump sum contributions, a question exists over what role the regime is intended to play.

Perhaps the most likely LSC regime scenario is for the funding of infrastructure upgrades that will benefit a very specific class of rating units (for instance a road servicing a remote community). In the absence of another adequate funding source (such as development contributions under the Local Government Act 2002), or the political will to fund such an upgrade through borrowing to be recovered by a subsequent targeted rate, a funding plan could be adopted that:

  • Allowed community members to elect between paying a lump sum contribution or a targeted rate; but
  • Set a high threshold of lump sum contributions before the project would be undertaken.

Although somewhat of an ultimatum (and possibly politically untenable as a consequence), this type of funding plan would provide communities with a very transparent choice: either forego the infrastructure upgrade, or collectively fund a portion of the required capex up front. Those unable to pay a lump sum contribution would become liable for a targeted rate of equivalent economic value to be paid over time.

Difficulties and observations

Aside from the type of scenario detailed above, it is difficult to identify situations where the LSC regime will prove useful. Human nature (and the fact that property may later be sold) suggests that without some tangible benefit, most ratepayers will not elect to pay a lump sum contribution. Although this could be overcome by discounting the lump sum contribution, proposed section 11 7B(4) provides:

In developing a funding plan, a local authority must give equal weight to the financial interests of those ratepayers who may elect to make a lump sum contribution and those who may decide not to do so.

Thus it will be arguably impossible for local authorities to ‘sweeten the deal’.

Potential difficulties with the Bill’s drafting include:

  • The lack of clarity around how Part 4A will link to the existing LGRA provisions dealing with targeted rates. For instance, the class of ratepayer liable for the alternative of targeted rates must include all eligible ratepayers who elect not to pay a lump sum contribution. Proposed clause (d) in part 1 of schedule 3A does not make clear whether these classes must be defined by the limited categories of land for setting targeted rates under section 17/schedule 2 of the LGRA.
  • Nor is it clear whether targeted rates under the proposed Part 4A will count towards the 30% cap under section 21 of the LGRA.
  • The Bill also permits argument over whether an unpaid lump sum contribution will be secured as a charge on the rating unit (as is the case for rates).

Conclusion

Although some local authorities may welcome the LSC regime as a useful way of negotiating the funding of specific infrastructure projects with communities of interest, at first blush it seems unlikely to become a common funding tool.

It is more likely that growth-related capex projects will be funded from development contributions, which have proved to be a powerful tool enabling local authorities to require the costs of development to be internalised. On the other had, infrastructure upgrades/improved levels of service are regularly funded through borrowing, which can be recovered from benefiting rating units by targeted rates.

The LSC regime will be most useful where the business case for borrowing to construct or upgrade a piece of infrastructure is weak, but the wheel is nevertheless squeaky.

Court Endorses Council Failure To Comply With Statutory Timeframe – For Now...

Administrative delays and prolonged processing periods have become de rigueur complaints for opponents of the Resource Management Act 1991.

The issue has now emerged in the building field, with the High Court in Williams & Co Trustees Ltd v Selwyn District Council (22 March 2006) being asked to consider whether Selwyn District Council had been remiss in knowingly exceeding the Building Act 2004’s 20 working day timeframe for processing building consent applications. The resulting decision will cause territorial authorities to breath a sigh of relief, yet it also sounds a warning bell for those making little headway towards complying with their statutory obligations.

The applicant involved applied for building consent to construct a residential dwelling on 7 December 2005. It was common ground that, after several requests for further information, the 20 working day period for processing the application (set out in s48 of the Building Act 2004) expired on 17 February 2006. In response to a query from the applicant, the Council gave a written indication that the application was likely to be processed sometime in mid- March. Frustrated by the forecast delay, the applicant applied to the Court for an order forcing the Council to issue the consent forthwith.

In considering the request, Chisholm J acknowledged both the legitimate frustration of the applicant, and the very real resource problems experienced by the Council – a factor made worse by the gradual disappearance of private building certifiers since 2004. However, he found that three of the four factors affecting his decision favoured the Council. These were:

  • The failure to comply with the statutory timeframe was not a wilful failure – the problems experienced by the Council in complying with its statutory obligations were genuine.
  • By granting the order sought, the Court would open the floodgates to hundreds of similar requests.
  • There was a strong likelihood that the particular consent application in question would be processed in a matter of days in any event.

This last factor was determinative in Chisholm J’s handling of the case, which was adjourned for a number of days in which time the Council was expected to process the consent application. Although the matter was therefore not finally decided, Chisholm J indicated that the floodgates argument weighed strongly in his mind and that other people in the position of the applicant should not be encouraged to issue proceedings. However, he also served a warning to territorial authorities struggling to process building consent applications within the statutory timeframe:

... the Council should not construe the outcome as a signal that all is well. It cannot fail to comply with its statutory obligations indefinitely and the time will come when the arguments presented in this case no longer carry any weight. Put another way, the Council must maintain its momentum in addressing this problem.

Accordingly, the decision does not justify a cavalier attitude on the part of the territorial authorities towards statutory timeframes. Rather, it indicates that the Courts will not continue to tolerate failures to comply with statutory obligations indefinitely, even though the circumstances leading to such failures may be beyond the control of territorial authorities. The message for territorial authorities is clear – the Courts will extend some leniency while adjustments are made to accommodate the new statutory regime, however the honeymoon period won’t last forever. Quite where the line will be drawn is unclear – however, it appears that time is most definitely of the essence.

Bylaws Levying Waste Collectors Ultra Vires And Invalid, But Regulating Through Licensing Regime Valid

Waste Management NZ and Carter Holt Harvey successfully challenged the validity of North Shore, Rodney, Waitakere, and Christchurch City Councils’ waste levy bylaws enacted last year.

The bylaws gave the Councils power to impose waste levies on companies that were licensed to collect, dispose, and/or transport waste in its districts for the purposes of funding general waste management strategies. The High Court found that the bylaws effectively purported to give Councils the power to tax. Taxes can only be lawfully levied if there is statutory authority to do so. Both the Local Government Acts (1974 and 2002) only give Councils powers to enact bylaws to recover costs connected to the use of its waste facilities, or in implementing its waste management plans. Neither act gives Councils general powers to tax. For these reasons the Court found that the bylaws were ultra vires and unreasonable and were quashed.

The Court accepted, however, that the Councils had powers under the Local Government Act 1974 to institute licensing regimes to monitor and regulate the collection and transportation of waste by waste operators, and to charge and receive licensing fees while doing so. The licensing regimes also made unlicensed collection or transportation of waste an offence under the Councils’ bylaws.

Carter Holt’s appeal was partly dismissed as it attempted to exclude its paper recycling activities from the licensing regimes, but the Court considered that the meaning of waste included materials that could be recycled and reused.

Wellington City Council V Mcbride And Currington, High Court, Wellington, 17 February 2006, CRI2005-485,144-147, Gendall J

This case related to the correct interpretation of an aspect of the Traffic Regulations 1976 (before they were largely repealed). It was about whether a pay and display machine is a ‘parking meter’. The High Court (overturning the District Court’s finding on this issue) found that a pay and display machine is a ‘parking meter’.

The significance of this finding is that prescribed signage is not required to indicate the extent of a pay and display area because under the Traffic Regulations, signage was not required where the parks are regulated by ‘parking meters’.

This interpretation will have some application under the Traffic Control Devices Rules 2004 (which replaces the Traffic Regulations in terms of signage requirements) as the Rules still provide an exemption for signage where parking meters are located ‘...at, or adjacent to, each parking space’.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.

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