Archive | Finance

S&P raises Waitakere rating to same level Auckland City reduced to

Published 24 December 2009

Credit rating agency Standard & Poor’s has given Waitakere City Council an upgrade.


Council chief executive Vijaya Vaidyanath said that after the council decided to re-engage the agency it received an AA-/A-1+ issuer credit rating, which would give the council better access to loan funding at more favourable interest, meaning savings for ratepayers.


“We can now go into the super-city confident that Waitakere’s financial situation is solid,” Mrs Vaidyanath said. All assets & liabilities of all the region’s councils will be merged into the new Auckland Council next November.  

The upgrade may be more to do with the super-city, less to do with Waitakere. Last week, Auckland City Council finance general manager Andrew McKenzie criticised S&P after the agency downgraded his council to the same rating Waitakere has been elevated to.


Earlier story:

18 December 2009: S&P downgrades Auckland council rating, McKenzie says agency demonstrates poor understanding


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Attribution: Council release, story written by Bob Dey for the Bob Dey Property Report.

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S&P downgrades Auckland council rating, McKenzie says agency demonstrates poor understanding

Published 18 December 2009

Standard & Poor’s Ratings Services said on Wednesday it had lowered its local-currency ratings on Auckland City Council from AA/A-1+ to AA-/A-1+ to reflect the credit quality of the proposed merged Auckland Council.


Credit analyst Anna Hughes, of Standard & Poor’s in Melbourne, said the outlook on these ratings was stable. The council merger occurs at next October’s elections, but Auckland City Council is already acting as the central borrower for the region’s councils. Back-to-back interim funding arrangements have been established, with Auckland City Council borrowing & on-lending to other councils on matched terms. All debt will become the responsibility of Auckland Council from 1 November 2010. Ms Hughes said: “The ratings on the merged Auckland Council are likely to reflect the council’s solid cash-operating surplus & substantial liquidity. A strong system of support and a large & diversified local economy further strengthens the rating.


“Auckland’s need to deliver larger infrastructure projects and the resulting debt increases somewhat offset these strengths, and ultimately led to the lowering of the rating to AA-. Based on the projections of the individual councils and our assessment of the ability of the council to deliver its aggressive capital-expenditure programme, we believe Auckland Council’s net debt could peak between 100-140% of operating revenue. “The stable outlook reflects our expectation that the merged council’s credit quality will remain consistent with an AA- rating over the medium term. “The rating could be reviewed either up or down, depending on the policies of the newly merged council & the consolidated forecasts it produces once it begins operating. Factors that may affect the merged council’s credit rating include the delivery of savings measures, the sale of assets, additional contributions from central government &/or their ‘takeover’ of existing capital expenditure projects and the new council’s rates revenue polices.”

Auckland City Council finance general manager Andrew McKenzie said the downgrade disappointed him: “The downgrade by Standard & Poor’s reflects a poor understanding of the New Zealand local authority sector.


“The new council will be subject to the same legislative controls to operate in a financially prudent manner as Auckland City Council, which has a strong cash operating surplus & low-risk operations. In addition, the new council retains the ability to rate and its rating base will be almost 3 times the size of Auckland City Council’s.


“In New Zealand, the market has a better understanding of the strong credit features supporting the local government sector here.”


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Attribution: S&P & council releases, story written by Bob Dey for the Bob Dey Property Report.

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Council proposes second bond issue

Published 9 December 2009

Auckland City Council plans to make a second retail bond issue. Its finance & strategy committee recommended today that the council seek to raise $350 million through a secured fixed-rate bond offer.


The draft timetable would see the opening of the bond issue & setting of the minimum rate on Friday 26 February, with closure on Thursday 11 March.


Under the operating protocols of the regional integrated treasury group, which allows the existing Auckland councils to co-ordinate treasury activities during the transition to the new Auckland Council, Auckland City Council will on-lend borrowed funds to the other councils on the same terms.


Committee chairman Doug Armstrong said Auckland City Council would also consider other funding options such as wholesale bonds and borrowing directly from banks.


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Attribution: Council release, story written by Bob Dey for the Bob Dey Property Report.

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Council continues on 3% average rates rise track

Published 11 November 2009

Auckland City Council continues on track to meet its budget target of an overall 3% rates rise for 2010, in line with its projected inflation rate.


However, the overall target is skewed for different sectors, particularly for owners of lower-valued residential property – and, conversely, downward for owners of more expensive residential property – because of rises in uniform charges.


Chief executive David Rankin made these points in his overview for the annual plan session:


The real game, the real challenge is to keep the budget to the council rate of inflationInvestment in infrastructure is the big driver behind rates increasesThe scale & scope of capital projects over the next 2-3 years is huge and probably not achievable, particularly in a period of transitionWe’ve avoided a big hit on service levels and still achieved the fiscal targets.


The uniform annual general charge will rise from $250 to $317. That’s based on the overall 3% inflation rate, not on a 3% rise in the various targeted rates. On top of that is a $3 rise to $186 for refuse collection.


Uniform charges are an ideological issue, currently being won by the Citizens & Ratepayers majority, although the previous City Vision-Labour council majority didn’t wipe uniform charges out. In short, these charges represent a standard charge for service irrespective of property value.


Against the background of the overall cost of council business being set, the capex & opex programmes being largely in place and room for little movement without upsetting the 3% target – and with councillors in the majority group generally not participating in debate – the minority was left to flail rather futilely, allowed 3 speakers against any proposal (or for their own amendments) before each motion was put.


The November annual plan setting meeting is one of a series in which the council puts together its annual budget & rates bill, plus its 10-year review, and will be followed by the final planning session in February before its last budgetary meeting in June.


The city council will post its budget at the end of June 2010, to take effect on 1 July. Its role will be taken over 4 months later by the new Auckland Council, which will replace all Auckland’s 7 territorial councils and the regional council.


Wider implications


Auckland City, as the dominant council in the region & with the biggest budget, is inevitably the leader of policy in the transition and the city council’s majority has been working hard to ensure its policy positions will be clear signposts for the new council to work from.


One issue before the reins are handed over is the level of consultation on the annual plan. The council majority has decided that, for a plan setting the budget for just 4 months, the council should not undertake full public consultation, confining consultation to stakeholder groups.


However, for any change in its development contributions policy the council must go out to consultation. If that happens, there will be a month-long consultation period followed by hearings on the last 2 days of March.


The council has calculated shortfalls in contributions revenue of $2.8 million for the June 2011 year, $3.7 million to 2012, and said if the contributions policy wasn’t changed that money would probably have to be met from rates.


Policy manager Andrew Pickering said in his report to yesterday’s meeting: “This option would also mean that enhancements- to better align the development contributions policy with other council strategies, and streamline transition to the Auckland Council – could not be pursued.”


The council’s city development committee decided last month that the policy should be amended, but the revised per-unit charges haven’t yet been estimated as they depend on the capital programme & growth projections being set. They will be considered at the city development committee’s December meeting.


On the assumption that the contribution levels will be raised to overcome the shortfall, the council projected a range of rate rises, varying from an overall 4.3% for residential, through 2.8% for non-residential and zero for cbd non-residential (but made up to 2.8% through the cbd targeted rate).


The council minority proposed – unsuccessfully – lower uniform charges and a different range of rates moves for each residential value percentile. For the lowest percentile (capital value $35,000) the rates move would have been a 1.9% fall. At $270,000 capital value, it would have meant a 1.4% rise. For houses in the average Auckland City October sale price range of $570,000, the minority projected a 3.4% increase (at $540,000) to 3.8% increase (at $630,000). The top level would have been a 6.9% increase.


The importance of the Auckland cbd’s role in rating terms is accentuated by the differential between residential & non-residential rates, which the Auckland City Council has been gradually reducing – non-residential ratepayers in the cbd are still paying more than double the residential rate/$ capital value.


That differential is set to be reduced to 180% by the June 2013 year, but a different makeup on the new Auckland Council could see changes in policy, particularly if the preponderance of outside-the-cbd councillors doesn’t find the same imperative to reduce the differential.


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Attribution: Council committee meeting & agenda, story written by Bob Dey for the Bob Dey Property Report.

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Council examines development levies as it faces growing revenue shortfall

Published 14 October 2009

Auckland City Council expects revenue from development contributions will fall short of planned spending by $2.8 million in the June 2010 financial year, and by $3.7 million in 2011.


The answer of its city development committee last week was to “amend the development contributions policy” – raising levies, but not beyond the council’s rate of inflation.


Proposals on new levies will be brought back to the appropriate committees (city development and finance & strategy) for consideration in November & December.


In a paper presented to the city development committee on 8 October, development contributions policy manager Andrew Pickering said any changes could only be done as amendments to the 10-year plan through a special consultative procedure.


The problem, he said, was that development levels – approved dwellings in particular – had reached historic lows while population growth still appeared to be tracking consistent with the council’s long-term planning basis.


The options he suggested were to:

lengthen recovery periods (but that would increase financing costs)defer capex for growth (which might be only a partial solution)reset the policy model (which may mean higher per-unit charges), rebalancing expected revenue & planned spending.


The third option is the one used previously.


The contributions policy under the Local Government Act has brought the council $51 million in cash revenue plus $7 million of land since it was introduced in 2005. Another $20 million came in the first 2 years from the financial contributions policy under the Resource Management Act, which has been phased out.


The long-term population projection for the city is for an average increase of 6300 people/year & average 2700 new households/year.


Mr Pickering said consents for new homes had dropped sharply in the past year to about half the level of 2 years ago.


“It is expected that new dwelling levels will recover towards at least the average over 2006-08 of around 2000 dwellings/year, as housing demand from population increases, and recessionary conditions give way to renewed economic growth.


“In particular, annual net immigration is running at around 14,500 (national total), up from 5200 a year earlier. Recent surveys have indicated increasing optimism, and improvements have been noted in the housing market generally.


“The recovery generally is, however, still regarded as fragile and, for the construction sector, likely to be subject to capacity constraints over the next 1-2 years. On this basis, the level of development activity across Auckland City is expected to recover only slowly & partially over the next few years.


“In addition, we expect to see the development recovery start with an upswing of resource consents. As a large fraction of development contributions revenue is recovered on building consents – typically 6 months-1 year after the resource consent – we would not expect to see any significant increase in development contributions until mid-2010.”


Mr Pickering said one policy possibility was to revise the measure of standard dwelling. Another was to fund some growth costs from rates until the market picked up – but that would require a big hit for ratepayers in election year, a harder call to make than raising the costs to developers beyond the council’s internal inflation rate.


“A rates increase approaching 1% would be required for the 2010 financial year to address the projected shortfall, with a further similar rise in the year following.


“This option would be appropriate if the council considers it is inappropriate to continue to seek the full identified cost of growth from the growth community. This approach could be used as a short-term measure, and this decision revisited as development levels increase again.”


Labour councillor Leila Boyle tried to have the inflation cap removed from the committee recommendation, but that was voted down.


Committee chairman Aaron Bhatnagar said the council majority was “very mindful that the financial climate is such that significant changes to the development contributions policy could hurt development at a time that it is tough going out there.”


However, Cllr Richard Northey said Cllr Bhatnagar’s proposed caqp could put the council at some risk: “The laws around development contribution-setting are very carefully phrased so the charge we make on developers is no greater than the objective costs that development generates. If they see a development charge greater than that cost, even if less than inflation, it would be struck down in the courts. If they are generating a cost which is greater than the rate of inflation, we are effectively giving the ordinary ratepayer a cost which is a user charge….  We could be getting the general ratepayer to subsidise others by that particular option, and that’s very unwise.”


Cllr Glenda Fryer added what is probably political reality for an election year: “I think we have to be very cautious about being seen as the friend of the developer, which would make us the foe of the general ratepayer. Funds are used for infrastructure, like water & parks. In 1990, policy was (introduced) for the cbd not to pay for parks, but that stayed in until 2000. If we put this cap in place, I can see it staying in a long time. Remember, we’re a friend of the ratepayer here and not the developer.”


Cllr Bhatnagar retorted: “I do find it a bit rich that Cllr Fryer & others say they’re the friend of the ratepayer, because the evidence 2004-07 (rate rises) suggests otherwise.”


Bringing the debate back to ground level, city development general manager John Duthie told the councillors: “You’ve got to relate your levies to the rate of growth, and that to your rate of expenditure.”


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Attribution: Council committee meeting & agenda, story written by Bob Dey for the Bob Dey Property Report.

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Council could lose parking revenue to new transport agency

Published 14 October 2009

Auckland City councillors have discovered a Government proposal in the legislation for the new Auckland Council that could rip parking revenue out of the city coffers and hand it to an autonomous transport agency.


Despite the certainty of that according to the way the proposal is written, councillors quibbled over what to do about it. The eventual outcome was for “the suggested accountability” to be discussed with some urgency. Councillors have a closed workshop on governance next week.


Cllr Richard Northey brought the possibility of losing parking revenue to the attention of the regional governance committee yesterday.


Transport committee chairman Ken Baguley said the council made $30 million/year in parking revenue, which the Government proposal suggested would come under the control of a new transport agency, “almost paralleling the NZ Transport Agency”, because it would be looking after local roads.


Cllr Baguley also highlighted the difference between regional policy, which is to reduce cbd parking provision to encourage use of public transport, and city policy, which continues to provide for a reasonably high level of parking in new development consents – thereby raising the issue of patch protection versus policies for the wider common good.


“As a city, we’re already almost at loggerheads with the regional parking plan, which would have no parking, or virtually none. It accounts for 7.5% of our rates – we’re not going to give that away.


Council chief executive David Rankin said: “As far as the Government’s concerned at the moment, this is a decided thing and will be incorporated in the third Auckland governance bill.”


Bag: there is going to be a transport agency, that’s a done deal. We’ve also said the community boards are going to have a say about some of things that are part of the transport committee.


Rankin: next week we can give you everything we know.


Cllr Graeme Easte added that Cllr Baguley had overlooked one further aspect: The governance of this – the policies, the priorities – that’s not something we want to hand over to a bunch of bureaucrats at arm’s length.”


The changes come down to what’s in the service agreements of the new Auckland Council, the local boards which are to be set up, and also the new transport agency.


Cllr Baguley: “The funding is a byproduct of the service plan, but it says we have no say in the service plan.”


Mr Rankin: “One deduces they are attempting to avoid a lot of political councillor involvement in the programme.”


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Attribution: Council committee meeting & agenda, story written by Bob Dey for the Bob Dey Property Report.

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Manukau council opens second bond issue

Published 30 August 2009

Manukau City Council has decided on a further retail bond issue for $100 million after the success of a $90 million issue in July.


Mayor Len Brown said the previous bond issue, filled within 11 working days, was for mum-&-dad investors: “To a great extent, these were the people who invested in this bond offer and it shows New Zealanders are prepared to invest their hard-earned cash in their own communities.


“We believe that Auckland’s growth & success is a worthwhile investment. We are confident that, in this bond offer, ordinary New Zealanders, including those who missed out last time, share our belief and will again show their confidence in the community and take advantage of this opportunity.”


The council approved the bond issue at its meeting on Thursday. Finance director Dave Foster said it had also been discussed with & approved by the Auckland Transition Agency, which is managing the Auckland governance restructure.


The bonds are for 4 & 6 years, the same as the previous issue. The offer opened on 28 August and closes on Wednesday 23 September. It has a minimum investment of around $10,000.


Mr Foster said: “This bond issue will support the funding needs of the Auckland region as a whole, and brings another opportunity for the wider community to invest in the region’s future growth & development.”


The bonds are secured over the rates of the city through a debenture trust deed. They will have first ranking, alongside other council debt secured under that trust deed.


A detailed description of the security – including the effect of the Auckland regional governance reorganisation – is set out in the investment statement for the bonds. The arranger is BNZ Capital.


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Attribution: Council release, story written by Bob Dey for the Bob Dey Property Report.

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Rates apportionment case goes to Privy Council

Hearing set for 3-4 July

Local Government New Zealand said today it would appeal the Court of Appeal decision in the “apportionments case” to the Privy Council.

“This case is a challenge to the way the Valuer-General & his predecessors have classified blocks of flats, shops & similar properties for rating purposes. The Valuer-General believes that a block of flats should be treated as a single ‘separate property’ for rating purposes, whereas Local Government NZ believes each flat or shop should be a ‘separate property’ in its own right.

“The issues in the case are complex, but what it really comes down to is one single question. Should valuation legislation be about rating equity or convenience for the valuer,” Local Government NZ chief executive Peter Winder said.

Local Government NZ succeeded in most of its case in the High Court in 1999, but the Court of Appeal overturned that judgment in 2000.

Mr Winder said the outcome was important for the downstream consequences on past rating methods.

58 of New Zealand’s 74 local bodies have made uniform charges on each flat or shop in a block of shops, but some ratepayers have advice that only a charge per block can be made.

Mr Winder said the case was not about the legality of the charges themselves but about the way properties have been valued.

“If we are successful this will automatically resolve the issue. If we are not successful then I predict that further litigation will follow to determine whether the charges were lawful.”

In the event that councils do have to refund rates, the 58 councils could be liable to make refunds of at least $36 million to the owners of about 12,000 properties.

The other three parties that joined with Local Government NZ to bring the case have not decided whether or not to join the appeal, but will do so in the next month. The case will be funded by the 58 affected councils.

Local Government NZ has retained Auckland QC Alan Galbraith to present the appeal, provisionally set down for 3-4 July. Local Government NZ doesn’t expect a decision until August or September.

Mr Winder said the affected councils had been advised not to make any refunds while the case is before the courts. He said $36 million amounted to about 2% of the rate take nationally, but some councils could be up for as much as 6% of their rates if the case goes against them.

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Privy Council rules in favour of councils on rates

$36 million of paid rates can’t be clawed back

The Privy Council has ended a 5-year rating valuation dispute by ruling that occupation, not the existence of a separate title, is the prime determinant of a separate property for rating purposes.

The ruling means councils around the country won’t have to hand back rates levied on individual shops or flats, which could have cost them $36 million.

North Shore City Council said a decision the other way would have cost it $5.9 million.

The ruling has historic effect — rewriting of the Rating Act means that from 1 July 2003 a block of flats or shops will be regarded as a single property, but that if a council wants to it can charge each shop or flat in a block separately.

Local Government NZ & 3 councils appealed against the way the Valuer-general had directed that certain properties be treated for valuation purposes.

Most of the country’s 74 city and district councils had been levying uniform annual charges on each flat or shop, but protesting ratepayers claimed only a single charge could be levied over the entire block. By ruling that occupation is the prime determinant, the Privy Council has deemed that each shop or flat in a block is a separate property and can be charged.

Local Government NZ chief executive Peter Winder said the Privy Council deciison was significant for 2 reasons. “It means that local authorities need not refund any of the rates that were under challenge. And just as importantly it gives a clear directive that the primary consideration in rating & valuation law is the promotion of a fair & equitable rating system rather than what is convenient.”

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