Response to Wellington City Council’s Draft Annual Plan 2023/24 Overview
The Chamber urges the Council to:
- Set out a long-term plan for ratings policy that incentivises business to utilise vacant property while penalising underutilisation.
- Provide greater clarity around how the Downtown and BIDs levies are spent, and to consider how this can best be targeted to support businesses to navigate the challenges of the day (e.g. downtown footfall post-Covid).
- Explore further opportunities for amalgamation of back-office functions and public services across Wellington, Porirua and Hutt Councils.
- Review the Council’s ownership of key assets (such as the airport) and provide an assessment of the value such shareholdings deliver for ratepayers.
- Set out a clear plan to bring down debt in the medium-term.
The Wellington Chamber of Commerce and Business Central (the Chamber) is a business membership association, representing over 3,600 organisations throughout Central New Zealand (Gisborne to Taranaki and down to Nelson). We have represented business in the Wellington Region for over 165 years and work with a range of organisations to help them network, share ideas and experiences, learn and develop, and represent their interests to local and national government. Our service offerings include Employment Relations support and help with export and growth opportunities.
The Chamber works closely with the Wellington City Council (WCC) to ensure Wellington’s business community is consulted on the changes that impact them and a connection is provided between the Council and business. We play a constructive role in the future development of our city and would like to thank the Council for their continued engagement with us and the wider business community through a range of initiatives, such as the quarterly business huis and the Pōneke Promise forum, as well as the annual budget process. We look forward to further opportunities to work together as the Council begins to consult on updating the Ten-Year Plan, and progress on the ratings review project accelerates.
Economic externalities, Council debt, and significant project expenditure
The Chamber recognises that the Council’s budget is increasingly under pressure and that in order to continue to provide similar levels of service, additional funding is required. An historically unprecedented rate of the rise in interest rates in New Zealand will significantly impact the financial position of the Council in respect of debt financing and forecast debt. Indeed, the businesses of the city face the same challenges.
In addition, the cost of living, rising wage bills and stubbornly high inflation rates are forcing Wellington businesses to look at their future strategic financial positions.
Therefore, while we understand that a rationale exists for the proposed 12.3% increase in rates, we do not agree that such an increase, which far exceeds annual inflation, is the right approach at a time when households and businesses are also confronted by rising costs. Rather than increasing rates, there must be a reckoning for the Council on expenditure.
We note that the Council is not proposing to revisit the rating differential, currently 3.7 times higher for commercial property versus residential. Put simply, the differential adds to disincentives to doing business in Wellington. As we have made clear on a number of previous occasions, the Chamber does not believe the differential is an appropriate mechanism to calculate commercial rates. In the longer-term the differential must be reduced and ultimately abolished and a contemporary structure of revenue sources for local government created. We look forward to continuing to make the case for such reforms through engagement with the ongoing rates review project.
We encourage the Council to re-examine opportunities for further savings and to take a fresh look at its various assets and how they are performing. For example, the Chamber believes there is a strong case to explore sharing services and some back-office functions with neighbouring councils to bring down costs. A focus on productivity would be beneficial, just as Wellington businesses must do in the current environment. In addition, we would encourage the Council to review its stake holding in Wellington Airport to ensure ratepayers are getting value for money.
Finally, the Chamber is concerned by the high levels of debt held by the Council, with borrowing forecast to reach $1.57bn by the end of the year – well in excess of the Council-imposed cap of 225% of annual operating income. We encourage the Council to set out a clear plan to bring down debt in the medium-term so that business owners and residents aren’t saddled with high debt servicing costs well into the future.
Long-term approach to rate-setting
Businesses in our Capital understand that the much-needed programme of upgrades and improvements scheduled by the Council over the years ahead will be costly and time-consuming. However, and as we set out in our influential Wellington Report publication last year, the Council needs to start signalling rates rises which are sustainable and affordable.
Providing greater certainty around future costs will enable businesses to better prepare and plan. A clear plan from Council which addresses future rates rises is required, and the connection between rates payments and adequate services for residents and businesses must be strengthened. Currently, business feels the rates increases are out of step with actual Council service delivery and performance. Double digit rates rises cannot be sustained.
The Chamber asked in the Wellington Report that the Council work with us to help focus on the accountability to Wellington businesses on how the commercial rates they contributed to the city are spent and how we can identify current and prospective investments that will improve the commercial prosperity of the city.
The Chamber is already engaged in discussions with Councillors, and the Council’s executive leadership, around the future determination of rates in the city. We look forward to contributing to the Council’s comprehensive review of rating policies through the remainder of the year. However, in responding to the Annual Plan, there are a number of interim concerns we would like to raise on behalf of our members.
Densification is the foundation of sustainable and affordable cities
Dense developments should be centred around liveable precincts, so people can live where they work. This also draws more people into the city and is good for business. Our members are eager for the Council to better incentivise densification, working with developers to understand what’s required to deliver progress.
Targeted incentives or sanctions on property
We urge the Council to consider whether targeted rates on underutilised property, such as the site of the former Molly Malones and Reading Cinemas, or any of the 17 vacant lots on Courtenay Place, could be used to drive improvements in our cityscape. For example, in Christchurch, the City Council has introduced the “Enliven Places” rates incentive to encourage property owners in the central city and suburban centres to support temporary use of vacant spaces with short- to medium-term projects.1 To incentivise the development of otherwise vacant lots, in 2022/23, Christchurch also adopted a “City Vacant” rates differential whereby vacant properties in the city are subject to rates 4.523 (as of 2023/24) times higher than standard properties (the standard commercial rates differential is 2.22).
Our members in the city centre have also voiced concerns around how the Downtown Levy portion of their rates bill is being spent. When the levy was initially introduced, the resulting rates revenue was administered separately from other Council activities, and it was essentially a fund paid for by retailers for the promotion of retail. Over the years however, this seems to have evolved, with the 2022/23 Annual Plan specifying that the Downtown Targeted Rate is “set to pay for tourism promotion”, incorporating the following activities:
- 50 percent of the cost of the Wellington Regional Economic Development Agency (WREDA) and Venues activities
- 40 percent of the cost of the Wellington Convention Centre activity
- 70 percent of the visitor attractions activity
- 25 percent of galleries and museums activity
As a result, businesses subject to the Downtown Targeted Rate, which raised over $14m of revenue in 2022/23, don’t believe current activities paid for by the levy match the initial rationale and it has become very unclear where and how the downtown levy funds are spent.
At the same time, post-Covid, city centre retailers are facing particularly challenging conditions as workers and shoppers increasingly opt to spend their time, and money, in the suburbs. We therefore urge the Council to re-examine the Downtown Levy and commit to working with downtown retailers and other businesses to ensure the funds are spent in ways which support city centre business growth and development in these new post-Covid times.
Business Improvements Districts (BIDs)
It is not just businesses in the downtown area that are subjected to additional targeted rates. Through the Business Improvement Districts (BIDs) scheme, businesses in Miramar, Khandallah, Kilbirnie, Tawa and Karori are all subject to additional targeted rates. Taken together, the revenue collected through these schemes equated to $413,740 in 2022/23. While this may be a fraction of the Downtown Levy’s receipts, it is still a considerable burden on businesses, many of which are SMEs, and we believe transparency is required around how these funds are spent and how these levies are expected to develop in the longer term.
We are concerned that there is limited data available on the performance of these schemes and the nature of the projects funded in each area. For example, while the Council’s website notes that 304 businesses are involved across the five BIDs, it’s unclear whether this figure is up-to-date, and several of the individual BIDs scheme websites appear not to have been updated since 2020. The Chamber is not opposed to the BIDs scheme per se, but we do believe that greater scrutiny of these schemes, and how they spend public money, is required to ensure value for money is delivered for ratepayers. In relation to the Johnsonville BID proposal outlined for establishment in this year’s annual plan, we are concerned that very limited information has been made available around the parameters of the scheme. For example, the map of the proposed BID area was not made available online, so it’s difficult for businesses in Johnsonville to know whether they will be subject to additional rates in future.
Exploring further savings
The Chamber wishes to offer helpful and pragmatic commentary that contributes solutions to some of the challenges listed above. Our view is that Council should transition towards the phased amalgamation of back-office functions and public services across Wellington, Porirua, and Hutt Councils over time. This process has already begun in some areas behind the scenes but needs to pick up pace.
We urge the Mayor to use the Mayoral Forum to drive a conversation on efficiencies in shared services forward. Local authorities overseas have found that sharing services can unlock significant savings – in the UK, it’s estimated that around £200m (c.$400m) is saved annually by local authorities through pooling services. Councils in Australia have also realised multi-million-dollar savings from sharing services such as IT and procurement. There are a range of approaches to sharing services, from pooling back-office functions like finance and HR, through to sharing leadership teams across a region. We call on the Council to kick-start a discussion on amalgamation across the Wellington region and explore a range of options that could unlock savings for ratepayers.
We also call on the Council to look closely at existing initiatives and projects to ensure that ratepayers are always getting value for money. For example, we have heard concerns from members that the role of WellingtonNZ, which receives significant Council funding and a slice of the Downtown Levy, is not as clear as it could be. Its mandate and structure are also perceived by a number of our members to need further clarity. We urge the Council to clarify WellingtonNZ’s mandate by introducing key performance indicators (KPIs) based on economic growth and business success, and to consider making the funding the agency receives contingent on performance against these metrics. We would welcome the opportunity to work closely with Council and WellingtonNZ to better communicate the role and activities of the economic development agency to businesses in the city.
Ensuring Council assets work for ratepayers
The Council’s portfolio of assets should work for its ratepayers, generating a return that represents value for money, either in the form of financial benefit or social good. In this vein, the Chamber has previously called on the City to re-evaluate how it delivers social housing.
The Council has provided social housing in Wellington since the 1950s and wants to continue to do so. As we set out in our 2021 submission on the LTP and last year’s response to the Annual Plan, the Chamber maintains that social housing ought to be the responsibility of central government rather than local. Social housing tenants are best served by having dedicated social agencies wrapping services around them. As such, we previously argued for transferring the social housing portfolio to existing community housing providers funded by the central government rather than establishing its own community housing provider (CHP). However, following the establishment of Wellington’s own CHP in June 2022, we respect the council’s decision to adopt this approach and will continue to monitor the set-up and transition from City Housing to the CHP through the remainder of 2023, as the Council determines which properties will be gifted to the CHP. It’s vital that this transition, and the combined $33m transfer of funds and property associated with the change, are clearly communicated and subjected to proper scrutiny.5
Finally, the Chamber would like to encourage the Council to again examine its ownership stake in Wellington Airport. In light of the ongoing debate in Auckland, the Chamber would welcome an assessment from the Council of the return it receives from its 34% holding in Wellington International Airport and whether this delivers value for money for ratepayers. The Chamber appreciates that this topic was examined by the Council in 2021 but in the context of ever-increasing rates and rising costs to maintain and enhance our city’s infrastructure, we believe it’s now time for the City to seriously consider whether disposal of this asset would represent better value for ratepayers versus the alternative of raising funds by taking on more debt.
Thank you for taking the time to review our response to the 2022/23 Annual Plan Consultation. The Chamber is disappointed with the Council’s decision to again raise rates; the pain of this is further compounded by the extent of the increase – 12.3% is well above inflation and will hit businesses in the city incredibly hard at a time when the wider costs of doing business are putting industry under significant pressure.
We therefore urge the Council to consider our recommendations and believe that doing so would identify significant further savings and enable the Council to adopt a less aggressive approach to rating policy moving forwards.
We welcome any questions from the Council regarding these recommendations and look forward to continuing to work together to make Wellington an even better place to do business.
Ngā mihi nui,
Chief Executive, Wellington Chamber of Commerce