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Rates impact

The cost pressures on Council’s budget for 2023-2024 has unfortunately resulted in a higher average rates increase than originally forecast. With the average rates increase after growth sitting at 14.2%, this is considerably higher than the forecasted 5.5% increase in the 2021-2031 Ten Year Plan.

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Council settlement of building defect claims

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Keeping the rates impact to a minimum

We are very aware of the tougher economic conditions affecting this budget and our communities. The initial budgets considered for the 2023-2024 Annual Plan indicated an average rates increase of 19.3%. Council closely reviewed all areas of the budget to keep the impact to a minimum for ratepayers, with the key changes including:

  • Reprioritisation of the capex programme, leading to changes to the schedule of projects out to the 2024-2025 year and beyond.

  • Reduced rate funded debt repayment – slightly reduced from $29.6M to $28.7M as a result of the capex deferrals to future years.

  • Reduced funding of depreciation expense – the funded amount is less than the forecast in the Ten Year Plan which was $19.01M (35.5%). This was not considered appropriate for this year as it would add $2.03M to rates or a further 1.86% to the rates increase.

  • Higher dividend from Queenstown Airport Corporation. This was higher than forecasted in the 2021-2031 Ten Year Plan.

  • Price increases for user fees across some Council services including planning and development; dog registration; parking, sport and recreation activities, community venues and waste management.

  • Increased assumption for annual growth in the rating base from 3.0% to 3.5%. This is based on greater than expected growth in rateable units for 2023-2024 i.e. more properties that will contribute to rates as they are built.

What is contributing to the rates increase?

The main contributing factors are:

  • 4% High costs associated with the settlement of building defect to weather tightness claims over the past two years, impacting our debt levels and adding to higher interest costs.

  • 5% A dramatic overall increase in interest rates in the last 12 months, with the balance of

  • higher interest costs contributing an additional 4.5% on top of the impact from building defect claims.

  • 1% A depreciation expense increase of $1.05M due to increasing asset revaluations of Council water and roading assets.

  • 7% Record high annual inflation at 7.2% in the year ending December 2022, coupled with growth in our operational costs to maintain service levels.

Note: A budget increase of approximately $1.09M contributes to a 1% increase in rates.

Council settlement of building defect claims

Increased interest costs to fund settlements is contributing 4.03% to the rates impact for the year

An ongoing challenge for Queenstown Lakes District Council has been costly claims brought against it by property owners relating to alleged weather tightness and other building defects. This has cost implications in Council defending and resolving such claims, and some of these were resolved in the last financial year.

It is worth noting that recent caselaw in Aotearoa New Zealand provides examples where the developers, builders and other persons who were primarily responsible for designing and constructing the buildings in question have often been wound up or declared bankrupt. Local authorities often face alleged liability for the entire claim, under the principle of joint and several liability. Councils often find themselves as “the last person standing” in these cases, which results in Council being held liable for amounts well in excess of its actual proportion of fault or blame.

Council’s objective has been to resolve these claims in a way that minimises the financial impact on ratepayers now and in the future. The claims are significant amounts in proportion to Council’s annual income. Council has a team of legal and building experts advising it on the management of the claims, and decisions around the settlement of any claims are only made following extensive advice. Recent settlements on these cases have led to higher borrowings for Council, and in turn higher interest costs.

The annual cost of the borrowing required to fund weather tightness property settlements made in the past two years is $5.3M, and the increase in interest costs for 2023-2024 is $4.4M. This contributes to a rates impact of 4.03% for the year, enabling Council to pay off the total settlement costs over several years.

The legal and financial challenges facing Council from these claims are ongoing. More costs can be anticipated in the future and the risks to Council will continue to be prudently managed.