Christchurch City Council (Rates Validation) Bill Initial Briefing to the Local Government and Environment Committee 21 November 2014
Contents Introduction... 3 Purpose of Bill... 3 Contents of Bill... 3 Department of Internal Affairs comment... 5 New Zealand Bill of Rights Act assessment... 6 Other Matters... 6 Next steps... 7
Introduction 1. This briefing covers key issues and Department of Internal Affairs comment on the Christchurch City Council (Rates Validation) Bill (the Bill) for consideration by the Local Government and Environment Committee. 2. The Bill is a local bill in the name of Hon Nicky Wagner, MP for Christchurch Central. It was referred to the Local Government and Environment Committee on 28 May 2014. It is scheduled to be reported back to the House by 30 March 2015. Purpose of Bill 3. The purpose of the Bill is to validate historic procedural irregularities by the Christchurch City Council (the Council). These irregularities concern the statements included in the text of the resolutions setting and assessing rates under the Local Government (Rating) Act 2002 (the Rating Act) for the financial years 2003/04 to (inclusive). Contents of Bill 4. The Bill validates various procedural irregularities in the resolutions made by the Council in respect of setting the rates, and the penalties for unpaid rates, between 2003/04 and, which did not comply with the requirements of the Rating Act. 5. The irregularities under the Rating Act relate to information about instalment payments, due dates, and penalties added to unpaid rates. This information should have been specifically set out in the rates resolutions passed by the Council. The bill notes that this information was however set out on the rates assessments and rate invoices sent to ratepayers each year. 6. In addition, there were minor procedural irregularities in the information stated in resolutions concerning the basis on which certain specified rates were calculated. This information was contained in the Council s funding impact statement, but was not set out in the actual resolutions, as required under the Rating Act.
7. Full details of each irregularity are set out in Appendix A: to address these procedural irregularities, the Bill: validates the payment dates for rates set and assessed by the Council between 2003/04 and ; validates all penalties added to any validated, unpaid rates between 2003/04 and ; validates the basis on which certain targeted rates were calculated, as shown; Table 1: Targeted rates to be validated, by year Targeted Rate Years Impacted Church Bay Sewer Loan rate 2006/07 to 2008/09 Church Bay Water Loan rate 2006/07 to 2008/09 Governors Bay Sewer Loan 2006/07 to Governors Bay Water Loan rate 2006/07 to Restricted Water Targeted rate 2009/10 to Waste Minimisation rate 2008/09 to Water Fire Service Connection rate 2003/04 to 2005/06; 2007/08 to Uniform Annual General Charge 2003/04 to declares all money received by the Council, in relation to the validated rates and penalties, to be lawful; and provides that any unpaid rates or penalties in relation to the above, may be lawfully recovered by the Council. 8. The effect of the Bill is that it places the Council and ratepayers in the same position that they would have been in, had the rates resolutions contained all the required information. In particular, it protects the Council from the possibility of legal challenge in respect of the rates and penalties collected between 2003/04 and. 9. This retrospective validation is not expected to have an adverse impact on Christchurch City ratepayers, because the information that was inadvertently omitted from the Council s resolutions was publically available elsewhere. For example, information on payment dates and penalties were included in the rates assessments and rates invoices sent to ratepayers, and information about the basis of assessment for the targeted rates was set out in the Council s funding impact statement. Christchurch City Council (Rates Validation) Bill Page 4 of 10
Department of Internal Affairs comment Purpose of Bill 10. The Bill focuses on addressing a narrow range of historic procedural irregularities, which could potentially raise questions about the validity of the collection of rates, and the penalties added for non-payment of rates, between 2003/04 and. Under section 60 of the Rating Act these rates and penalties are still considered payable, unless a ratepayer took proceedings in the High Court and successfully challenged the validity of the Council to set and assess rates. The irregularities leave the Christchurch City Council open to this potential legal challenge, which could mean it would have to pay back the monies collected in these years. 11. The Bill validates these historic rates and penalties resolutions. The Department of Internal Affairs (the Department) considers the purpose of the Bill to be appropriate. Alternatives to a local bill 12. Legislative change is the most practical way that all the rates and penalties purportedly set by the Christchurch City Council between 2003/04 and under the Rating Act can be validated. Option 1: Rates replacement proposal procedure 13. The Rating Act provides a process for Councils to set rates again, or to replace invalid rates. This process includes a special consultative procedure, through which the rates replacement proposals must be notified, in writing, to every ratepayer in the district. 14. This procedure is not considered suitable in this case, because the invalidity of the historic rates relates to a procedural irregularity in the information set out in Council s formal resolutions. This information was made available, at the time, to ratepayers in their rates assessments and invoices, or in the annual funding impact statements. The actual rates paid by ratepayers for those years will not change. This procedure may therefore create unnecessary confusion for current ratepayers, who may be concerned that they will have to pay additional rates. It is also a very time and labour intensive process. Option 2: Order in Council to validate historic proceedings 15. The Ratings Act also provides that the Governor-General in Council may validate an irregularity of procedure or form under the Act. This process is not considered appropriate in this case, because of the range of years and rating types and penalties involved. Option 3: Do not validate 16. Another option would be to leave the status of the rates uncertain. Without validation the Council will continue to be vulnerable to challenges from its ratepayers over those historic rates. The continued uncertainty may have negative impacts on the Council and the Christchurch community. Christchurch City Council (Rates Validation) Bill Page 5 of 10
17. There is precedent for Parliament validating rating irregularities through local bills. Recent examples include the Kaipara District Council (Validation of Rates and Other Matters) Act 2013, enacted 10 December 2013, and the Tasman District Council (Validation and Recovery of Certain Rates) Act 2014, enacted on 14 April 2014. The Bill is considered warranted 18. The Department notes that rates are a form of taxation, and as such it is important that they are set and assessed in compliance with the law. Should irregularities be made by councils in the setting and assessing of rates, it is incumbent on councils to identify, disclose and remedy these. 19. Christchurch City Council s intent, through this Bill, is to remedy procedural irregularities it has made in the setting of rates. 20. The Department considers that this Bill gives effect to the Council s intent and is warranted because: legislation is the only practical way that rates which were incorrectly set and assessed by the Council, can be validated; the Bill is necessary to allow the collection of any unpaid rates and any penalties on unpaid rates; the Bill does not alter the historic liability of ratepayers from what it would have been, had correct processes been followed by the Council; the matters to be validated are procedural irregularities. Had these matters could been dealt with in a way that was consistent with the Rating Act, they would have resulted in the same ratepayer liability; and all the services for which the rates were charged were provided by the Council. New Zealand Bill of Rights Act assessment 21. On 21 August 2014, the Ministry of Justice provided the Attorney-General with legal advice on the Bill. This advice assessed the consistency of the Bill with the New Zealand Bill of Rights Act 1990. This advice is available on the Ministry of Justice s website: www.justice.govt.nz/policy/constitutional-law-and-human-rights/human-rights/bill-ofrights. 22. The Ministry of Justice concluded that the Bill appears to be consistent with the rights and freedoms affirmed in the New Zealand Bill of Rights Act 1990. Other Matters 23. The following matters are relevant to the Bill but do not affect the rationale for considering the Bill. Christchurch City Council (Rates Validation) Bill Page 6 of 10
Report of the Office of the Auditor-General 24. The Auditor General tabled her report Local Government: Results of the audits in the House on 29 May 2014. In this report, a particular aspect of focus for the Auditor-General was rate setting, including whether local authorities rates resolutions were legally effective for setting rates, and whether local authorities funding impact statements, and revenue and financing policies, contained all the information required by the Rating Act. 25. In her report the Auditor General noted that (page 6): Our audit work on rates revenue found that most local authorities had some level of compliance failure. Problems ranged from potentially serious legislative breaches, which created a significant financial risk to the local authority's revenue, through to low-risk legal breaches. Many of the problems seem to have arisen because of insufficient attention to legal requirements. The power to rate comes with obligations that need to be given the appropriate level of attention. I am encouraged by the positive response to the issues we have raised. Most local authorities sought legal advice and either took corrective action to rectify the errors or drew the errors to the attention of their communities. Local Government New Zealand and the Society of Local Government Managers have undertaken to work with local authorities to provide training and support to ensure that rating practices improve. Requirements under the Rating Act are clear and achievable, but practice could be improved 26. The Department considers that the legislative framework around the setting and assessing rates is appropriate, functional and meets its objectives. But it is acknowledged that local authority practice could be improved. 27. The Department notes that this bill, and the other recent validation bills, aims to address historic issues that have been identified in preparation for, or during, the recent audit work conducted by the Auditor-General, or by the Department in its liaison with councils. The lessons learned from this recent focus on legal and procedural requirements in resolution setting will improve Councils compliance with these aspects of the Ratings Act, and so go some way to reducing the need for retrospective validation of rating irregularities in future. 28. The Society of Local Government Managers (SOLGM) provides comprehensive guidance for councils to assist them in rating matters; this guidance was updated again in November 2013. The guide includes sample form resolutions. SOLGM has recently issues reminders to its members about the importance of proper practice when setting rates, and the guidance and support that is available. Next steps 29. Officials from the Department are available to act as advisors to the Committee on the Bill, as required. Christchurch City Council (Rates Validation) Bill Page 7 of 10
30. The Department will prepare a summary of submissions received, to inform the Departmental report to the Committee. Christchurch City Council (Rates Validation) Bill Page 8 of 10
Appendix A: Summary of procedural failings by Christchurch City Council 1. The Bill validates and declares lawful irregularities in the way in which Christchurch City Council purported to comply with certain provisions of the Local Government (Rating) Act 2002 (the Rating Act). 2. The irregularities under the Rating Act were in relation to the way in which, in each resolution to set the Council's rates the Council failed to state, or to state clearly, required information about the rates. The specific irregularities are set out in table 2 below. Table 2: Irregularities identified in the rates resolutions passed by the Council Irregularity identified in the rates resolution Years affected (inclusive) Section of the Act breached Failed to state clearly, or to state at all, that the rates would be payable by instalments and the dates by which the specified amounts would be payable. Failed to state clearly, or to state at all, that penalties were to be added to rates that were not paid by the due date and to rates assessed in previous years that remained unpaid, the dates that penalties would be added to unpaid rates, and the amounts of those penalties that would be so added. Failed to state that the Church Bay Sewer Loan rate and the Church Bay Water Loan rate was set as a fixed amount per rating unit, as provided for in the Council's funding impact statement. Failed to state that the Governors Bay Sewer Loan rate and the Governors Bay Water Loan rate, was set as a fixed amount per rating unit, as provided for in the Council's funding impact statement. Failed to state that the liability for the Restricted Water Targeted rate was calculated on the level of service through a restricted water supply system, as provided for in the Council's funding impact statement. Failed to state that the Waste Minimisation rate was set as a fixed amount per rating unit, as provided for in the Council's funding impact statement. Failed to state that the Waste Minimisation rate was calculated on the number of separately used or inhabited parts of a rating unit, as provided for in the Council's funding impact statement. Failed to state that the Water Fire Service Connection rate was calculated on the number of connections, as provided for in the Council's funding impact statement. 2003/04 to 2003/204 to 2006/07 to 2008/09 2006/07 to 2009/10 to 2008/09 to 2009/10 to 2003/04 to 2005/06; 2007/08 to Section 24 Section 57
Irregularity identified in the rates resolution Failed to state that the Uniform Annual General Charge was calculated on the number of separately used or inhabited parts of a rating unit, as was intended by the Council's funding impact statement. 1 Failed to state that the Uniform Annual General Charge was calculated on the number of separately used or inhabited parts of a rating unit, as provided for in the Council's funding impact statements: Years affected (inclusive) 2004/05 to, 2005/06; 2007/08 to 2008/09 Section of the Act breached 1 The Council also notes that it did not state clearly in the funding impact statements that the Uniform Annual General Charge would be calculated on the number of separately used or inhabited parts of a rating unit. Christchurch City Council (Rates Validation) Bill Page 10 of 10