Local Government Magazine
Legal

Funding services with targeted rates – tourism

E-scooters and e-everything else

 By Linda O’Reilly, partner, Brookfields Lawyers.

Auckland Tourism, Events and Economic Development (ATEED) is Auckland Council’s economic development agency.

Its role includes growing Auckland’s visitor economy. But it is expensive to fund, and in 2016 the council started seeking ways to partially fund it other than rates.

After discarding the idea of a bed tax, which would have required legislative changes, and dismissing the practicality of funding via industry opt-in, the council settled on a funding mechanism called the Accommodation Provider Targeted Rate (APTR).

Mayor Phil Goff was elected in 2016 with strong views about limiting rates increases and promoting user pays.

With his support, and after some industry consultation, the APTR was adopted by Council in its 2017/18 Annual Plan and confirmed again in the 2018/28 Long-term Plan.

It is fair to say that the accommodation providers targeted by the new rate were not happy.  Indeed, a select group were sufficiently unhappy to band together to apply for judicial review of decisions taken by the Council in setting the rate.

The High Court has recently delivered its decision in CP Group Ltd v Auckland Council, and in the process carefully examined the issue of reasonableness in relation to local authority rating decisions.

After some industry consultation the council determined that the APTR would fund only half of the cost of ATEED’s visitor attraction and major events expenditure, the remainder to be funded from general rates.

The APTR distinguishes accommodation provider types and locations to recognise the differences in the distribution of benefits and affordability within the commercial accommodation sector.

The council’s miscellaneous rates remission policy was applied in the first year to consider remissions where the owner/ ratepayer could not pass on costs to the accommodation operator.  A bespoke remissions policy was adopted in the second year and the APTR extended to informal accommodation providers (eg AirBnB).

The Applicants claimed the decision to set the APTR was unreasonable, failed to take into consideration the funding criteria in section 101(3) Local Government Act 2002, and breached the consultation requirements of section 82 of that Act.

The Court dealt carefully but unsympathetically with all these assertions.

On the applicable standard of reasonableness, it declined to stray, at least on this rating matter, from the classic statement of the Court of Appeal in Wellington City Council v Woolworths NZ Ltd:

 

For the ultimate decisions to be invalidated as “unreasonable”, to repeat expressions used in the cases, they must be so “perverse”, “absurd” or “outrageous in [their] defiance of logic” that Parliament could not have contemplated such decisions being made by an elected council.

 

The Court concluded:

 

It is not the Court’s task to interfere with the political assessments of local government provided the resulting decisions are within reason.That some accommodation providers may struggle, at least initially, to pass on the economic burden does not make the APTR itself unreasonable.

 

Arguments relating to the Council’s alleged failure to take into account the difficulty in passing on the cost to customers, the existing voluntary contributions made to tourism by the industry, and the lack of measured benefit to the industry were all found not to make the decision to set the APTR unreasonable.

On the latter point the court noted that there is no requirement to demonstrate a proportionate relationship between a ratepayer’s liability and the benefit they receive from the rate itself.

Nor did the Court find it unreasonable for the Council to consider any less onerous (to the accommodation industry) funding option.

Also rejected was the allegation that the council had failed to consider the criteria in section 101(3) Local Government Act relating to the distribution of benefits and the costs and benefits of funding the activity distinctly from other activities.

Finally, the court concluded that there was no substance to the argument that the council had failed to adequately consult on the decision to impose a geographically differentiated rate, pointing out that decision arose quite properly from submissions made in the consultation process.

In short, the Council imposed a relatively novel and complex new targeted rate and has withstood a substantial challenge to that process.

Other local authorities may wish to take note as they ponder funding options.

 

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