Friday, July 25, 2014

Benchmarking council rates

A report noted at the Cairns Post this week: Aquis: ‘A whole new paradigm‘ to finances and infrastructure Cairns would need to support it. Also reported at the ABC: Mayor warns of Aquis project 'wild ride'

Behind this story was a rates benchmarking analysis tabled at this weeks ordinary meeting of Cairns Regional Council, as reported by the Cairns Post:
The report compared rates and utility charges across several council areas for a residential property paying the minimum rate; a residential property with the average Cairns valuation of $165,000; and a strata title property, (which is usually an apartment or townhouse), paying the minimum rate.
Here is the graph from council benchmarking the average cairns valuation of $165k for a residential property.

 
The first thing to note is why use an average valuation at all? It is more typical to refer to the median (middle number in a count) than an average for property and land valuations. This is what the Valuer-General reports. Almost the only people who consistently refer to and use averages this way are councils in their budget spin.
 
The average will typically skew above the median for property which is why it is typically ignored. The average adopted in the council analysis is well above the V-G reported residential land median for Cairns of $143K from the most recent valuation. I have previously posted the V-G medians by suburb and if it isn't too confusing you have to go out to Kewarra Beach, which is nearer the top of the range, to find a suburb with a median which matches the Cairns average being used here by council. Perhaps there is some intricacy in council land categorization I am missing but don't think it makes much difference to my criticism of the flaws in this analysis anyway.
 
More critically, why apply the Cairns average (or median) to a benchmarking comparison with other councils? There are substantial differences in land valuation between the regions and particularly SEQ. General rates are determined by the relative valuations within each council area so the median (or average if you really want) for each is what is relevant.
 
To illustrate let me graph the median land valuations for the larger relevant councils in the study provided by the V-G and the general rate component for each council based on the $165K valuation across all:
 

 
 
There is a clear inverse correlation here. Yes, the council methodology effectively provides a benchmark comparison of land valuations between councils rather than any rates benchmark. Councils with higher land valuations will have a lower rate in the dollar for general rates.
 
So let's more appropriately graph the general rate based on the median valuation for each council from the most recent V-G data available:
 
(data to be confirmed and reformatted in a subsequent post)
 

Compiling the data on this from each council can be a tedious task. I need to go back and confirm some of this data compiled last night and particularly Townsville and Mackay. Unlike council staff I am not being paid for the time. Median valuations for Sunshine Coast and Rocky were not updated this year and de-amalgamations there may have some influence. Also these numbers don't account for any early payment discount.
 
I don't think any of that is going to refute the criticism here that the council analysis methodology on general rates comparison is flawed. The Mayor in comment specifically drew attention to the lower rates base in Brisbane. However as soon as we adopt an appropriate median comparison for each council this illusion evaporates like the SEQ water supply in a drought.
 
The Brisbane general rate on this remains just a few dollars below Cairns but from eyeballing the other council data on their graph total rates in Brisbane actually go past Cairns, mostly attributable to water usage. Note also that on any measure Cairns rates are not comparatively high as is sometimes claimed, and were not either under the previous administration.
 
Note: I left out some of our neighbouring regional councils from the council analysis for simplicity and relevance but this may be taken up further at Conus: How NOT to compare rates across councils

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