Exploring the Pros and Cons of a Uniform Annual General Charge (UAGC)

The Uniform Annual General Charge (UAGC) is a fixed rate charged equally to all rateable properties within a council’s jurisdiction. It is designed to distribute the cost of general services evenly among ratepayers, regardless of property value. While the UAGC has its benefits, councils must weigh its pros and cons carefully, particularly given legislative constraints and potential equity challenges.

Pros of a UAGC

1. Equity of Contribution: A UAGC ensures that all ratepayers contribute a baseline amount toward the cost of essential services, fostering a sense of fairness in funding services that benefit the entire community.
2. Revenue Stability: Because the UAGC is a fixed charge, it provides councils with a stable and predictable revenue stream, which can be beneficial for budgeting and planning.
3. Simplification: A UAGC is straightforward to calculate and administer, making it easier for ratepayers to understand their contributions.
4. Cost Recovery: It helps recover costs for services that benefit all ratepayers equally, such as general administration, governance, or public spaces.

Cons of a UAGC

1. Regressive Impact: A UAGC disproportionately affects low-income households and owners of lower-value properties, as the charge represents a higher percentage of their overall rates burden compared to higher-value properties.
2. Potential Inequities: Properties that place a greater demand on council services (e.g., larger residential developments or commercial properties) contribute the same UAGC as smaller or less-intensive properties, potentially leading to perceptions of unfairness.
3. Legislative Constraints: Under New Zealand’s Local Government (Rating) Act 2002, the UAGC (together with targeted rates set on a fixed amount per rating unit or per SUIP) cannot exceed 30% of the total rates revenue. This cap limits how much councils can rely on UAGCs for funding.
4. Public Perception: UAGCs can be contentious among ratepayers, particularly if they feel the charge does not align with their use of or benefit from council services.

Key Considerations When Calculating a UAGC

1. Service Allocation: Determine which services are general enough to warrant inclusion in the UAGC. This could include administration, general infrastructure maintenance, or public amenities used by all ratepayers.
2. Equity vs. Simplicity: Striking a balance between fairness and ease of administration is critical. Councils must ensure that the UAGC does not disproportionately burden certain ratepayer groups.
3. Impact Modelling: Conduct thorough modelling to understand how different UAGC levels affect various ratepayer demographics and property types, ensuring compliance with legislative limits.
4. Community Engagement: Clearly communicate the purpose and calculation of the UAGC to ratepayers, addressing concerns and ensuring transparency.

Legislative Fish Hooks

1. 30% Cap on Revenue: As noted, the Local Government (Rating) Act 2002 imposes a limit on the UAGC and fixed charges. Councils must carefully calculate these charges to ensure they do not exceed 30% of total rates revenue, including targeted rates.
2. Rating Units and SUIPs: Councils must define rating units and SUIPs accurately to ensure compliance. Misclassifications or inconsistencies in applying the UAGC could lead to legal challenges or disputes with ratepayers.
3. Equity Obligations: Councils must balance the UAGC with progressive rate structures (e.g., land value or capital value-based rates) to ensure an equitable distribution of the rates burden, as required by the principles of the Local Government Act.

Conclusion

The UAGC is a valuable tool for councils to distribute the costs of shared services, but it must be implemented thoughtfully to avoid equity concerns and comply with legislative requirements. By conducting robust modelling, engaging transparently with the community, and adhering to legislative guidelines, councils can effectively use the UAGC to support their financial strategies.

If your council needs expert assistance in calculating or modelling UAGCs, contact Ibis Information Systems today. Our expertise ensures your rating structures are equitable, compliant, and tailored to your community’s needs.