Chapter F7 Maintenance and operation of roads

F7.13 Territorial authority base rates

Introduction

This section describes the determination of the territorial authority (TA) base rate.

Determination of TA base rate

The base rate of funding assistance for a territorial authority takes into account:

• the size of the territorial authority's block road maintenance allocation
• the financial resources available to the territorial authority.

Note: The followinf conditions apply:

• all territorial authorities are considered on the same basis
• the national average TA base rate is 50 percent
• the minimum TA base rate is 43 percent.

Reference: For detail on block road maintenance allocation, see section C7.7.

Base rate indicator

When determining a TA base rate, the NZTA uses a base rate indicator calculated, as shown in the figure under the heading Indicated TA base rate below.

The NZTA will calculate the base rate indicator annually as at August using the current year's block road maintenance allocation and the latest available net equalised land values.

Net equalised land value

The NZTA has adopted the net equalised rateable land value as an indication of the financial resources available to a territorial authority. This decision was made after extensive research and discussion and is considered to most fairly reflect the relativity between territorial authorities.

The NZTA recognises that rapid movement in land value can occur and, to allow for this effect, has adopted the arithmetic average of the five most recent valuations.

Indicated TA base rate

Formula for indicated TA base rate

The formula is:

IBR   =   k1 + k2 log (P ÷ LV)

Where:

IBR   =   indicated TA base rate for the following year (%)

P   =   current year's block road maintenance allocation for the territorial authority ($ thousands)

LV   =   latest available five-yearly averaged net equalised rateable land value for the territorial authority ($ millions)

k1, k2   =   constants, which are established to give a national indicated funding assistance rate (FAR) of 50 percent.

Other factors in base rate determination

The NZTA stresses that the base rate indicator provides only an indication of the level of assistance for a territorial authority. To this is added the NZTA's judgement of the circumstances of each territorial authority.

The factors taken into account in deciding on the base rate are:

• base rate indicators calculated for the current and previous two years
• approved base rates for the current and previous two years
• the base rate indicator for the next year
• changes in the road operations, maintenance and renewals programme
• changes in net equalised land value
• the resultant change in local share.

Minor changes to base rate

The NZTA wishes to retain a degree of stability in TA base rates and therefore will avoid making minor changes to the base rates.

As a general guide, the NZTA does not respond to differences of up to ±2 percent between existing TA base rates and those indicated unless there has been a trend occurring for two successive years.

Significant changes to base rate

Where a significant change is indicated, either up or down, phasing of the effects is considered.

An exception is where territorial authorities with normally small programmes have introduced work into their programmes that causes a large but temporary change in the appropriate level of assistance.

Summary of TA base rate policy

Where no specific margin is recommended, the TA base rate policy is described in the table below.

If the base rate indicator is . . .	Then . . .
greater than ±2 percent from the currently approved TA base rate	a move is made towards the indicated TA base rate by half the difference, or such as to be within ±2 percent of the indicator, whichever is the lesser adjustment Note: Territorial authorities are generally given the advantage of the odd ½ percent if necessary.
less than or equal to ±2 percent from the currently approved TA base rate	no change is made unless the same trend has been shown for two successive years.

Note: Some discretion is exercised if the resultant change in local share is more than ±20 percent, or if the change in net equalised land value is greater than three times the national average.

Notified base rate

The NZTA will annually (in August) determine a base rate for each territorial authority based on the above policy and will notify territorial authorities of these base rates. This will give territorial authorities advance notice of potential changes in their approved base rates.

Approved TA base rate

The NZTA will review, and adjust as necessary, the approved base rate for all territorial authorities in August prior to the start of the three-year National Land Transport Programme (NLTP). This allows maximum notice to be given to territorial authorities before the start of the three-year period over which the new base rates will apply. Out of necessity, this means that the TA base rate for the following three years is determined by the:

• current year's block road maintenance allocation
• latest available net equalised land values.

The approved TA base rate will remain unchanged for the duration of the three-year NLTP. Only in exceptional circumstances will the NZTA consider a review of TA base rates at other times.

Any additional funds approved at monthly programme reviews will be at the funding assistance rate previously set.