Long Term Plan 2021-2031 Amendment - Cyclone Gabrielle Voluntary Category 3 Property Purchases

Hastings District Council (along with the other local authorities in Hawke’s Bay) has been in complex discussions with the Crown to arrive at a cyclone support package that enables our communities to move forward with their lives.

Unlike the Christchurch earthquake, where the Crown covered the full bill to buy out red-zoned houses, these negotiations have been about cost-sharing; an approach that the Crown is looking to put in place across the country for all Councils affected by Cyclone Gabrielle/2023 severe weather events.

As a result of the cyclone, some areas have been identified as too dangerous to live due to the flood risk. Under the Crown’s land categorisation framework, these areas are designated Category 3. The Council has negotiated the terms of an agreement with the Crown for funding for recovery of the region. Part of the overall agreement will involve Council making offers to purchase residential properties in some areas. 

As this is a new activity for Council, which will need to be provided for in the Long Term Plan (LTP), we are consulting with you, our community, on the proposal, along with changes to our Revenue and Financing policy.

This document outlines the amendment proposed, in the context of the Crown’s overall funding support package, so you can understand the options available.

The proposed LTP amendment provides for Council to undertake the purchase of Category 3 residential properties, as an essential component of the wider Crown financial support package.

The cyclone has had a hefty impact on Council’s infrastructure and finances. The repair bill in Hastings is estimated at circa $792m. This amendment is about securing the best possible support package from the Crown to enable us to move forward in a timely way. The preference is to finalise agreements with the Crown before the upcoming general election (which could impose significant delays – potentially up to mid-2024 if the Crown changes - on any funding certainty for our community).

The three critical aspects of the funding support package are:

• Flood mitigation measures including upgrades and new assets such as stopbanks (via the Hawke’s Bay Regional Council)
• Funding support to fix our damaged roading network, including key bridges
• The purchase of residential properties in areas the Regional Council has classified as Category 3.

The Council’s current LTP does not contain a mandate for Council to purchase private residential property or property rights in partnership with the Crown. It requires an amendment to the LTP, which is the reason for this consultation process.

WHAT’S THE REGIONAL DEAL?

The global Crown offer for Hawke’s Bay ($556m) includes:

• $260m Crown funding toward Hawke’s Bay transport recovery (Hastings Districts share - $197m - which is a $50m increase over the standard transport funding that offsets Council's contribution to the voluntary Category 3 residential property purchases)
• $203m Crown funding, contingent on HB Regional Council funding of $44m towards flood mitigation works in Category 2 areas (totaling about $100m focused on work in the Hastings District)
• A capped Crown contribution of $92.5m toward Category 3 residential property rights purchases in HB (for Hastings District Council, enough to match its estimated contribution of $50m).

The offer is conditional on a partnership approach with all councils, and councils sharing the cost with the Crown of voluntary Category 3 residential property purchases

IT'S A REGIONAL FUNDING OFFER

This is an all or nothing package.

To access the funding, all the Hawke’s Bay councils must agree to all portions of the package (councils cannot ‘cherry pick’ components). Those councils are:

• Hastings District Council
• Wairoa District Council
• Central HB District Council
• Napier City Council
• Hawke’s Bay Regional Council

No council can opt out.

That means if any council declines the offer from the Crown, the total Crown offer for Hawkes’s Bay is declined.

FLOOD MITIGATION – THE REGIONAL BENEFIT

The $556m agreement includes $203m towards flood mitigation for the region. Without this funding there would be more Category 3 properties. Proposed flood mitigation works will benefit areas currently assessed as Category 2, from Wairoa to Porangahau. These include sites across the Hastings District such as Pākōwhai, Ōmāhu, Waiohiki and Havelock North. Also included is $70m for a much needed flood protection scheme for Wairoa. The Hawke’s Bay Regional Council will also be contributing $44m.

TRANSPORTATION – THE REGIONAL BENEFIT

$260m would go towards specific transport infrastructure projects and programmes, including fully funding the estimated cost of the Redclyffe Bridge replacement, the Puketapu, Matapiro and Aropauanui bridge works in Hastings, Te Reinga bridge works in Wairoa and critical roading recovery projects in Central Hawke’s Bay. It would also include culvert replacements, as well as additional support for transport resilience and repair initiatives across the region. For Hastings this represents an improved roading subsidy of $50m, and offsets Council’s contribution to the voluntary residential property purchases.

CATEGORY 3 RESIDENTIAL PROPERTY COMPENSATION

Hawke’s Bay Regional Council has, to date, provisionally classed a number of areas within Hastings and Napier as Category 3. These are areas impacted by Cyclone Gabrielle where residential activity involves an intolerable risk to life and it is not feasible to mitigate the risk. The affected areas in Hastings are in the Esk Valley, Tangoio, Pākōwhai, Rissington, Dartmoor and Aropaonui and encompass approximately 300 properties, of which 155 have a dwelling on them. The final determination as to Category 3 properties is yet to be made.

The terms of the agreement offered by the Crown require it to contribute on a 50/50 basis to the region's costs of purchasing properties or acquiring a property right for Category 3 residential properties. Although the exact cost won’t be known until all settlements are finalised, the estimated total cost for Hastings is $100m, with Council’s contribution estimated at $50m.

The estimated $50m contribution by the Hastings community for the voluntary residential property purchases is a collective response to an event that left some areas of the district devastated, and considered no longer safe to live.

Of the Crown's $556m investment in the Hawke's Bay region, approximately $350m will be spent in the Hastings District.

It's a circa $350m deal for Hastings

The Council’s position through the course of discussions and negotiations with the Crown was to be left ‘no worse off’ than it would have been if it was solely focused on funding the damage to transportation infrastructure under existing Crown funding arrangements. The Crown has been equally clear that any wider support package for both the region (and the Hastings District community), including additional transport and flood protection funding, is conditional on a joint Crown/Council contribution to voluntary purchases of Category 3 properties.

No practical alternatives to the Crown’s financial support offer for the region have been identified. This is being presented as a case of accepting or declining this offer.

This cost-share approach to recovery is one the Crown is looking to put in place across the country for all councils affected by Cyclone Gabrielle/2023 severe weather events. This is different to what happened following the Christchurch Earthquake, when the Crown covered the full costs of buying out red-zoned houses. As a community, there will be a need to discuss and determine how we should pay the Cyclone Gabrielle recovery bill - discussions we plan to hold as part of the 2024 Long Term Plan process. It is likely there will be a period of elevated rate increases to meet the additional costs.

FUNDING BASELINE ESTABLISHED

When negotiations with the Crown began, Council was facing a considerable share of the overall total repair cost of $792m (predominantly roading recovery costs). This was based on a roading subsidy of 73% from Waka Kotahi (the Crown’s roading and funding entity). This comprises the standard subsidy rate of 53% with an additional 20% for immediate recovery projects. That contribution was established as the baseline for the recent negotiations with the Crown.

NO WORSE OFF (WITH REGIONAL BENEFITS)

The No Worse Off (with regional benefits) package that’s been offered would see Hastings paying about the same as it would have without any additional funding (the baseline), but it also allows Council and the Crown to progress with voluntary purchases of Category 3 properties, and it unlocks financial support towards regional funding priorities such as critical stopbank repairs and improvements.

Key Components:

• $197m of Government funding for repairs to identified roads and bridges in Hastings District (at a 100% subsidy rate)
• Crown co-funding towards Category 3 residential property purchases across the region – with an estimated Hastings District Council contribution of $50m
• Crown funding for flood mitigation, supporting $100m of works in the Hastings District (via the Hawke’s Bay Regional Council).

Key Assumptions:

• A subsidy rate of 73% on the balance of the Council’s roading recovery programme under either the baseline or No Worse Off package
• Council's contribution to voluntary property purchases is estimated to be $50m. The Crown’s overall cap of $92.5m covers the matched $50m HDC contribution and also covers other acquisitions across the region.

In other words, to receive almost $350m in finanical support for the Hastings District, the Crown requires Hastings District Council to contribute up to $50m toward the voluntary purchase scheme.

The expensive road to recovery

Our district will need to share in the cost of recovery for the benefit of our community at large.

While the voluntary property purchase component (which is the subject of this LTP amendment) will have no real additional overall impact on rates (due to the Crown’s additional funding for roading network repairs), our district faces an expensive road to recovery regardless. The repair bill (almost $792m) is unprecedented and will require a disciplined long-term financial strategy and trade-offs to be made on spending priorities well into the future.

The reality is that Hastings faces a big recovery bill for its share of the cyclone costs, regardless of the Crown’s assistance package and proposal put forward here. As a community, there will be a need to discuss and determine how we should pay the Cyclone Gabrielle recovery bill. We are planning for that now, with a view to having discussions with the community as part of the 2024 LTP process. It is likely there will be a period of elevated rate increases to meet these additional costs.

This amendment does not address those matters. Understanding the ongoing implications and choices (including financial) of the recovery process will be a primary focus for the Council as it puts together its 2024-2034 Long Term Plan, which it will consult on during 2024. The current Crown offer will enable the Council to plan forward with some certainty.

What does voluntary compensation of residential property rights mean?

Irrespective of the significant investment in our flood control schemes, some areas will still be unsafe to live in. Those properties have been assessed as Category 3 properties.

The details of the purchase methodology have not yet been determined but it is intended that the Council will make an offer to all property owners that have a residential dwelling on their Category 3 land. The current view is that the offer will be based on a pre-cyclone market valuation, and will be either an offer for the entire property, or in the case of larger properties the residential component. The objective is to remove any residential uses from Category 3 areas. There is no proposal to remove or compensate for non-residential activities within the Category 3 areas.

How will it work?

Council is currently working on the process that will support the voluntary purchase of Category 3 properties. There is a wide range of circumstances within Category 3 areas that need to be considered.

What is the implication of the LTP Amendment?

• Providing for this new activity in the LTP (voluntary residential property purchases), will enable Council to establish a new activity and unit to administer the process from initial offer to final settlement
• Systems and processes will be developed to administer applications through to settlement
• A budget will be provided for paying staff, acquisitions, building demolition, future maintenance costs and proceeds of sales and claims settlements. At $100m gross, less $50m of Crown funding, the budget provision will be spread across the 2023/24 and 2024/25 financial years. This would be debt-funded, with interest costs accumulating to $2.5m. This is proposed to be offset by additional transport funding from the Crown.

Note: Minor non-achievement of some benchmarks above is not considered significant, and will be reviewed as part of the development of the 2024/34 LTP that will be consulted on with the community in 2024.

AMENDMENT TO REVENUE AND FINANCING POLICY

As part of setting up a new activity of Council for the voluntary purchase of Category 3 residential properties, the Council is also required to amend its Revenue and Financing Policy. That policy sets out by activity how the funding needs of the Council will be met. Council has undertaken a Section 101 (3) analysis required by the Local Government Act 2002, and incorporated it within its amended Revenue and Financing Policy.

The amended policy can be found in the full Long Term Plan Amendment document at www.myvoicemychoice.co.nz where you can also tell us your views on Council's approach to funding the voluntary purchase of Category 3 properties. In short, it concludes that the costs/benefits (after the benefits for impacted property owners are considered), are district wide, unable to be easily differentiated between groups and that a district wide funding mechanism to recover costs is the most appropriate. The actual specifics of the rating mechanism will be determined as part of the  2024-2034 Long Term Plan and consulted on with the community in 2024.

By not accepting the Crown's offer (as outlined in Option 1), Council will mean we miss out on a number of local and regional benefits (see below), and without the deal we still need to fix roads and bridges but the funding will be less certain.

BENEFITS NOT REALISED

If the Crown deal is not agreed, we will miss out on:

• $203M in Crown investment in flood mitigation which we will need to fund locally
• Certainty of flood mitigation works being completed as quickly as possible to protect homes
• Certainty of investment in roads and bridges, which enables faster economic recovery
• Providing Category 3 property owners certainty to move on with their lives and avoiding ongoing mental and social wellbeing implications from continued uncertainty.

THE 2023 GENERAL ELECTION

Declining the Crown offer would mean waiting until after the general election to see what financial support package could be negotiated – this will result in significant time delays when our community has been clear it wants action.

The region’s leaders consider this high risk along with the ongoing distress to Category 3 residents whose homes are considered unsafe for ongoing residential use.