What Next for Local Government

Last week Local Government New Zealand held its annual conference in Rotorua. The organisation represents the country’s 78 local authorities – 11 regional councils, 6 unitary councils, 11 city councils, and 50 district councils. Collectively they manage assets worth more than $120 billion, including most of the country’s roading network, water and waste water facilities, recreation and community centres, and libraries.

In 2014, local authority spending of $8.5 billion represented around 4 percent of the country’s gross domestic product and 11 percent of all public expenditure. Sector debt stood at $11 billion.

As one has come to expect from local government, a key focus of this year’s conference was on new ways to increase funding. They came up with a ten point plan:

  • The establishment of “special zones” to enable new funding policies to be tested in a location or region without affecting the whole country.
  • Greater cost sharing with central government for projects imposed by the government, especially where local costs outstrip local benefits.
  • The removal of mandatory rating exemptions, so that all beneficiaries of council infrastructure and services pay their fair share – with any exemptions being the responsibility of individual councils and their communities. Statutory exemptions fall into five main categories:  conservation, health, education and other Crown land; land used for religious and charitable purposes; land used for transport infrastructure – roads, wharves, railways and airports; local authority land used for conservation and recreation; and Maori land.
  • The simplification of the rates rebate scheme – which uses a central government subsidy to help low income households meet the cost of local authority rates – to increase the uptake.
  • Better central government guidance for councils on whether to fund services using user charges (prices) or rate increases (taxes).
  • Allow councils to impose road user charges, targeted levies and fuel taxes.
  • Allow councils to retain a share of any increase in additional economic activity related to local intervention – through new infrastructure and amenities or different planning rules – to encourage councils to invest in growth.
  • Allow councils to receive a proportion of any mineral royalties attributed to local activities.
  • Allow councils to levy charges and taxes on tourists.
  • Expand the range of community amenities that can be funded through development contributions (reversing the government’s recent changes limiting them).

The President of Local Government New Zealand Lawrence Yule explained, “We are launching this plan because local government is facing unprecedented economic and demographic change and increasing community and government expectations. We need to put ourselves and our communities in the best possible position to manage significant issues such as regional economic development, demographic shifts, climate change and rapid technological advancement. We need to lead New Zealand’s communities through this change, but we need strong collaboration with Government and private sector partners. This is about leading a principled discussion with our key partners around more fit-for-purpose funding options.”

Stripping away the rhetoric leaves a blatant appeal for more sources of funding for local government – an all too familiar mantra. Instead of living within their means, many councils believe that rates are no longer sufficient for their expanded operations, and they are looking to lock in new funding streams.

Many ratepayers, however, want local government to be frugal, and restrict themselves to providing local infrastructure and services – roading, water, sewerage, rubbish, footpaths, street lighting, parks, libraries, and the like – along with essential regulatory functions.

This disconnect between the view of the public and the expansionary ambitions of many councils, was more than evident in the findings of a survey of 3,000 people across the country, undertaken by Local Government New Zealand last year.

The results were abysmal. Local government scored only 29 points out of 100 in an Overall Reputation Index, which assessed three areas of local government operation – Performance, Leadership, and Communication (weighted at 37 percent, 33 percent, and 30 percent respectively).

Council ‘performance’, which gained an average score of 28 percent, covered efficiency and effectiveness, value for money, trust to make good spending decisions, managing finances well, managers and staff doing a good job, continual performance improvement, working with other councils where relevant, and having the skills and expertise to manage community affairs.

Council ‘leadership’, which ranked the lowest with an average score of 26 percent, covered the local leadership of mayors, regional council chairmen and councillors, along with their strategies for developing prosperity and wellbeing.

Council ‘communication and interaction’, which scored slightly higher at 32 percent, involved keeping people informed, providing opportunities for them to have a say, making it easy for them to interact and engage, and listening and acting on their needs.

Essentially, the areas of local government operation that were viewed the least positively by the public all related to financial management: a lack of trust to make good spending decisions, providing good value for rates dollars spent, and managing finances well.

The simple fact is that some local councils are performing so poorly that many believe they do not deserve any additional funding.

The Minister of Local Government, Paula Bennett, who delivered a keynote address at the conference, is of that view: “The public’s expectation of local government is quite clear. They want better services, they want modern infrastructure, and they want strong leadership. The Government is aware of the cost pressures many councils face, and the Funding Review document launched this morning shows you are thinking about different mechanisms to manage growth.

“This is a conversation worth having, but first and foremost local government needs to demonstrate that it can live within its means. Ratepayers are not willing to pay more for services while they see waste. Year ending March 2015, local government wages and salaries increased 2.3 per cent, the highest since 2012, and significantly above CPI, the central government, and private sectors. And the recently released LGNZ Survey identified that local government was rated poorly on trust to make good spending decisions, value for rate dollars spent, and managing finances. I expect you to look closely at your costs and have free and frank conversations about what is driving your expenditure and whether that discretionary spend is assisting your council to achieve its strategic goals.”

The Minister’s speech was also significant in that it signalled that future reforms of local government will be structural.

She acknowledged that amalgamation did not produce the results the government wanted, with two out of three of the Local Government Commission’s regional amalgamation proposals being abandoned due to public (and council) opposition: “I will not legislate for large amalgamation. I am as tired as our communities are of having an argument over how many mayors there should be and over whom is bigger than whom and which area will dominate. I have zero interest in imposing unwanted change on you.”

It is a shame the Minister did not reach her conclusion about amalgamation before Northland, Wellington and the Hawke’s Bay were subjected to the enormous disruption caused by the Commission’s proposals. Fortunately for Northland and Wellington, the opposition was so strong, that the proposals were withdrawn. The Hawke’s Bay, however, was not so lucky.

This week’s Guest Commentator is NZCPR Research Associate Mike Butler, who is strongly opposed to amalgamation in the Hawke’s Bay – and the growth in bureaucracy that will result:

“The final structure, and by this I mean the structure that is described and illustrated in the final proposal booklet and not the positions not detailed on the Maori board and the natural resources board, is this: It proposes one mayor, 18 councillors, and 37 local board members. It also proposes a 20-person regional planning committee that has 10 councillors and 10 members appointed by iwi, a Maori board with numbers unspecified, and a natural resources board, again with numbers unspecified.

“Already there are at least 66 positions which is just one fewer than the 67 positions on the current five councils. We still don’t know how many appointees would go on the Maori board and the natural resources board. There could be a further 20 positions…

“Would this new governance structure mean cost savings for ratepayers? Again no! The likely new governance cost of this proposed structure could be $3.7-million. This compares with just over $2.5-million each year for the current five Hawke’s Bay councils…”

The Hawke’s Bay poll, to decide whether amalgamation will go ahead, will open for postal votes on August 24 and close on September 15.

So with amalgamation largely off the government’s agenda, what structural reforms are being proposed?

The new approach appears to favour the establishment of regional infrastructure services – to gain the benefits of economies of scale and eliminate the duplication of costly bureaucracies across a region. With Council Controlled Organisations (CCO) providing essential services at a regional level, the Minister believes that some regional councils could be phased out: “This might mean a CCO on water or transport across a region. It could even mean in areas that might put a number of CCOs in place for key growth and infrastructure that there is no longer a need for a Regional Council.”

The government is clearly frustrated that economic growth in many parts of the country is lagging, and feels that local government should accept some responsibility – and be doing more. The Minister stated in her speech: “Now, more than ever, New Zealanders expect you to rededicate yourselves to focusing on the issues that matter to your people, your communities. This means more jobs, sustained growth, and sensible spending on reliable infrastructure. I want local government to do more work in this space.”

But while Minister Bennett wants councils to put more effort into providing the infrastructure and services that will enable their communities to prosper, her government is failing to address the real problem – and that is Section (3)(b) of the Local Government Act 2002, which was introduced by the Labour Government to give local councils the power of general competence:

(3) Purpose:  The purpose of this Act is to provide for democratic and effective local government that recognises the diversity of New Zealand communities; and, to that end, this Act—

(b) provides a framework and powers for local authorities to decide which activities they undertake and the manner in which they will undertake them;

Assuming a level of general competence from local councils was clearly an optimistic but unrealistic ideal. Instead, many used their new powers to expand their activities into areas unrelated to their core functions. This marked the beginning of a long-term rise in expenditure and debt for many councils – resulting in an increase in the upward pressure on rates.

However, rather than repealing Section (3)(b) of the Local Government Act, to restrict the functions of local government and curb its expansion into inappropriate or wasteful areas, National has opted to leave the power of general competence intact. In other words, instead of tackling such contentious issues head on, the Minister appears to be preserving the jobs and status of local mayors on the one hand, while taking away council responsibilities on the other – presumably in the belief that the less responsibility they have, the less they can get wrong.

But what do you think?

Do you believe constraining local government and forcing them to live within their means is the right approach, or do you support their call for more funding sources? Share your views through the comments section of this week’s poll and we will send them on to the Minister of Local Government for her consideration.

THIS WEEK’S POLL ASKS:

In response to the call by local government for more funding, do you agree their sources of funding should be expanded, or should local government learn to live within its means? 

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