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government restructuring – putting the cart before the
15 July 2012
March 2012 central government launched a multifaceted reform
The aim is to “refocus” local councils in the interests of
improving governance, efficiency, and management. It
identified eight areas for action:
refocus the purpose of local government;
introduce additional fiscal responsibility requirements;
strengthen governance provisions;
streamline reorganisation procedures;
establish a local government efficiency task force;
develop a framework for central/local government regulatory
investigate the efficiency of local government infrastructure
8. review the use of
it I touch on the key components of the proposed reform and
raise a question or two around why and how we are going about
programme is reductionist – breaking reform down into
separate parts as if they can be acted on independently. The
risk is that the sum of the various initiatives adds up to
something less than a satisfactory whole.
a start, none of the seven subsequent objectives can be
considered independently of the first.
recently issued Local Government Act 2002 Amendment Bill
pursues their integration by introducing a new purpose
statement. This seems reasonable. The purpose of local
government should shape its funding needs, governance, and
management arrangements; determine how it allocates and
manages its resources; and influence what it regulates, and
the Bill as the first step in the reform process also seems to
take care of the first four objectives. It offers the
prospect of containing and streamlining what local government
does, informed about how it might best do those things by the
four reviews promised in the second four objectives.
More Central Direction?
statutory limits to council activity risks pre-empting what
might emerge from those reviews, though. The new Bill
requires local government to focus on functions that only it
can perform. This return to basics means that councils might
only act where markets fail or where they can demonstrate
collective benefits sufficient to justify local public action.
This is a step back from the breadth of purpose outlined in
the 2002 Act.
inference is that since the 2002 Act councils have acted too
broadly. With only a small number of exceptions (the
larger councils stand out in this respect), this is highly
provisions of the Bill further reassert central over local
authority. These include scope for setting prudential
standards or benchmarks by Order in Council and much
strengthened powers for the Minister to intervene in the
affairs of councils considered to be “struggling”.
provision for elected councillors to dictate staffing and
remuneration policy increases the likelihood that councils
will “struggle”, confusing roles and reducing executive
accountability. And allowing mayors more power in
running their councils – which may be a worthwhile measure
in its own right – is unlikely to offset
the increased exposure to governance failure. In practice,
tinkering with mayoral powers may simply lift the tendency
evident in our largest authorities towards divided councils
and sectional alliances.
this the thin edge of the amalgamation wedge?
the biggest concern is the much greater weight given by the
Bill to restructuring. Unlike the reforms of 1989, which were
geared towards increasing the effectiveness of local
government by doing away with the redundancy, duplication,
inefficiency, and excessive overheads of a fragmented,
hide-bound system, the objective of these measures in the
current bill is not clear. Lurking behind them, I
suspect, is a commitment to further amalgamations, encouraged
by provision for applications for restructuring rather
preoccupation with amalgamation again raises the spectre of a
solution looking for a problem. The evidence that better
governance or enhanced efficiencies are delivered by larger
units of local government is decidedly mixed. Internationally
research suggests that efficiencies may be increased by moving
from very small to medium-sized units of local government. But
there is little evidence that moving from medium to large
units will deliver the goods.
I have seen no evidence to support such an approach across the
board in New Zealand. It doesn’t exist in the
Department of Internal Affairs Regulatory Impact Assessment
for the current Bill, which acknowledges an aim to facilitate
more interests and more communities moving on the “union or
abolition of councils or the creation of unitary
authorities” (Paragraph 158).
may be available from merging, sharing, or jointly purchasing
particular functions or services across jurisdictions. That
hardly requires amalgamations. And there is scant
evidence of administrative efficiencies. Mergers
that lead to multiple tiers of management simply pile up the
challenges of internal and cultural alignment within enlarged
bureaucracies already struggling to engage with their
Auckland Experiment – too soon to tell?
New Zealand’s case we should at least wait to see if the
Auckland Experiment works. The Local Government Auckland
Council Act (2009) sought to create a bigger, more
influential, and more effective council from the eight that
it’s too early to judge the success or otherwise of this
experiment. However, there are sufficient disquieting
signs to suggest that the Government should make haste
somewhat more slowly elsewhere.
example, the operating budget for Auckland Council in 2012/13
is $2.8 billion compared with the collective 2008/09 operating
expenditure of the eight councils identified of $1.95 billion
Commission Report Appendix B).
Spending growth of 45% (or $721m in 2009 dollars) compares
with just 8% inflation between 2009 and 2012. Transition
costs alone can’t explain such a jump in costs - the Royal
Commission suggested that at most transition would cost just
$60 million a year for four years.
much for operating and administrative efficiencies from
about capital expenditure?
have not compared collective capital expenditure by the prior
councils with the plans of the new council. However, I have
already raised doubts grounded in the evidence for Auckland
over the Council’s planned capital programme. This is marked
by an over-emphasis
on the CBD
and the $2-3billion it is throwing at an
underground rail connection,
the benefits from which are both constrained and uncertain.
That central government does not accept the arguments put
forward by Auckland Council to justify this investment
(despite the $500m already committed to the electrification
necessary for under-grounding) is evident in its reluctance to
support the proposed rail connection financially.
Risks of Amalgamations
question-marks over Auckland’s capital programme highlight
serious questions over the allocative efficiency of larger
councils (and, as we often see in the private sector, of large
creation of oversized municipalities does away with the sorts
of checks and balances associated with medium-sized councils.
It raises the spectre of single minded spending of larger
budgets on ever more ambitious – and unrealistic – pet
projects. Bigger councils with bigger budgets but the
same old thinking risk serious misallocation of finite public
funds. And allocative inefficiency is a greater
threat to aggregate productivity with more far reaching
consequences than any operating inefficiencies that might be
associated with smaller organisations.
more cautious approach to restructuring, an approach which
encourages modest reform and puts barriers in the way of
building large, remote bureaucracies may be called for.
I suspect that the Auckland Experiment will demonstrate sooner
rather than later that restructuring is not the silver bullet
that might put an end to run-away council costs – or run
also sets the stage for an expert group to advise the
Government on how best to deliver good quality infrastructure
at an economic cost. We need this advice before going
too far down the track on local government reform generally.
efficiencies might be gleaned from improved process,
procedures, training, investment, and, ultimately, purchasing.
Administrative efficiencies might be husbanded through
moderating the size of councils. Allocative efficiencies
with respect to infrastructure, however, call for best
practice in policy analysis and the decisions that sit behind
investment regardless of council size.
early days yet, but it seems that the advice that emerges from
this investigation should ultimately inform any local
government reforms, suggesting that the Bill is premature
within the wider programme.
it seems premature to promote restructuring while the Local
Government Efficiency Taskforce is only now looking at how to
streamline consultation, planning, and financial reporting.
Equally, the New Zealand Productivity Commission has only just
commenced its inquiry into what regulations are best developed
and administered at local government level.
else that bothers me about the Local Government Act 2002
Amendment Bill clearing the way for amalgamation is what
happens to the environment under unitary councils?
we have some experience here, and I would expect to see it
brought to bear in the reform process.
to the 1989 reform of local government and the 1991 Resource
Management Act it was all too easy for the environmental
gamekeeper to also be the environmental poacher. We need to be
aware of the risks of this happening again. How far, I
wonder, is the Technical Advisory Group exploring options for
streamlining the RMA (convened by the Minister for the
Environment) able to do so in the face of parallel initiatives
likely to change both the shape and practice of local
government in New Zealand?
There may well be merit in the wider
programme of reforms the government has instituted, especially
in the context of its economic development mandate. But
it seems important that multiple programmes and initiatives do
not lead to conflicting outcomes. An enthusiasm to
reform – and restructure – local
government should not pre-empt the efficiencies that might be
achieved by simply boosting the quality of decision-making.
Only when we have examined how infrastructure, regulation, and
resource management might be delivered most effectively will
we really know what sort of reforms might be needed in local
(and central) government.
article was first published at Cities
and is republished here with permission.
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