Submissions on the Local Government Act 2002 Amendment Bill close next week on Thursday July 26th. All New Zealanders should be asking whether they are happy with the performance of their local council – if not, here is an opportunity to have a say. Submissions can be made on-line here >>>
Without a doubt New Zealand’s 78 councils are a significant part of the economy, making up 4 percent of Gross Domestic Product, spending $7.5 billion a year of public money, and managing $100 billion of public assets. They have however, become an impediment to economic progress and are coming under increasing pressure to change – which as expected, they are resisting.
This Bill is the government’s second attempt to reform the way local authorities operate in as many years. In 2010 a Bill to refocus councils on their core services, improve financial management, and reduce excessive planning and consultation, was passed into law. The problem is that to date, there has been no improvement in the sector. Local body rates are still rising faster than inflation, debt is continuing to grow unsustainably, and staff costs are increasing at a rate nearly double that of the core public sector. In addition, excessive regulatory and planning controls are continuing to destroy initiative, restrict private property rights, and inflate property prices, making home-ownership less attainable for many low income families.
The stated aim of the new Bill is to improve the operation of local government so it better contributes to the building of a more competitive and productive economy by reducing red tape, lowering the rates burden on households and businesses, and limiting debt. It intends achieving these aims by:
- • Re-defining the essential purpose of local government,
- • Establishing new financial prudence requirements,
- • Strengthening council governance provisions, and
- • Streamlining the process for amalgamation.
The issue is whether those changes will “solve” the problem with local government, but first, let’s identify what the main problems are and where the solutions might lie.
There is no doubt that there is a perpetual state of dissatisfaction with local government. Concerns about rate increases, debt levels, bureaucratic interference, poor management, remuneration excesses, failing infrastructure, bad planning decisions, to name but a few, regularly feature in the litany of complaints. Underpinning these concerns is the fact that many councils are simply not doing what their ratepayers expect or want.
Ask any group of ratepayers the question of what it is that they want and expect from their local council and the answer is likely to be:
- • More affordable rates,
- • Better infrastructure,
- • Better and more cost-effective services, and
- • Having their opinions and values respected when councils make decisions.
Why is it that councils don’t reflect the aspirations of their community? The reality is, because they don’t need to. Many councillors typically take the view that they were elected to make decisions, and they are going to do so, whether people like it or not! It is essentially this lack of respect for ratepayers that is at the heart of the problems with local government.
So, what could be done to improve the situation? Here are some suggestions.
Affordability of rates
Regulate to cap rates to an agreed percentage of the mean disposable income of ratepayers. That would impose a level of financial discipline that is presently absent. Ratepayers could be asked to approve of additional spending through the mechanism of a binding referendum. For the purpose of monitoring council spending, “rates” should be defined as rating revenue plus the net increase in long-term council debt (which must be collected from future ratepayers when the debt is repaid). Including the increase in net debt would prevent councils from concealing rate increases within their debt figures.
The question of how to deliver better infrastructure and more cost-effective services is crucial to the efficient operation of every local authority. The dilemma is where to draw the line between council responsibility and what should be better left to the private sector or central government.
In general, local authorities should fund public goods such as street lighting, street signs, footpaths, local roads, traffic lights, cemeteries, parks and reserves, libraries, public conveniences, storm water and sewerage systems, water and waste water services, rubbish collection, hazard control, and of course regulatory functions including permits and consents. There is generally little debate about who should is responsible for these services, but the debate heats up when it comes to such things as museums, art galleries, sports grounds, swimming pools, stadiums, public transport, airports, and ports.
Unfortunately, what might seem like common-sense priorities to ratepayers are not necessarily seen with the same clarity by many councillors: claiming credit for an upgrade of the sewerage system just doesn’t have the same resonance or glamour as claiming the credit for a new stadium!
It is clear that some councils simply cannot be trusted to make the right decision when it comes to priorities – the Whangarei District Council for example, is proposing to build a multi-million dollar art gallery next to a river which flows with sewerage whenever there is a heavy downpour! That’s why priorities for funding need to be regulated in order to force councils to fix their basic infrastructure before providing for luxuries like an art gallery or stadium.
The excessive consultation processes introduced in part 6 of the 2002 Local Government Act are a farce. For most councils the consultation process amounts to tokenism at best and at worst it provides an open opportunity for plans to be captured by activists, both within and outside of council.
Former Wanganui District Council Mayor Michael Laws had the right idea when he rejected the standard consultation process in favour of making extensive use of local referenda to reach out to his community. He believed that asking residents and ratepayers directly what they thought about important council decision-making matters was a more democratic form of consultation.
That approach should be mandatory for all councils. Binding referenda should be used to engage the public – not only to have a say on council’s spending priorities, but also to mandate proposed projects that would otherwise breach council spending limits or be outside of their core service area. In addition, referenda should be used to veto ill-advised council decisions as proposed by the Local Government Forum which has suggested binding referenda as a means of holding councils to account by “providing mechanisms for voter recall of decisions made by a council that have created more than a threshold level of dissatisfaction among voters (similar to the rights to stage public referenda on contentious issues found in Swiss cantons and US states)”.1
Consultation is also about feedback. An “independent” poll of ratepayers should be carried out every year to assess the council’s general performance and the level of satisfaction with their services, with the results published in their annual report for everyone to see. Using the same survey in each local authority area around the country could provide a benchmark that would bring open accountability to local government that is not presently there.
The solutions as proposed
Having looked at the problems and suggested some solutions, let’s now look at what the government is proposing to do in their Local Government Reform Bill.
Firstly, they are proposing to refocus the core role of local government by redefining thepurpose statement. That means replacing the need to promote the economic, social, cultural and environmental wellbeing of their community with a requirement to meet “the current and future needs of their communities for good-quality local infrastructure, local public services, and performance of regulatory functions.” However, going by their track record, the Bill’s failure to spell out exactly what “local public services” should cover means that councils could continue to use this broad definition to justify popular wellbeing-type projects.
Accordingly, “local public services” should be replaced by “local public goods” and a full list should be provided in the legislation as a guide to councils.
Secondly, while the Bill specifies that financial prudence requirements for councils will be established and that benchmarks for councils’ performance in respect of income, expenditure, and prudent debt levels will be set by way of regulations, it doesn’t provide for a cap on rates. That is a mistake. A cap on rates should be introduced as a priority.
Thirdly, the Bill introduces some changes to governance arrangements, including a requirement for councils to ask for help from central government before their problems become critical. However, this is a bit like shutting the stable door after the horse has bolted. Requiring councils to meet the needs of their communities through referenda and through public polls should help to reduce the likelihood of crises occurring.
The fourth change proposed in the Bill is the most puzzling. Everyone knows there is a problem with local councils, yet the government wants to make them bigger! Since when is a bigger problem easier to fix than a small one?
The Bill proposes to “streamline” the process for amalgamation. At the present time, amalgamation can only be proposed by a consensus of affected councils, by the Minister, or by 10 percent of electors in each affected council area. Furthermore, an amalgamation can only go ahead if a poll of electors in each affected area results in more than 50 percent voting in favour of the change. If the electors in any of the affected areas oppose amalgamation, it cannot go ahead.
The new Bill removes some of the present safeguards by allowing a single council or a group of interested people to propose an amalgamation. While a proposer must be able to persuade the Local Government Commission that they have “sufficient community support”, the law enables that to be done through a meeting – which could of course be stacked with amalgamation advocates. Of particular concern, is the fact that the safeguard of requiring the approval for the amalgamation of electors in each affected council area has been dropped, in favour of a majority of the votes cast overall. These new measures will open up well-resourced councils to hostile take-over bids by their larger and poorer neighbours – who may have their eye fixed firmly on the resources.
This week’s Guest Commentator is Phil McDermott, a consultant in urban, economic and community development, who has kindly enabled us to share his analysis of the local government reform programme, Local government restructuring – putting the cart before the horse. He also has concerns about amalgamations:
“A preoccupation with amalgamation again raises the spectre of a solution looking for a problem. The 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.
“A 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 away councils.”
At a time when the jury is still out over the Auckland City amalgamation and the “bigger is better” model so loved by socialist central planners, this is not the time to fast-track amalgamations. What local government really needs are tools to strengthen democracy, not weaken it. Ratepayers need to be better equipped to hold their local councils to account. Having defined objectives, constraints on spending, and public referenda would go a long way towards achieving that outcome.
- Local Government Forum, Local Government and the Provision of Public Goods ↩