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Dr Muriel Newman

Local government reform

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Last week, the Local Government Act 2002 Amendment Bill had its first reading in Parliament. It has now been referred to the Local Government Select Committee. Submissions close on July 26th and can be made on-line here >>>.

There is no doubt that reform of local government is long overdue. Ratepayers up and down the country have long expressed their anger over the management of local government. From excessive rate rises and excessive debt, to attacks on private property rights, unwarranted costs and restrictions, the imposition of race-based representation… the list of concerns is endless.

Last February, our NZCPR Local Government Taskforce, which included the late Owen McShane, one of New Zealand’s foremost authorities on local government, and former local body councillor Frank Newman, published a five-point plan to reform local government.1 In particular, our focus was on the following five objectives:

1. Restraining Local Government – by removing the power of general competence and the requirement to focus on the social, economic, environmental and cultural ‘well-being’ of their community, both of which had been introduced by the Labour Government through their 2002 reform of the Local Government Act. We suggested that councils should be required to refocus on their traditional role of providing utilities (including roads, footpaths, street lighting, water, sewerage, rubbish collection, libraries, public toilets, parks and reserves) as well as issuing and monitoring consents.

2. Introducing Prudential Controls – by imposing regulatory debt restrictions on councils just as the government have done on finance companies. One such mechanism would be to cap rate increases to the rate of inflation and a population growth adjustment, with any special spending proposals in excess of these limits put forward for ratepayer approval through binding referenda. In addition, it is long past time that all property owners in local authority areas should be required to pay rates – including on Department of Conservation land, other State-owned property, and Maori land.

3. Strengthening Private Property Rights – by preventing councils from impinging on the property rights of ratepayers in any way at all, unless by mutual agreement including the payment of fair compensation. Private property should not be subjected to any council-imposed designations – landowners’ rights should be sovereign.  

4. Streamlining Planning and Consultation – by reducing council planning requirements to a single plan only, to cover the full three-year term of a local authority council, with air, soil, water, and coastal plans being standard national plans with regional variations. In addition, there should be greater use of referenda (sent out with rates bills) for ratepayer consultation on the prioritisation of major council projects.

5. Removing Race-based Representation – all residents and ratepayers should be treated equally with no representation or special treatment based on race.

Shortly after releasing our reform plan, the government announced its intention to streamline local government as part of its strategy to build a more competitive and productive economy. This Local Government Amendment Bill is their response to the challenges in the sector. The question is whether the new bill addresses the public concerns ratepayers have about local government?

New Zealand’s 78 local authorities are a significant component of our economy. Their asset base is worth $100 billion, they spend $7.5 billion a year of public money, and they make up 4 percent of GDP.

In the decade prior to the introduction of Labour’s Local Government Act in 2002, rates grew on average by 3.9 percent a year. After the reforms, between 2002 and 2011, the growth in rates escalated to almost 7 percent. In comparison, over the same period, average transport costs increased by only 2.6 percent, food by 3.3 percent and housing by 5 percent. It has been estimated that if rate increases had been held at the same average level as they were over the period 1982 to 1992 – at a time before the introduction of the Resource Management Act when councils were very focussed on their core responsibilities – the average household would be paying $500 a year less in rates, saving the economy $1 billion.

So what has been driving the increase in rates? The prime reasons arise from the enactment of the 2002 Act, which transformed our local authorities from a provider of community facilities and utilities, into a provider of community well-beings. Their mandate is now limitless, as is their need for funding through rate increases and debt.

Since Labour’s 2002 changes to the Local Government Act, debt has been growing rapidly, increasing four-fold from $2 billion in 2002 to $8 billion in 2011. If left unconstrained, debt is expected to reach $11 billion by 2015. The cost of the interest paid by ratepayers has also been escalating, rising to $468 billion in the year to June 2011. This was a 23.8 percent increase over the previous year. The cost of interest will soon eclipse half a billion dollars a year.

In spite of New Zealand falling into recession in 2008, resulting in a dramatic slowdown in the housing sector and building consent activity, local government staff costs have continued to rise – up 4.4 percent on the same time last year.  Over the period from 2002 to 2010, salary costs have increased by 82 percent from $884 million to $1.6 billion, compared with an 8.7 percent increase over the eight years prior to Labour’s reforms. This escalation in costs is a matter of considerable concern – while all sectors of the economy have reduced labour costs since 2008, the rate of increase of the cost of labour over the last three years at local government level is 7.6 percent – nearly double the rate of the core state sector.

And when it comes down to what it is that the estimated 23,000 local government employees actually do, a Statistics New Zealand survey of the change in rates funding for local government activities between 2003 and 2008 showed that the biggest increase of around 120 percent was in the area of planning and regulation! Emergency management showed a 94 percent increase, followed by environmental protection, water supply, and culture at just over 60 percent, recreation and sport at just under 60 percent, solid waste and refuse at 50 percent, roading at 46 percent, waste-water 37 percent, governance 12 percent, transportation 10 percent, with spending on property declining by around 2 percent.

With councils expanding their planning departments so rapidly, it is little wonder that the public are increasingly concerned that New Zealand is over-planned! Owen McShane used to quote Political Science Professor Aaron Wildavsky’s “Original Rule of Thumb” – that a plan that was thicker than his thumb had no relationship to the real world. Owen believed the greatest boost to regulatory sprawl was Labour’s 2002 Local Government Act. “This radical piece of legislation granted the Territorial Local Authorities the general and wide ranging powers of General Incompetence, so unleashing them from the constraints of the existing Local Government Act, which had limited them to specific activities which were well within their capabilities. Now these Territorial Local Authorities have the power to plan every aspect of their economy, including matters previously in the hands of Central Government such as Education, Health and Housing. It was every Central Planner’s dream. And as the new generation of Super Plans, based on the extensive powers of General Incompetence, spread through New Zealand, do not be surprised if activity grinds to a halt everywhere.”2

National claims that their new Bill will improve the operation of local government to reduce red tape and compliance, minimise rates for households and businesses, lower debt, and provide high-quality infrastructure at the least possible cost.

According to the explanatory note the Bill introduces a new purpose statement for local government, replacing the power of general competence and the four catch-all well-beings with a requirement to meet the current and future needs of communities for good quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and businesses.

It provides for regulations to establish financial prudence requirements for councils, setting benchmarks for council performance in respect of income, expenditure, and debt levels. It establishes more transparency over staffing costs, by enabling the elected council to determine policies on remuneration and staff numbers, and requiring that this information is published in council annual reports.

Of concern is the fact that the Bill appears to be pursuing an Auckland-style “bigger is better” approach, giving Mayors additional powers and enabling any group within a community to propose amalgamations. While provisions are retained to enable restructuring proposals to be challenged by locals through a binding public referendum, more and more people are now questioning whether amalgamations deliver better local governance at all.

This Bill is clearly just the first phase of a comprehensive overhaul of local government. As it stands, it does appear to deal with the first two of the NZCPR reform proposals – to refocus councils on their traditional role, and to introduce prudential controls. The Bill however, does not appear to streamline planning, it does not strengthen private property rights, and nor does it remove race-based representation.

This week’s NZCPR Guest Commentator, former National MP and local body councillor Sandra Goudie, is spearheading a campaign against some of the excesses of local authorities, especially their attacks on private property rights, and their propensity to introduce race-based representation without consultation with their local community. In her article Communities Under Siege, Sandra explains:

“Communities throughout New Zealand are feeling under siege from regional councils, district councils, and external lobby groups who are not part of their living, working communities. Spatial planning has spawned an avalanche of costly, staff driven micro management initiatives, for significant natural areas, landscape, amenity, and biodiversity, affecting rural private property. Planning maps now identify everything from a blade of grass to a dog kennel.”

Local government is an area of New Zealand life that can be a help or a hindrance. In too many regions around the country it has become a hindrance. If you feel strongly about the need for more widespread reform, we would urge you to put in a submission and have your say.