Local Govt reform

Andrea Vance at Stuff reports:

The Government is set to introduce sweeping reforms to curb local council powers and get soaring debt levels down.

Troubled by escalating rates and in line with National’s public sector reforms, Local Government Minister wants to make elected representatives take more responsibility for wage bills and the generous packages offered to chief executives.

And he will pare back the scope of local government functions so they will only have control of essential local services such as waste, water, roads, libraries and consents.

The reforms will also require authorities to be more “prudent” in event management. It follows David Beckham’s 2009 football game which lost Auckland Regional Council $1.79 million and the saga of the V8 Supercar races which cost Hamilton ratepayers more than $40m.

Dr Smith is concerned that local government debt has burgeoned from $1.5 billion to well over $8b in the past decade. At the same time, rates have climbed 6.85 per cent.

That’s 6.85% a year, which is not only higher than inflation, but higher than both economic and wage growth. Quite simply it is unsustainable.

He believes the blowout stems from 2002 legislation which introduced the “power of general competence”, widening the scope of council responsibilities. Dr Smith said he was “fundamentally re-evaluating that structure”.

“[Councils] can do anything they like. In the Auckland plan, they have set targets for NCEA pass rates by 2020 … nothing to do with the council.

The power of general competence was an expensive mistake. However once granted, it can be very difficult to undo.

Local Government New Zealand president Lawrence Yule said his organisation would work constructively with the minister but councils were “uncomfortable” with some of the proposals.

The sector did not believe debt was a problem, he said.

“The debt servicing costs sits at about 5.8 per cent of the income level of councils. The world best-practice model says it should be under 10 per cent. Most of that debt is in infrastructure. It’s not frilly things, it’s in water systems, wastewater systems and some big roading projects that are going to last 50 years.”

Debt is the appropriate method to fund capital works. But not all of the $8b debt is infrastructure.

I’m also unsure about that 5.8% of income figure. If debt is $8b, then the servicing cost is say 6% so $480m a year. If $480m is 5.8% of revenue, that suggests revenue of $8.3b for local government.  As the Auckland Council has revenues of $1.9b, I doubt total local govt revenue is that high.

Incidentally the Auckland Council has finance costs of $221m on income of $1.87b, which is well over the 10% best-practice figure quoted.

UPDATE: Good to see Hamilton Mayor Julie Hardaker supporting the need for reform, saying:

The Government must give more clarity about what local government should do and, more importantly, should not do. Councils need to be able to explain their decisions for focusing more on the delivery of traditional services and push back on the numerous requests for funding marginal activities.

Hardaker is a first term Mayor whose Council is struggling with the legacy of some white elephant projects approved by previous Councils.

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