Local Govt reform

March 12th, 2012 at 11:00 am by David Farrar

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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28 Responses to “Local Govt reform”

  1. tvb (4,518 comments) says:

    In other words local authorities cannot be trusted. That seems to be the general attitude from Wellington. I am not at all confident nick smith will be able to sell this without causing a big political problem.

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  2. nasska (11,822 comments) says:

    Great news & well overdue. Might give the elected councillors some gonads to stand up to their empire building CEO’s & those who want their pet projects to be funded with OPM.

    Rubbish disposal, footpaths, parks,basic sports facilities, water & sewage are the responsibility of Local Bodies…anything else should be funded by those who use the facilities.

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  3. anonymouse (722 comments) says:

    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.

    @ DPF, Fairly close to it,

    http://www.stats.govt.nz/browse_for_stats/government_finance/local_government/LocalAuthorityStatistics_HOTPSep11qtr/Commentary.aspx

    Shows that quarterly income was around $1.9 billion in Sept 2011 quarter and $7.5 billion for the year to that point.

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  4. hj (7,067 comments) says:

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

    Troubled by escalating rates and

    …….
    80% of population growth (and need for infrastructure) comes from outside NZ. This is a deliberate policy choice of National, Labour and (to their shame) the Green Party.

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  5. lastmanstanding (1,304 comments) says:

    Over the past decade my rates have risen 318% more than the CPI. Have I gotten value from the rates. NO. Have the Councillors made promises to get re elected without disclosing in a full and transperant manner the costs to ratepayers. YES. Have these same Councillor embarked on hair brained mad cap schemes that have added nothing but cost to ratepayers YES.

    The power of general competence introduced in 2002 by Clark was an attempt to lay off costs from central to local government. Trouble is too many Councils lead by overly ambitous under qualifed CEOs use this as an attempt at naked empire building.

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  6. hj (7,067 comments) says:

    “Debt is the appropriate method to fund capital works. But not all of the $8b debt is infrastructure.”
    …..
    or you could use “appropriate funding” as a way of disguising this (what will likely turn out to be )a subsidy to developers who buy government policy.

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  7. campit (467 comments) says:

    A couple of other Mayors had this to say in yesterday’s SST:

    Taupo District mayor Rick Cooper said his council had had to borrow millions of dollars for new water and waste-water treatment plants in order to comply with government legislation.

    It had also had to contribute millions towards the construction of a new bypass because ‘the government likes to, wherever it can, shirk its responsibilities’.

    ‘Local government is on a hiding to nothing because of what central government legislates upon us,’ Cooper said.

    Queenstown Lakes District deputy chief executive Stewart Burns said it was not surprising the district had the highest debt per capita and rates per capita of the South Island councils. The district had a small resident population of around 28,000 but had to cater for 2.8 million visitors annually.

    He said the increase in debt over the past 10 years reflected the cost of providing infrastructure for a 65 per cent growth in its resident population.

    Central Govt has cut hundreds of millions from the funding of local roading, leaving councils to make up the shortfall. It also increased rates by 2.2% in 2010 with the GST increase. Auckland’s population is forecast to increase by a million people in the next 30 years, so some form of debt funding needs to take place, since alternative revenue streams have been dismissed by central Government. Nick Smith needs be working a bit more collaboratively than this with local Government if he wants to affect change.

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  8. campit (467 comments) says:

    … and as Julie Hardaker also points out:

    Suggestions of higher petrol prices, road tolls or airport departure taxes to pay for these projects are not supported by the Government. But if local authorities are expected to be more fiscally responsible and keep rates low, any reform of local government will need to consider other revenue sources such as a regional or city tax as well as the funding relationship councils have with the Government.

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  9. KevinH (1,236 comments) says:

    Local Government reform is well overdue, and Nic Smith will have a big job on his hands reigning in recalcitrant councils which have built up large debts pursuing over ambitious schemes.
    An example of this is Kaipara District Councils $63million sewage scheme at Mangawhai which may require a 20% rate increase to cover the debt:
    http://www.northernadvocate.co.nz/news/rival-blasts-mayors-rates-claim/1282226/.

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  10. wreck1080 (3,972 comments) says:

    I would be to see a rating assigned to every council, which they need to produce annually and show …

    Average rates bill (including water and other council taxes) per residential / commercial ratepayer.

    The average debt level per ratepayer.

    The amount of rates used to pay off debt.

    Annual population change.

    Then, we can get an idea of how councils are performing.

    Councils are damn cunning though, they find other ways to increase rates such as dropping previously free services. This is effectively a rates increase since you need to pay someone else for these previously free services.

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  11. swan (665 comments) says:

    @ DPF

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

    Any reason for this statement? I mean apart from a whole bunch of control freaks in local government kicking up a stink?

    I find the Auckland plan frankly disturbing the way it is setting targets for all sorts of stuff local government does not easily have any direct control over. There is a lack of basic logic and rational thought going on. It appears that it can and will be used to justify discretionary spending that suits the politicians of the day. Take for example the “Southern initiative” which sounds like an excuse to redirect disproportionate amounts of rate money to Len’s home territory.

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  12. southtop (266 comments) says:

    The 2002 Local Government Act was one of the smartest pieces of legislation the Aunty Helen pushed through. Basically the councils can do what they want and can justify it under the legislation.

    Add to that the central government then pushed down additional issues to be dealt with such as water quality (whether water quality was an issue or not), interesting funding for regional roads and those nasty rich land owners had to pay for it.

    The councils could do whatever they wanted, driven by pressure groups and get away with it.

    In Tasman (one of the highest indebted councils) there is a cafe in the main library, a swimming pool that was leaking $1000/day last year, a new facility in the Moutere that now soaks around $80k/year in wages and was to cover the Mapua area as well, but now Mapua wants it own facility, numerous small museums eating their heads off ………..it never bloody ends.

    In Nelson………. oh crap I’m just getting angry now.

    What gets me is that it has taken until the second term of the Nats to realise this. I have been banging on about this for a number of years and finally someone MAY do something about it.

    Here is a model council, sod all staff, minimal bureaucracy http://www.youtube.com/watch?v=f8qFvo2qJOU

    Every councillor and staff member should have “It’s not my money” tattooed on their foreheads in reverse so they see it every morning in the mirror and a big sign in every council office saying “It’s not my money”

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  13. labrator (1,850 comments) says:

    I wasn’t aware of the “power of general competence” clause. I had been wondering though with Council’s ever growing debt and influence and now size (with Auckland) when we were going to end up with two houses of government. If we get a Wellington super city and a South Island super city, we’d have a de facto two house government. Seems pretty stupid and wasteful to me.

    Councils should be as small as possible and like @southtop says, “Not my money” as their daily mantra.

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  14. rouppe (984 comments) says:

    The Government must give more clarity about what local government should do and, more importantly, should not do.

    What a cop-out. They were elected to make those sensible decisions.

    If councils are so stupid that they don’t know what they “should or shouldn’t do” then get rid of them and run them centrally.

    Taupo council could just as easily have told central govt to go f**k themselves about funding the bypass. After all, the bypass is actually bad for Taupo from a local businessman’s perspective. What could LTNZ have done then?

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  15. southtop (266 comments) says:

    Rouppe
    Perhaps Taupo should have, may have accelerated the issue.

    “They were elected to make those sensible decisions” Hesuuse H Christ. With what the councillors are paid and Kumbaya need for “representation” there is no way we are ever going to get sensible decisions.

    Those who are making sensible decisions are too busy running their own business. Getting around $20-30K for what is effectively a full time job and putting up with a heap of crap (often self generated) is not really a sensible career choice.

    Most (not all) of what I see around a council table go through a form of mutation within weeks of being elected. They grow a punger cup (for suction) on their arses and their noses turn to snouts.

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  16. DJP6-25 (1,389 comments) says:

    southtop 12:28 pm. Thanks for the link. It looks like a good idea. I guess results would vary according to the situations facing individual councils. Cue lots of screaming from socialists with BS degrees who can see their ‘jobs’ disappearing. The sooner the power of ‘competence’ is withdrawn, the better.

    cheers

    David Prosser

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  17. redeye (630 comments) says:

    The late great Owen McShane’s view is worth linking to here

    http://breakingviewsnz.blogspot.co.nz/2012/03/owen-mcshane-why-so-much-dissent.html

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  18. barry (1,317 comments) says:

    TVB – Of course they cant be trusted. Where ever did you get the idea that they could be? they had a history of running towns – roads, sewage, drainage, parks, etc. Then almost overnight they are into V8 racing, new stadia (thats multiple stadiums just in case I am wrong) sponsoring spports events, etc, etc. They had no expertise in these areas and history now shows they didnt know what they were doing. Its still the same. Here in the Waikato they councils are all wanting to throw money at a new velodrome – for professional and high end athletes. The councuils are trying to tell us that its for ‘Everyone’. Bullshit it is – they ratepayers wont be taking their old raleigh’s into that place. The councils have no grounds to get involved in this sort of thing at all
    Furthermore – as we can now see with Hamilton and Dunedin there has been some serious sculduggery going on with figures being hidden and disguised etc. The V8 thing here in Hamilton is a total disgrace and an example of lies and dishonesty , but most of – total incompetance. Even in traditional areas they have gone crazy – they have not long spent millions on CentrePlace – a small park in the centre of hamilton. All they did was remove some of the structures and grass some areas. Its only about 500 sq metres big. Its just insane.

    As for mayors wailing that its been forced upon then – thats just gutless moaning. All councils have wasted money on dumb projects – no legislation forced them to do it. As for having to upgrade water supply etc – well the councils just have to do what everyone else does – budget and only spend whats available. I cant see central government getting all shitty with councils who dont have the money to do these (often crazy and way over regulated) ideas. this country needs the upgraded water systems like it needs another hole in the head. Ok some need some improvement – but I dont recall anyone dying from the water we used to drink.

    And as for Auckland setting NCEA goals – thats stupid.

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  19. john.bt (170 comments) says:

    I live in a region where the shit-for-brains council spent nearly a million freaking dollars of OPM subsidising a privately owned movie theatre and the dumb fucks can’t even provide a decent water supply. I get a tad upset about these moronic dickheads.

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  20. Michael (911 comments) says:

    Council’s need to keep debt low for one reason. If they borrow up large on swimming pools, sculptures, and other folly they will find that no-one will fund them when they ask to borrow money to build sewerage plants and flood protection.

    The very worst councils fund operating expenditure through deficits and borrowing. They will eventually end up like the Greeks.

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  21. wiseowl (936 comments) says:

    Yay for southtop.
    I have been going on about this power of general competence for years as well. If Nick Smith sorts out this part of the Local Government Act it will help immensely.

    Yule is a Mayor who has racked up debt rapidly and has a council that has spent $50m plus on a sports park that was not required and will always be subsidised by ratepayers and has recently requested $3.5 million for a special hockey turf in Hastings when Napier has hockey facilities already setup.

    Nick Smith also needs to clarify what ‘promote’ means when it comes to the ‘well beings’ in the Act.
    I suggest promote does not mean ‘fund’.

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  22. mikenmild (11,777 comments) says:

    There seem to be a couple of things going on here. All councils have had extra cost forced on them over the past 10 years or so by central government. Some councils have exacerbated their positions by spending on unnecessary stuff – Hamilton’s V8 debacle being the stand-out. Most councils are trying to restrain spending overall, but do face pretty huge costs to replace ageing infrastructure.
    We do have a very good mechanism for restraining costs: every three years we get to vote for mayor and council.

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  23. barry (1,317 comments) says:

    Oh Milkenmild – find me a council that hasnt done something stupid – like the V8s, or the Dunedin stadium or the Hastings stadium or Christchurch buying those buildings from Henderson (I think that was his name) or of course the nationwide stupidity over leaky buildings ( many more than the houses that are destroyed in Chch), or The Far north (?) with its water problem, etc, etc. Just endless waste by dumb decisions.
    Trying to restrain? rubbish. Hamilton has trebled its debt in 5 years!!. If you think thats ‘trying’ then Id hate to see the result if they didnt try.

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  24. swan (665 comments) says:

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

    I asked earlier what DPF meant by this. I suspect what he means is: “Undoing the power of general competence is not currently National Party policy”

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  25. Joseph Carpenter (214 comments) says:

    About bloody time. Some other measures they should also introduce:
    – Re-introduce the requirement for binding referendum(s) of RATEPAYERS only for approval to borrow over certain limits or on petition of 10%+ of the ratepayers (another Labour cock-up to remove this basic democratic check on power).

    – Re-introduce restricting the franchise to natural person ratepayers only as was the case up until 1986 (another Labour cock-up).

    – Actually enforce the law of the RMA and the BCA that the fee’s and cost’s charged in relation to these CANNOT be used to cross-subsidize other council activities, many authorities are flagrantly breaking the law here. And lets not even go near why they are charging Reserves Contributions AND Development Levies on new and EXISTING work (another Labour cock-up), and people wonder why housing is expensive. It’s also worthwhile considering that building and development activity has more than halved since it’s peak of 2007-Q4, in fact 2011-Q4 was the lowest rate of new work EVER since records began (going right back to 1961 with less than half the current population) – if any other business lost 50%+ of turnover they would have to drastically cut costs and staff – now how many staff were made redundant at your local authority – I bet you their regulatory department (and fees) has actually increased in size.

    Also we should return to the former method Local Government used for financing large infrastructure capital projects – it wasn’t borrowing on the open market – in fact this was illegal over certain (low – as in overdraft type) limits. They used closed sinking funds prescribed under the old Local Government Act: the initial sum wasn’t amortised over the term but the surpluses/repayments paid into a dedicated trust account to redeem the whole sum at face value at maturity with the minimum fund payment obligations set in the Trust deed. i.e. a type of closed internal bonds that was run by the Authority themselves – typically only by the City/County Treasurer and some accounts clerks – without the aid of big merchant banks/banks (and their fee’s) or inhouse trying to issue municipal bonds or arrange borrowing.

    And also going on about the now higher cost for roading – bullshit, nearly every urban local authority (I believe Auckland is the only exception) spends less than 10% of their budget on roading – and virtually all of it is for maintenance and improvements (at their discretion) only. The only new roads they pay for are designated primary arterial routes (and these are part subsidized by central Government), State highways are 100% paid by central, all other lesser roads are built and paid for 100% by developers who vest them for free to the Local Authority as road reserves (and thats been the case since at least 1958, earlier roads were taken and are totally sunk costs by now).

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  26. deanknight (263 comments) says:

    Hmm. I’ve got an idea. What about we change the law so that, if we don’t like the decisions our local councillors are making (about the level of debt, events, rates, etc), we can vote them out? Oh, hang on…

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  27. Joseph Carpenter (214 comments) says:

    Except of course Dean:
    A) You’re already stuck with repaying the borrowing they committed to while in office and the rates they’ve struck, voting them out can’t change one cent of that.
    B) Allowing a universal voting franchise while not imposing a corresponding universal obligation to pay the taxes to fund it is totally unjust and repugnant. In fact specifically prohibiting it by law and imposing the entire taxation burden onto a small section of the population is a total subversion of normal democracy – they will always be outvoted by the freeloaders, no taxation without representation and no representation without taxation.

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  28. Joseph Carpenter (214 comments) says:

    The fact is:
    1) Up until 1986 the franchise was restricted to Ratepayers.
    2) Up until 2002 the competencies/powers of Local Authorities were strictly and narrowly enumerated.
    Surely giving any local organization the power of general competence AND imposing on them the requirement they are responsible for promoting the social, economic, environmental and cultural wellbeing of communities, in the present and for the future AND the power of unlimited taxation upon a small subset of the local population is madness?

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