A coat of many colours

Colin James on local government for Management Magazine September 2007

Most of what a local council does is out of sight or out of mind: up in the hills, down in the dumps or under the roads which are under the wheels. So when councils raise charges their unseeing captive consumers get upset.

As a result, over the next month a lot of grumpy people, especially grumpy business managers and owners, will vote for candidates they hope will rein back council spending and, with that, rates. These same people will also moan loudly if the out-of-sight bits — the infrastructure — are not up to scratch.

The new councils, whatever their principles and prejudices, will have somehow to square this circle. Thanks to lower investment in infrastructure in the 1990s after subsidies were withdrawn in the 1980s, councils this decade have been fixing a backlog — some $10 billion worth over the past 10 years.

And their long-term plans tell them they face a $31 billion bill over the next 10 years if they are to meet their communities’ needs. Of that 73% will go on roads and public transport and the “three waters”: supply, stormwater disposal and waste water disposal. A large proportion of the rest is for community facilities such as parks, swimming pools and new buildings which citizens expect.

And, if they go to change the plans, they will find roadblocks. They are the product of a tortuous consultation with citizens which has been overseen by the Auditor-General, who also audits performance measures.

So the plans’ tripling of capital spending is not a good omen on rates.

But what’s the fuss? In the 1970s and early 1980s rates nationwide were 2.3% of GDP, even with the pre-1980s-reform government subsidies. They are now 1.9%-2.0% of GDP. They are due to reach 2.2% of GDP by 2011-12, still below the level of 25 years ago. Hardly break-the-bank stuff.

Moreover, businesses’ share of those rates has been falling as the differentials most councils applied in favour of residences and against businesses have been reduced. Some rural councils charge their farmers lower rates than their townies.

And, as retiring three-term Christchurch mayor Garry Moore says, “if the infrastructure doesn’t work, business doesn’t work”.

So what’s the fuss?

An easy answer is that councils do things businesses and many householders don’t want, need or use, especially in the arts or social services, which could be left to the central government. The Auckland City Council sold off its community housing in deference to such complaints. On the other hand, businesses seldom complain when a council spends ratepayers’ money for the likes of a car race which feeds business revenue.

A second easy answer is that Parliament keeps dumping extra functions on local councils without the cash to pay for the extra work: tougher dog laws, the sledgehammer Building Act, requiring councillors to get certified to hear Resource Management Act case and legislating for higher quality of drinking water.

But, while these impositions are real, they are straws on camels’ backs, not the bulk of the load. And councils recover a lot of the costs of services through charges to users, not through rates (dog laws and the Building Act are cases in point) — though businesses end up paying many of those charges and grumble that councils could do some of them more cost-efficiently.

A third easy answer is that there are wide variations in spending profiles and so, while some may be business-friendly, others are not — though in some cases this is to cope with big infrastructure backlogs and in fast-growing areas new infrastructure and services are needed for new suburbs and housing developments.

A fourth easy answer lies in the archaic funding mechanism. Land tax disappeared as a source of central government revenue long ago. Apart from government grants and subsidies, which are targeted to specific activities, and profits from council-owned businesses, councils have to rely on rates for spending not covered by service charges.

An inquiry into rating released in August (after this went to press) could therefore work only at the edges. There will be no local income taxes.

But there are flexibilities.

One is to lower the depreciation rate on assets — though this comes with the proviso that it doesn’t load on to future ratepayers the sort of catchup costs that followed the 1990s dip in infrastructure spending. The inquiry suggested some councils depreciate assets too fast.

A second, now coming back into fashion, is to borrow to fund long-lived assets. Why should today’s ratepayers pay for all of something future ratepayers will use? At least to the extent that there is a calculable economic payback equivalent to the interest cost, borrowing is relevant.

A recent law change reducing regulatory compliance costs has made it practicable for councils to issue bonds as they once used to.

The risk is that enthusiastic councils will borrow their way into large debts, as some did. Auckland under John Banks set out to eliminate debt; under Dick Hubbard it has edged back towards debt funding.

There are also constraints.

One of them arises, ironically, from a recent flexibility introduced in the 2002 rewrite of the Local Government Act. Instead of an explicit list of what councils were allowed to do, with a ban on anything not on the list, councils were made responsible for the “social, economic, environmental, and cultural wellbeing” of their communities and given carte blanche except what the law tells them they cannot do.

But this was more a rhetorical than actual change, given the revenue-raising limitations and given that the new law was accompanied by a local government equivalent of the central government’s Fiscal Responsibility Act.

And councillors were not left free to gallop round the paddock, as one mayor enthused. They have to produce long-term council community plans (LTCCPs) which are supposed to reflect their citizens’ wishes as expressed through mandated rounds of consultation. Then they are expected — in fact, required by law, with the Auditor-General monitoring their performance measures — to carry them out.

This applies to the 73 city and district councils scattered up and down the country. Some are small and barely (if at all) have the staff to do these grand planning tasks. A model T system originally designed for simple works is now supposed to be an Alfa Romeo/Volvo cross.

And loaded on top are the regional councils. These were originally essentially regulatory bodies but gradually, depending on local and regional needs, some are being asked to do planning and regional coordination for which they are not particularly suited.

In between are unitary authorities — district councils also doing the work of regional councils in the top of the South Island, Gisborne and the Chatham Islands.

If you were designing the system from scratch, you wouldn’t start from here.

But councils have to start from here. Consequently, the more adventurous are beginning to think laterally.

The most common form is to share some functions with neighbouring councils. Christchurch city and Waimakariri and Selwyn district councils have joined with the regional council (Environment Canterbury) and Transit New Zealand to run their roads, waste and planning of “development nodes”. The four Southland councils share computer systems, libraries and museums, developed a single economic development plan and are looking at sharing building inspection and, five-term Southland district mayor Frana Cardno says, “may in future look at shared roading services”.

Then there is Wairarapa, heavily populated with grapevines but not people — total population 49,000, with three small councils, one of which, Carterton, in the 1990s distinguished itself by electing a transgender mayor. Wairarapa has taken cooperation a step further.

The three councils are still distinct at the council tables, in their jurisdictions and bureaucracies and in much of what they do, though they do cooperate in a range of activities, including a rural fire service, climate protection, social cohesion policies and arts and culture. Their innovation is to have developed a single district plan under a joint committee on which each council has two members. The councils shared the costs and submitters who operate across council boundaries were spared the need for multiple submissions.

In time, if this works, they might well increasingly to operate as one council, with a joint bureaucracy. Already they have regular informal joint council meetings and deal jointly with central government agencies on issues that arise out of the LTCCPs. The far-sighted — or dreamers — can imagine a single LTCCP.

Dreamers? Actually Southland did just that, saving, according to Cardno, a huge amount of money in the process. (Cardo also saves maintenance costs by not sealing gravel roads.)

Wairarapa and Southland may be on a path to amalgamating without amalgamating, keeping their individual democratic representations but driving efficiencies. Masterton CEO Wes Ten Hove sees another benefit: improved ability to attract and retain good staff with a bigger critical mass.

This cooperation obviates the need for the rationalisation of the multiplicity of small councils that dismay some observers and practitioners — among them Moore, whose Christchurch city has recently absorbed the tiny, struggling Banks Peninsula.

Christchurch’s single-city governance highlights Auckland’s incoherence, divided among four cities and three district councils, plus a regional council, all given to patch protection and competition. Wairarapa’s and Southland’s amalgamation-without-amalgamating suggests a path for Auckland.

The government wants Auckland to be a world-class city because it believes world-class cities drive world-class economies. The models are the likes of London and New York, which have distinct identities and economies within their national identities and economies and attract investment and enterprise.

But Auckland doesn’t operate like a coherent city, let alone a world-class one. It is known more for squabbles than great strides.

A working party did come up with a proposal in June: more responsibilities, such as a tourism promotion, regional economic development and regional events management, for the regional council (renamed Greater Auckland), with a “sustainable development forum” — consisting of two members appointed by each city and one appointed by each district, plus four regional councillors — which would oversee a single long-term plan.

This proposal was a remarkable event: the councils agreeing on something. But many questions were left unanswered, not least whether the reshaped regional council’s membership should be changed to incorporate members appointed by the local councils and its chair elected at large instead of appointed by the council members. So the government, with National party backing, decided to set up a royal commission of inquiry.

For Auckland business, which has long pushed for coordinated planning and action and set up a chain of committees and forums to prod the councils, this kick into touch was yet another delay. The Employers and Manufacturers Association ran full-page newspaper advertisements demanding “One Auckland”.

Auckland city could take a lead and build a real city around it. But its internal politics this year have been unpromising: a proposal to ban large billboards from the central city, from which councillors eventually retreated; and the eviction of deputy mayor Bruce Hucker from leadership of the leftish City Vision group for backing a rise in the price of water.

That veiled a deeper argument: whether services should be targeted to those who use them and whether delivery of local services should be by private companies (favoured by, for example, South Waikato), instead of council entities. Should libraries or stadiums charge the users, rather than be a charge on the rates of those who don’t use them? Coming down the track as the technologies are proven overseas is a big issue: charging for use of roads by GPS tolling.

But such esoteric questions are not likely to be central in the October 13 elections. They are more likely to turn on the levels and trajectories of rates, with bold promises to contain rises or even to reduce rates and to achieve heroic efficiencies.

Fine, except that the LTCCPs must be carried out and rates levied to do that. There are no simple answers in our multi-flavoured local government.