Announcing his Local Government (System Improvements) Amendment Bill to Parliament this week, Minister Simon Watts commented: “I have made it clear that the Government will not support new taxes and revenue tools for local authorities at a time when we believe there is scope for improvement in the value for money New Zealanders receive in return for their rates.

“To that end, we are working at pace on a rates cap model, and I look forward to providing an update later this year.” He embellished for the Taxpayers’ Union: “My direction to my officials is crack on, I want this in place as fast as possible. We’re aiming to have that all decided … definitely before Christmas, if we can go faster we will.”

More specifically, the Bill’s Explanatory Note says: “The Government is investigating tools for limiting council expenditure on certain activities, such as the rate peg (maximum percentage amount by which a council may increase its general income for the year) used in New South Wales. This amendment is intended to encourage local authorities to adopt the sort of financial management principles that a rates capping system in New Zealand would be intended to foster.”

Although every expert, except Minister Watts, has concluded that the local government funding model is no longer fit for purpose, the Minister instead has opted for the big club (a rates cap) and a series of band-aids:

• A renewed focus on core services in the statutory purpose of local government by removing the four ‘well-beings’
• A requirement to prioritise core services when managing finances and setting rates
• New financial performance measures for councils, with a requirement for regular public reporting
• Mandatory disclosure of contractor and consultant spending
• Stronger transparency and accountability requirements
• Regulatory relief to reduce unnecessary compliance burdens

Core services are specified in the Bill as follows:

(a) network infrastructure

(b) public transport services

(c) waste management

(d) civil defence emergency management

(e) libraries, museums, reserves, and other recreational facilities.

Great sound bite stuff. 

Having looked at our councils’ budgets and LTPs over the years, the preponderance of their spend already falls in these areas. I’ve just asked each HB council what percentage of their budgets go the five categories listed above. First to reply are CHBDC — 89.1%, and Wairoa DC — 81.4%. That reality hasn’t caught up with Minister Watts.

And sure, more transparency is always helpful … ‘Sunlight is the best disinfectant’ is the BayBuzz motto.

For example, one clause adds to a chief executive’s responsibilities “the responsibility to ensure that members of the local authority have access to documents that the local authority holds and that are reasonably necessary to enable the members to effectively perform their duties as a member of the local authority”. In other words, staff can’t sit on information and must treat all councillors equally – even those who are pains in the butt. 

But greater transparency won’t address the need for local governments to spend millions and millions on depleted infrastructure. Just as process reform hasn’t stopped the Coalition Government from projecting budgets increasing gross debt by more in five years than the previous government did in six. As Minister Winston Peters commented on National’s patronising approach to local government: “Every other party is interfering in local government … It’s a case of doctor, heal thyself … we can’t be preaching to them when we haven’t got our own spending under control ourselves.”

Even Fed Farmers, which seems to be getting most of its ‘wish list’ from the Government, is disappointed. Commenting specifically on the ‘rates cap’ yet to come, Fed Farmers local government spokesperson Sandra Faulkner noted: “A lot of careful thought will be needed to get this right. There needs to be off-ramps for councils facing legitimate cost pressures for essential infrastructure like roads. Councils still need to be well-funded in the interests of maintaining robust infrastructure.”

She also warns a cap could affect Local Government Funding Authority credit ratings, potentially driving up borrowing costs for councils. “The last thing councils need are higher debt interest costs from LGFA, the principal lender at competitive rates to local authorities.”

This concern is echoed in HDC’s Pre-election Report, in remarks not unique to that council: “Standard & Poor made it clear that any deterioration of our financial position, be it through increased capital spend or a reduction in the forecast rate increases resulting in increased borrowings for operations and a deterioration of the debt to revenue ratio would likely see a further rating downgrade for Council.”

That’s the real world councils face. For HDC, urban rate increases won’t fall below 5% until 2028/29; rural rates will still exceed 5% until after 2033/34.

Fed Farmers also noted that Watts made no mention of the costs imposed on local government when Wellington offloads responsibilities onto councils with no financial compensation.

Adding to the Government’s piecemeal ‘reform’ of local government, RMA Reform Minister Chris Bishop has told councils to stop their planning processes, which he says will be overtaken by upcoming wholesale changes to the Resource Management Act. In the meantime, this ‘stop’ instruction will be codified in legislation expected to become law next month. We’ve asked our HB councils’ CEOs what the implications might be.

And the Government isn’t done yet. Said Bishop at the recent Local Government NZ conference, “So, we’re having a look at the functions we will need in the new system. Nothing is off the table, but I’m mindful of the scale and pace of change that we’re undertaking already.”

Stay tuned.