To reform or not to reform

By Felicity Wolfe

Councils' responsibilities have grown over the last decade, as have their rates demands. Now the Government is stepping in to define councils' role and, Federated Farmers hopes, bring rate increases back down to earth, writes Felicity Wolfe

Whether it is a costly car racing event or an even more costly new stadium, there are millions of ratepayers' dollars spent each year on projects most councils would not have even dreamed of in the 1990s.

With agricultural businesses requiring more land than most industries and a rating system primarily based on property value, many farmers have seen their rates bills increase exponentially to pay for services they don't use or benefit from.

But relief may be on the way. A decade on from the enactment of the 2002 Local Government Act, which was intended to 'unleash' local government, New Zealand's local government system has made headlines thanks to central government declaring a clear intention for reform.

With an eight point manifesto of change released last month, the Government has decided it is time to tackle many of the issues facing regional, city and district councils, which Federated Farmers has been raising for a decade.

At the time of publication, it was unclear if the reforms will remain on schedule, with former Local Government Minister Nick Smith resigning.

However, having already been passed by Cabinet the reforms will definitely go ahead.

Dr Smith clearly outlined the Government's intentions around local government reforms, in a series of parliamentary questions. These gave a very clear indication of his concern about rates increases, debt levels and the growing wage bill for council staff. More importantly, they flagged his determination to act.

On February 8, he noted rates had increased an average of 6.8 per cent per annum since 2002, compared with 3.9 per cent per annum in the previous decade.

It is noteworthy that if rates had gone up at the pre-2002 rate, householders would today be paying $500 a year less in rates and the economy as a whole would be spending $1 billion a year less, Dr Smith said.

He released statistics showing the quadrupling of council debt in a decade, to $8b. This was a significantly greater percentage increase than any other sector. Unlike households, businesses and farms, councils had not slowed their rate of borrowing in the wake of the Global Financial Crisis.

Later in the month, Dr Smith noted, in defiance of private sector and Government trends, local government staffing costs had grown by 7.6 per cent. Mayors and councillors had responsibility for one salary in a council, their chief executives', who set the remuneration for other staff.

Dr Smith released eight key areas of reform in his Better Local Government programme.

These included; refocusing local government's purpose, fiscal responsibility requirements, strengthening council governance provisions, promises to streamline council reorganisation procedures and establish a local government efficiency taskforce, developing a framework for central/local government regulatory roles, investigation into the efficiency of local government infrastructure provision and a review of the use of development contributions.

Federated Farmers' local government spokesperson David Rose welcomed these as a step in the right direction. He was pleased the Government planned to tackle local governmental roles and functions because it was an issue the Federation has raised repeatedly over the last decade. Mr Rose wanted the government to go further by tackling funding reform to help councils focus on reducing spending, rates and debt.

"There are fiscally prudent councils out there focused on the basics, which is what Federated Farmers wants all councils to be like," Mr Rose said.

"The reforms laid out last month were absolutely necessary and important for lifting all councils up to the standards of the best. However, one important element is missing; reform of funding policy."

Federated Farmers has routinely asked central government and local governments to rethink their method of fundraising, being property value-based rates.

"These rates place an ever-increasing burden on farmers. Not only do they place an unfair burden of paying for a district, city or region's infrastructure on a rural minority, property values are also a poor indicator of income."

Despite the unfairness of the current rating system, Mr Rose thinks the reasons for retaining it were understandable given property value rating meant the majority paid relatively little.

"Councils find it easy to say 'yes' to dreams and schemes requested by urban constituents, because there are comparatively few farmers around to say no, despite the fact they are the ones footing the bigger bills," Mr Rose said.

"If funding policy reforms spread the burden more equitably, the majority would be exposed to the actual costs of local government. I predict we would very quickly see the majority driving their councils to be more efficient."

The mood for reform dates back to former ACT leader and Local Government Minister Rodney Hide's mission to reform our councils after a Royal Commission into Auckland Governance.

Mr Hide certainly got the country thinking about what was needed with the amalgamation of seven city and district councils and the regional authority into the single Auckland 'supercity' authority.

Despite its detractors at the time and it still being early days, Federated Farmers Auckland provincial president Wendy Clark says farmers have established good lines of communication with the new Auckland Council.

The Better Local Government reform programme states, the experience of the reforms in Auckland has been a reduction of 2000 staff with no drop in service standards or levels of infrastructure investment, and savings of $140 million in its first year".

Farmers captured within the council's jurisdiction have found themselves well represented. This was in part due to a determination by Federated Farmers and other rural groups to ensure they had a strong voice at the council table with an official Rural Industry Group (RIG),

which makes recommendations to the council through the Rural Advisory Panel (RAP).

"The RAP has been meeting on a monthly basis with council and working through first the Auckland Spatial Plan and now the Unitary Plan," Ms Clark said.

The RAP will not know if its work on the Spatial Plan has been worthwhile until it sees the finished document and can assess whether council has taken on board its recommendations, but Ms Clark is hopeful the result will be positive.

"It appears to have been a constructive process," Ms Clark said.

While it seemed Mr Hide favoured amalgamation to bring efficiencies, the current reforms are not so simple, possibly because the problems facing local authorities are more than structural.

The Federation backs this approach.

Mr Rose says any future amalgamations would have to be on a case-by-case basis and ultimately, it was up to the people in the affected area to decide.

This seems to be what Dr Smith was proposing and is what is happening in the proposed amalgamation of Tasman District Council and Nelson City Council this month.

Federated Farmers Nelson and Golden Bay provincial executives have won a significant victory for the area's agricultural industry, if amalgamation goes ahead. Following the Federation's submission to the Local Government Commission on what they wanted to see, an eight member rural advisory committee, similar to Auckland's RIG, has been proposed.

Federated Farmers Nelson provincial president Gavin O'Donnell said the submission was not to support or oppose the amalgamation, but to ensure farmers' interests were looked after.

The people have a chance to vote on the outcome, for their own region.

"It was important if Tasman and Nelson did amalgamate, farmers were ready to sit at the table and be heard," Mr O'Donnell said.

The current Government mood for reform has been spurred by overall council debt quadrupling over the last decade.

Some councils are in such a financial pickle, Mr Rose believes they must be at the limits of sustainability.

"The rate of local authority spending, rates and debt indicates there are problems, such as the lack of clear role definition for the sector, which must be addressed," he said.

As annual submitters to nearly all of New Zealand's 78 local authorities' district and long term plans, Federated Farmers is well aware of the problems.

However, while spending and debt is a huge problem, it is not the only one.

Top of the Federation's list of needed reforms is one the Government has not openly addressed, but which all farmers will agree is at the core of the dysfunction; how councils are funded.

Despite councils currently having a toolbox of mechanisms at their disposal, all use a very blunt tool, property value, as a means of determining how the rating burden is divided up.

The Federation has long argued, in submissions to councils and the Government, as the constituents with the largest properties farmers are disproportionately hit, especially when most have minimal access to council run services.

This is exacerbated in rural, less affluent districts with low populations and extensive, ageing infrastructure. Waitomo and more recently Kaipara, have amassed huge debts providing basic services, which means each man, woman and child in the area effectively owes thousands of dollars.

Council debt has become a controversial issue with local government analyst Larry Mitchell describing it as the 'number one financial issue facing the sector'.

The 2007 Local Government Rates Inquiry says councils should make more use of debt to finance long-term assets.

Debt is not necessarily a bad thing if used prudently. But throughout the 2000s debt use ballooned as councils followed the Rates Inquiry's advice and used their assets as equity to leverage off, as did many households, businesses and farms.

The difference is, unlike the assets of businesses, houses, and farms, council assets like water and wastewater services, roads and town improvements, are generally unable to be realised. After all, while a drain is a costly piece of infrastructure to install, once it is laid, it cannot be removed or sold and requires ongoing maintenance, also costing money, to ensure it is remains fit for use.

Most New Zealanders would agree, privatising utilities will not happen anytime soon and nor does the Federation believe it should. However, unless there is a massive shakeup of how this type of service is provided, such as the establishment of a utilities market, these remain a council burden.

It is hard enough for central government to propose a tolled motorway, let alone councils charging motorists for using the road to pick up the kids.

Indeed, in most people's minds, providing these utility services form the core of councils' function. So why do councils have a myriad of additional services and sometimes completely unrelated business ventures? And why have many gone deeper into debt to fund key infrastructure while ratepayers' money was spent on these other things?

In the New Zealand Listener last month, political columnist Jane Clifton noted sports events and business development are more fun than roading, rubbish, sports grounds and the like.

However, councils are providing these additional activities, not just because they are more exciting, but because the 2002 Local Government Act included obligations for them to promote their communities' social, economic, environmental and cultural well-being.

This is a vast, open-ended dictate and makes it extremely hard to say 'no'.

As a result, councils have found themselves being pushed into believing they need to invest in all manner of non-core activities.

The most visible of these activities are events, such as Hamilton City Council's failed V8 Supercars which cost ratepayers just over $40m, to support local businesses and tourism operations. There are plenty of others around the country, from football matches to flower shows.

It remains to be seen if Dunedin City Council and Otago Regional Council's new stadium will prove a worthy recipient of ratepayer money. The recent near-collapse of the Otago Rugby Union, and the fact the City council was forced to forgive a debt because of the effect on the stadium suggests it is on thin ice.

It is perhaps no surprise that the Hamilton mayor, Julie Hardaker, made a plea last month for Government to give councils greater clarity on what they should and should not do. The Government's plan is to do exactly that.

Federated Farmers believes in the need for New Zealand to build a more competitive and productive economy, Mr Rose said. Local government reform is essential to achieve this. Federated Farmers is committed to working closely with the Government to make these reforms happen.

- Hamilton News

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