How does a council maintain its most basic infrastructure if its population is declining and ageing?

That's the big question and it's one being wrestled with by local authorities around the country. With it comes the quandary for councils about collecting enough revenue through rates and loans to make ends meet.

Call it council housekeeping but the problem is one that has a direct effect on every ratepayer.

Local Government New Zealand (LGNZ) president Lawrence Yule said fuelling the problem is rapid change in demographics coupled with economic change. And in a land where there is such a high reliance on property taxes (rates) things come into sharp focus.


Mr Yule, who is also mayor of Hastings, said the New Zealand way is unusual by international standards. Overseas the more common approach is for local governments to have multiple taxing powers.

He says this is important for resilience and fairness reasons.

The upshot is a major review by LGNZ, to identify new funding options and alternatives to complement councils' current funding mechanisms.

Compounding the problem is the fact many regions are grappling with challenges of populations which are either static or declining and ageing. This means lower household incomes and reduced ability to cope with rates increases.

Beyond that, infrastructure is under-used because there is a smaller, poorer population to take on the cost of maintenance and renewal.

Wanganui could slot into that mould, with its poorer, greying population.

At the other end of the scale are those towns and cities facing major growth pressures, which are trying to fund large-scale infrastructure investments to meet the needs of future generations and sustain economic growth.

But either way, all councils have limited funding tools at their disposal. Straightaway, whether funding growth or managing the status quo, the pressure comes on the pure property tax model Kiwis have grown up with.


LGNZ is suggesting complementary alternatives are needed and some examples could include local income taxes, local consumption taxes, congestion charges, visitor charges and payroll taxes.

The idea Mr Yule flagged didn't find immediate support with Prime Minister John Key describing it as "a bit rich".

Mr Key said the Government would need to see really good justification for why councils needed so much extra revenue that they could not currently raise through the rating base.

He described as "a bit rich" the argument that there would be more "asset rich, cash poor" elderly home owners with an ageing population, who might struggle to pay rates based on property values.

On the other side of the ledger, the Local Government Forum reckons the review will be welcome news for ratepayers.

Michael Barnett is chairman of the forum, which is a group of business organisations with a keen interest in local government policy. It includes BusinessNZ, the Electricity Networks Association, Federated Farmers of NZ, NZ Initiative, NZ Chambers of Commerce, and NZ Retailers' Association.

Mr Barnett said the business community had long been concerned about the over-reliance of property value rates to fund local government.

He said it meant local councils were restricted to a narrow, archaic funding base made up of property value rates and per property charges.

"Property value rates bear no relationship to either a person's relative ability to pay, or use of a service. Rates prevent communities from truly assessing the costs and benefits of council activities," Mr Barnett said.

"For many businesses, this means a heavy tax on a key asset to pay for all manner of community services. Many of which they may rarely, if ever, use and have very little say over. It's timely to take another look at how best to fund modern local government."

So what of things in the River City?

Wanganui District Council finance and corporate manager Julian Harkness said resolving the dilemma was not as straightforward as hooking a few extra taxes on the local population.

Mr Harkness said it needed to be remembered that the rating system funded services that were available to the whole community.

"The public shared services are services that the public wants but, in general, there is not an effective way to charge the individual for the service. If you charged the individual, it would be too expensive or it would be repugnant to provide such a service only to those who could afford it," he said.

Think of institutions such as local libraries and swimming pools or services such as social welfare, education and the police force.

This was probably better understood when it was compared with how central government funded its shared public services.

"There is the difficulty in determining the benefit to an individual. Local government looks after street lighting while central government looks after the military. And the costs of determining the individual benefit is substantial where council looks after parks and the Government takes care of roads."

Mr Harkness said for most councils, the current rating system accounted for about 60 per cent of their funding. The balance is from government subsidies (mainly roading subsidies), user charges (building consent fees, parking fees, cemetery fees) and use of loans.

"Recent government policy is restricting councils' ability to use most of these mechanisms with limits on rate increases, limits on debt levels, reduced development contributions and a review of the subsidy it gives to maintain roads," he said.

But it's not just a matter of giving the green light to changes in how councils gather income.

"The options for new funding mechanisms for local government would require changes in central government policy. And many of the options, such as poll tax, petrol tax, local income tax, visitor tax, payroll tax or consumption tax, would not necessarily be popular," Mr Harkness said.

Would a shift away from traditional rating create a different set of problems for council, as in more administrative bureaucracy?

"There is no doubt that all the variances of funding have problems due to the associated administration requirements, but also different people's views on how equitable one method of charging is versus another," Mr Harkness said.

"The benefits to the local community of different funding models determines what portion comes from the local community and what comes from central government.

"Obviously, an increase in local funding means that there would be less money available in the community for spending in other areas."

And Mr Harkness harbours some doubts about what benefits a shift away from rates would mean for smaller provincial centres such as Wanganui.

He said the effect on roading especially could be significant, given the NZ Transport Agency (NZTA) was already carrying out a review of the way local bodies were funded. Central to that review is the funding-assisted rates (FAR) which is the formula NZTA uses to to determine how much financial support councils will get for its roading network.

"The signalled changes, particularly if roading subsidies decrease, would have a detrimental effect for this council as we would have to choose between a lower standard of roading or increasing the funding required from the local population," he said.

What LGNZ is considering comes at a time when our district council sits down to go over its own funding model with a fine-toothed comb. That will be the time, Mr Harkness says, when all the funding models will be in the limelight.

But he said we shouldn't be expecting one of those options to be water meters, which have been talked up and parked up by previous councils.


"Water meters aren't an effective funding mechanism for us because of the capital cost of purchasing them and the ongoing maintenance costs," he said.

In 2007, the Shand Report, commissioned by the then-Labour government, proposed user-pays charges for water and wastewater, more flat charges for services, and getting the private sector to build infrastructure such as roads and then charge tolls.

The report has been gathering dust and probably we should be thankful. What it was suggesting gave the burden a different name because, ultimately, the community will be paying.

The issue still remains what limit of financial burden the community can afford. And in a city like Wanganui, with a population top heavy with older folk and generally a low income threshold, that limit is reached very quickly.

That's what our council will be wrestling with.