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Govt announces local council reform package in bid to keep rates rises down and council debt under control

Posted in News Updated
See video

By Alex Tarrant

Councils will soon only be allowed to increase core expenditure in line with inflation and population growth, but will have exemptions for spending incurred from natural disasters, and possibly from regulatory requirements placed on them by outside sources such as the Environment Court and Government.

Councillors will also get greater power over the rates of pay of staff, and amounts of staff their councils employ, as part of a government shake up of the local government sector.

Local Government Minister Nick Smith today released a paper detailing the government's plans to reform the way local government operates. Smith said these were aimed at keeping rates rises down and controlling the amount of debt councils take on.

Local authority rates across New Zealand rose at an annual average of 7% in the decade since the Local Government Act 2002 was passed, compared to average annual rises of 3.9% the decade before that, Smith said on Monday afternoon when releasing the paper titled Better Local Government.

“The reforms will help keep rates affordable and debt at prudent levels by focusing councils on their core roles, setting clear fiscal responsibility requirements and giving councils more tools to better manage costs. The package rebalances the changes made in 2002 that have seen average rates increase by 7 percent per annum and council debt quadruple from NZ$2 billion to NZ$8 billion,” Smith said.

Speaking to media in the Beehive on Monday afternoon, Smith said there would be a component of annual council expenditure growth which would be set at the rate of inflation and population growth. There would be an exemption for expenditure stemming from natural disasters, such as that faced by the Christchurch City Council.

“There may also be provision for exemptions around situations where, for instance, the Environment Court may require a council to proceed with a major investment, say in the [area] of sewerage or other infrastructure," Smith said.

"They are details to be worked out through regulation with Local Government New Zealand, and I am confident that we can come up with a set of regulations that most councils will say is a pretty reasonable set of fiscal responsibility requirements,” he said.

Control wage bills

Meanwhile, the Local Government Act 2002 would be amended to empower councillors to set policy on the number of staff to be employed by their council, and overall renumeration policy. Councils' annual reports would be required to include information on staff employed by salary bands.

Smith said the largest component of council cost increases over the last was in salary bills.

“There has been quite a growth in that area. That is why in this package we’ve provided them with some specific tools in this regard," he said.

‘In terms of the overall picture, what we do know is that prior to the 2002 Act – for the decade previous – rate increases were going up at 3.9% per year. In the decade since, they’ve been going up at 7% per year. I think the only fair conclusion to come to is both the bureaucratic requirements, and the expansion of the purpose of local government have cost councils and ratepayers considerably more," Smith said.

“If rates had continued to increase at a similar rate as the previous decade, the average household today would be spending NZ$500 a year less on rates, and the economy as a whole would be spending NZ$1 billion less on rates,” he said.

Councils needed to provide local public services, which would include firework displays and arts festivals. But they should not be providing services that overlaped ones which were the responsiblity of central government or the private sector, such as trying to improve NCEA pass rates in their region.

'Limit spending growth'

"Fiscal responsibility is the issue of our age with the global financial crisis, and the debt crisis engulfing some financial companies, banks and countries. Local authorities in some overseas jurisdictions have gone bankrupt but thankfully this has never occurred in New Zealand," it says in the paper.

"Previous local government legislation placed limits on council borrowing but was repealed. The rapid rise in council expenditure and borrowing over the past decade has seen some councils reach unsustainable levels of debt. The government is proposing new tools for encouraging financial prudence," it says.

"The government has agreed to changes to the Public Finance Act, as part of the confidence and supply agreement between ACT and National, to introduce a fiscal responsibility requirement for central government. This will limit expenditure growth to no faster than inflation and population growth excluding extraordinary items such as disaster recovery expenditure. The government is proposing a parallel requirement on councils.

"The Local Government Act 2002 will be amended to introduce a provision that enables fiscal responsibility requirements to be set by regulation. The law will require these to be developed in consultation with Local Government New Zealand. These will set benchmarks in respect of income and expenditure, and prudent debt levels. It will include the capability to exclude extraordinary expenditure such as disaster recovery costs," it says in the paper.

"The new fiscal responsibility requirements will be linked to councils’ development of their fiscal strategy. These will be ‘soft’ caps that are linked to the new graduated powers of intervention requiring information and reports, appointing a crown reviewer, observer or manager, or in extreme circumstances a commissioner or an early election," it says.

See the reforms in the Better Local Government paper here.

The reforms are:

1. The Local Government Act 2002 will be amended to replace references to the ‘social, economic, environmental and cultural well-being of communities’ (the four well beings) with a new purpose for councils of ‘providing good quality local infrastructure, public services and regulatory functions at the least possible cost to households and business.’

2. The Local Government Act 2002 will be amended to provide, by way of regulation, fiscal responsibility requirements in respect of income and expenditure, and prudent debt levels to be developed in consultation with Local Government New Zealand.

3.1 The Local Government Act 2002 will be amended to empower councils to set policy on the number of staff to be employed and overall remuneration policy. Councils’ annual reports will be required to include information on staff employed by salary bands.

3.2 The Local Government (Auckland Council) Act 2009 mayoral powers in respect of appointing deputy mayors, establishing committees, appointing committee chairpersons and proposing plans and budgets will be extended to all mayors from October 2013.

3.3 The Local Government Act (2002) is to be amended to provide a simpler, graduated scale of intervention linked to new fiscal responsibility requirements ranging from the request to provide information, to have a crown reviewer, observer or manager; or in extreme circumstances, commissioners or an early election.

4.1 The Local Government Act 2002 will be amended to streamline consideration of reorganization proposals and to extend the criteria to specifically include the benefits to be gained from simplifying planning processes and efficiency improvements.

4.2 The Local Electoral Act 2001 will be amended to give councils and the Local Government Commission greater flexibility in the determination of ward boundaries in rural areas to take into account communities of interest.

5. A Local Government Efficiency Taskforce will be established in consultation with Local Government New Zealand to review the planning, consultation and reporting requirements of the Local Government Act 2002 to report to Government by 31 October 2012

6. The Productivity Commission will undertake a review of the balance of functions allocated to local government by central government and ways to improve regulatory performance in the sector by April 2013. The Government will then, in consultation with Local Government New Zealand, develop a non-statutory framework for guiding decisions on which regulatory functions are best undertaken by local and central government.

7. Local government infrastructure provisions will be investigated by an expert advisory group to look at how good quality infrastructure to support a growing economy can best be delivered at least cost.

8. The Government will undertake a review of development contribution policy following the publication of the Auditor-General’s report on councils’ long term plans later this year.

See the announcement from Local Government Minister Nick Smith:

The ‘Better Local Government’ reforms announced today by Prime Minister John Key will provide clarity around the role of councils, stronger governance, improved efficiency and more responsible financial management said Local Government Minister Nick Smith.

“These reforms are part of the Government’s broader programme for building a more productive, competitive economy and better public services,” Dr Smith says.

“The reforms will help keep rates affordable and debt at prudent levels by focusing councils on their core roles, setting clear fiscal responsibility requirements and giving councils more tools to better manage costs. The package rebalances the changes made in 2002 that have seen average rates increase by 7 percent per annum and council debt quadruple from $2 billion to $8 billion.”

“The ‘Better Local Government’ reforms include eight specific initiatives; the first four will be introduced to Parliament in May and be passed in September. They will refocus the purpose of local government, introduce fiscal responsibility requirements, strengthen council governance provisions and streamline council reorganisation procedures.”

“The balance of the reforms which include; a local government efficiency taskforce, a framework around local and central government regulatory roles, an investigation into efficient infrastructure provision and review of Development Contributions, will be undertaken in consultation with Local Government New Zealand. These work streams will also link with the Productivity Commission’s investigation on regulatory roles between central and local government and the Auditor General’s inquiries into Development Contributions.  This work will feed into a second reform bill proposed for 2013.”

“I look forward this week to meeting with the Mayors and Chief Executives from New Zealand’s 78 councils in Auckland, Tauranga, Wellington, Christchurch and Dunedin to advance these reforms. We want to work with local government in these challenging financial times to deliver efficient and affordable council services for New Zealand,” Dr Smith said.

(Updated with video from post cabinet news conference and detail from Smith)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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53 Comments

About time....now let's see

About time....now let's see how long the 'consultations' take... line up for appointments to the Efficiency Taskforce.....haha.
And for bigger laughs..."a fiscal responsibility requirement for central government"...that will last as long as it takes the Socialists under Shearer to change the law. So unless the law is structured to require a 75% vote in Parliament ..it will be as much use as river snot.

Wolly, I assume you know your

Wolly, I assume you know your Constitutional Law in New Zealand?
As Parliament is supreme, any current Parliament can not bind its successors.  Therefore, to change the law would only require a vote of 50% + 1.  However, if the future Parliament wanted, it could always repeal the so-called entrenching provision with a 50% + 1 vote.
As long as this is the Constitutional Law in New Zealand, I have no problems with the Maori seats being entrenched, as entrenching it doesn’t mean anything.

Yes MC I know it's

Yes MC I know it's pointless...just hot air and BS from the govt...keeps the votes heading their way.

The Local Government Act

The Local Government Act 2002
 
Previous local government legislation placed limits on council borrowing but was repealed...
 
The Local Government Act 2002 will be amended to replace references to the ‘social, economic, environmental and cultural well-being of communities’ (the four well beings)....
 
And I wonder from what circle of agenda driven, lefty-green fantasist social engineers that load of fiscally destructive junk was drawn?
Oh of course, Labour’s lion, Aunty Helen, and her comrade in arms, that university prick, Michael Cullen.
 
 

To deny the populace the

To deny the populace the voting ability to do anything about environmental improvenment, while removing the ability to educate, is book-burning.
 
Pure and simple. This is an attempt to de-educate, remove control, and pretend via a tame EPA to be 'doing the right thing'. Sure, it's a regime with less than two years to run. Sure, it has no original ideas.
 
But this repression by ignorance. We need all the knowledge we have, from here on in.
 
I, for one, will make sure Nick Smith's involvement in this rape - for it is an attempted rape - of the Nation's resources (our childrens inheritance) is well documented.
 
We will not forget.
 
Oh, and DavidB - it was your lords and masters who seeded the Dunedin Stadium debacle with $15 million of taxpayers money? No wonder they need the likes of you muddying the waters.

Attaboy. I prefer it when you

Attaboy. I prefer it when you put on your Kiwi Feathered Cape.
 
You must be a kiwi born and bred who grew up in an aotearoa when it was 100% pure with pristine waters and coastline of immeasurable beauty .. you would have to be to appreciate it. One of the problems is 40% of the current population were not born here and don't have the same consideration or appreciation of what it once was. Many of them come from places that dont have the same respect for our nature or environment or our laws. German and Chinese coporates buying agricultural land aren't going to respect the land and rivers any more than they would in the country they come from. They come to rape and pillage. And similarly many of the younger generation of locals who have been born here in the last 20 years also have no appreciation because what was is now gone. The environment they are growing up in is now spoilt.

Really, 40% not born here? On

Really, 40% not born here?
On the contrary my view is that many who have immigrated here have done so because of the natural beauty etc, so on average would likely have a far greater desire to protect it etc.

In the interests of accuracy

In the interests of accuracy it's 37%. Where do you think they are. Do you think they are all living in humpys down the back of Whatipu? Take a trip up SH1 from Auckland to Whangarei. Dont see many cows or milk sheds or milk tankers these days. Used to once upon a time not so very long ago. Travel from Auckland to Hamilton and you hit traffic lights before you even get to Te Rapa. It costs NZD $1000 per annum in oil consumption per immigrant. To pay for that we have to convert Canterbury sheep farms to irrigated dairy farms and crank out more and more production, and pollute the rivers. Real smart. Is that protection? Youngsters of today dont know any different.

Well Stats NZ in (2006)

Well Stats NZ in (2006) census data assessed it as 23%. Do you have access to more recent data?

Sorry Robby, you're in

Sorry Robby, you're in dreamland. As if people go to NZ becuse it's green and pure! People emigrate to NZ because they can't go to Canada as Canada takes the best. Australia has standards so that's out as well. Silly little naive NZ believes the immigrants' purported qualifications...
As a NZer living in Asia it annoys me intensely that people not only get PR in NZ, they then laugh to my face at how gullible we are to let the rorts continue.
Immigration agents appear to have done their time working for NZ Immigration, learned the ways and means, and then use their knowledge to smooth the new immigrants' entries. Or they seem to be ex immigrants themselves, now sorting out the entry of their ethnic groups.
OK. Immigration keeps the current owners of house stocks happy, keeps the house prices rising and keeps actual NZers, our children, leaving NZ.
Try explaining to someone who comes from Asia that you don't need an identification card in NZ; that police cannot stop you at a roadblock and ask to see your status... that's why people immigrate to NZ. Get one family member in and there's a good chance you can get lots more.
Mind you, it seems that Mr Dotcom just used his money to buy his way past the government. How many Chinese are doing that as well?

Not entirely sure about

Not entirely sure about Canadian system it may be quite rigourous, particularly with regard to the measures aimed at preserving the French speaking heritage/cultre. The Australian scheme is definitely payola for the migration agents. Don't know why you're so concerned, heaps of NZ migrants are doing it for the onward ticket to Australia anyway.
Try explaining to someone who comes from Asia that you don't need an identification card in NZ; that police cannot stop you at a roadblock and ask to see your status... that's why people immigrate to NZ
What a surprise people don't want to live under such an authoritarian system? Why do you want to live in a police state?
Also I didn't say people move to NZ because it is only 'green and pure'. But that is one factor  and on average migrants are probably less likely to be a deliberate cause of pollution compared to the average NZer (but obviously there would be huge variation as we are all individuals after all).

You are right on the money

You are right on the money there PDK. My experience of that idiot Smith, the RMA and the tame EPA is nothing short of horrendous - more later ;-0

LGA2002 was promoted by

LGA2002 was promoted by Sandra Lee, Minister of Local Government, then representing Mana Motuhake party I think from within the Alliance. Although it looked a bit radical at the time moslty it was bringing together into legislation what Councils were already doing. For instance Manukau City had already done a version of the Community Outcomes exercise ('Tomorrow's Manukau'?) long before this legislation made it mandatory for all Councils.
The four well-beings was bollocks but if it's any consolation most Council staff throughout the country also thought it was bollocks which is why it had very little if any impact on what Councils actually did.

The govt proposed to remove

The govt proposed to remove some council activities but I can be 100% sure that my future rates will only go in direction and it's the same direction as the European Debt level !

Such is life Chairman

Such is life Chairman Moa...the BS flows out the Beehive door and the peasants think it's honey....works every time....by 014 they will have the spin well cooked and the peasants believing in whatever they say.

2013, that's when I have my

2013, that's when I have my turn to say what I think of our very own home boy NZ Got Talents wannabe Len Brown.

Waaaaaaahoooo! This is so

Waaaaaaahoooo!
This is so overdue.  Councils are totally out of control, fiscally and otherwise.
Planners are some of the most arrogant people I have ever met.  Hopefully this will curtail them a  bit.
It's not council official's jobs to run our lives, but that's what they've been increasingly doing over the last decade since that socialist nonsense piece of legislation was brought in.
People are generally sensible, just let them get on with running their businesses and households without all the council interference.

Doesn't go far enough. 

Doesn't go far enough.  Spending needs to be limited to some % below inflation to wind back some of the outrageous compounded increases of the past decade.

The vicious cycle is already

The vicious cycle is already here = higher taxes/ rates - unstoppable !
One example of many:
…and I see a high number of young people walking the street doing nothing – recession ?
...and I see Ministers Joyce and Brownlee saying: All imported, because it is cheaper.
 ...and I see more idiots saying the same. ...and I see more young people walking the streets doing nothing.
 ...and I see young people getting together forming gangs - not working gangs constructing our most needed infrastructures in factories - but destructing.
 … and I see Joyce/ Brownlee saying in parliament we do need more police.
…and I see the public saying – Yes, we do need more police.
….and we do have more police. …and we do build more prisons.
…and we build more prisons not factories.
...and I see  Joyce/ Brownlee saying in parliament we do need more money.
..and the public says; Yes, Joyce and Brownlee are right we do need money.
… and the recession is here and we are stuffed as a nation – because there is no money !
 
Without having the younger generation working in skilful jobs – there will be always recession.

LOCAL GOVERNMENT BLOAT AND

LOCAL GOVERNMENT BLOAT AND DESTRUCTION IS TRULY MASSIVE
 
In comparison with their counterparts in North America, Local Government remuneration - particularly for administrative staff - is way out of line in New Zealand,  as Canterbury University Senior Lecturer in Economics Philip Meguire postings on the "Cantabrians Unite" facebook clearly illustrate -
 
http://www.facebook.com/NoPayRiseForTonyMarryatt?sk=wall&filter=2
 
Check out what they pay Local Government employees in Texas here -
 
http://www.texastribune.org/library/data/government-employee-salaries/
 
Early last year Luke Malpass of the Centre for Independent Studies pointed out just what a gravy train it is to be a Local Government Councillor in New Zealand, in comparison with their counterparts in Australia -
 
http://www.cis.org.au/publications/ideasthecentre/article/2835-comparative-costs-of-councillors
 
The unfortunate reality is that Local Government in New Zealand has been out of control for about 2 decades - well before the problems created by the 2002 "Powers of General Competence" Act enacted by Labour - although it certainly encouraged and emboldened them to be even more stupid and irresponsible.
 
Just look at how they have "messed about" with the 1996 No 3 Amendment LG Act dealing with financial management and screwed the scrum on depreciation in particular.
 
And too of course, how they have fought tooth and nail the whole intent of the RMA since its inception way back in 1991. If the RMA had been implemented as it was intended, allowing development to occur provided it met reasoned and reasonable environmental standards, we would NOT have had the 2002 - 2007 inflating housing bubble.
 
That unnecessary housing bubble inflated housing by at least $300 billion - and conned Kiwis in to in excess of $75 billion of bubble mortgage debt - mostly borrowed offshore. No wonder we have a "housing supply" crisis now -
 
http://www.stuff.co.nz/the-press/business/your-property/6598430/Virtually-no-rental-homes-free-in-city
 
http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10792751
 
Just look at the Christchurch City Councild Quick Facts Graph on the "Our Purposes" page of the Cantabrians Unite website, to see how Christchurch was on its knees prior to the 4 September 2010 earthquake events -
 
http://www.cantabriansunite.co.nz/Our-Purpose/
 
And too - how the Christchurch City Council bureaucracy is at War with it community and business - stalling the sorely needed recovery -
 
http://www.interest.co.nz/property/56362/opinion-hugh-pavletich-sees-political-circus-running-rebuild-and-objects-taking-garde
 
Out of control Local Government has inflcted massive damage over the past two decades. No wonder we are ranked 32 and the Greeks 33 on the IMF GDP per capita rankings -
 
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita
 
 
Hugh Pavletich
www.cantabriansunite.co.nz
www.PerformanceUrbanPlanning.org .
 

Private investment money is

Private investment money is simply leaving the city just as Bob Jones said it would.  Its starting to look like we'll have;
One city under council, designed by lawsuit with unlimited rates and a wasteland CBD for all.

love it! they have a "Mental

love it! they have a "Mental Retardation Expert" (need one of those to deal with the planners alone, ey Hugh!)
And look at the Head (football) Coach salaries, at $5 million soaring way above everyone
Gotta get their priorities right, ey???

Ralph & Matt - there is a

Ralph & Matt - there is a link to that cracker Bob Jones article in my last "Epistle to the Hickeyites" at the bottom of the posting above. Bob doesnt impress me very often - but he sure did with his The Press Op Ed last September.
 
It got the highest reader response in The Press history as I recall with about 9,600 votes - something like 65% with Bob.
 
The support for Bobs perspective was of course contrary to the sham consultation "findings" of the Council planners.

Yes, well it's one thing to

Yes, well it's one thing to see a problem but an entirely different thing to find a way through to a better outcome. At this time it is hard to see ahead, the dynamics are quite strong and well entrenched.

The proposed funding model

The proposed funding model will just ensure continued out of date and failing infrastructure. It is yet another failed ACT idea copied from failed US practice.
Some of the US experience can be found here: http://gordoncampbell.scoop.co.nz/2009/06/09/campbell-hide’s-plan-for-...

If anyone wants to put this

If anyone wants to put this in perspective, get yourselves to the Nicole Foss talk nearest you.
 
Smith will know that of which she speaks.
 
It overrides the small-picture Hughey stuff, in spades. As I've pointed out here ad infinitum.

FYI from a reader via

FYI from a reader via email:
So Nick Smith wants to have a go at the functions of local government. Good on him for having a go but I can tell already he is avoiding all the elephants in the room and tiliting at populist windmills only (hmmm... sounds like Rodney Hide). The cynical part of me says this document will play well in the electorate but mostly  have negative consequences –  fortunately for Nick, long after he is voted out of office.
 
There is an awful lot I could say about the insides of local government but, for the moment, I have a few points that should be borne in mind when reading Smith’s proposals:
 
1. Rates are not the whole story
 
Rates may only account for about 60% of TLA (i.e. not Regional) income. Other sources include central government funding, fees and charges, debt and vesting of assets by developers (counter-intuitively classed as income in public sector accounting).
 
Central government funding is significant to rural councils who receive, in many cases, more than 50% of their roading budget from LTNZ.
 
Regulatory functions are almost self-funded by charges.
 
2. Council salaries
 
A popular whipping boy thanks to the debacle at CCC. I have a lot of sympathy for the proposal but its effectiveness will be very limited. Only 20% of TLA costs derive from internal salaries as most real work is contracted out: almost all physical work (roads, pipes, parks etc), a part of design, tender, supervision for works projects, and lots of other bits and pieces across the board.
 
The effect of some of these proposals will be to see more work contracted out - not a bad option in and of itself but it will increase not decrease costs.
 
The problem is that Council salaries are set by the same circular mechanism common in senior executive circles: “what’s everyone else paying? That’s what we will pay”. If you break the cycle forCouncils it begs the question why you don’t o it for MP’s or bankers.
 
3. Why have rates risen so much?
 
‘In terms of the overall picture, what we do know is that prior to the 2002 Act – for the decade previous – rate increases were going up at 3.9% per year. In the decade since, they’ve been going up at 7% per year. I think the only fair conclusion to come to is both the bureaucratic requirements, and the expansion of the purpose of local government have cost councils and ratepayers considerably more," Smith said.
 
And here we come to it. It was not that long ago that Helen Clark’s government conducted a nationwide inquiry into Council rates in response to stirring by Rodney Hide. What came of it? Absolutely nothing. The irony is that the mayors actually wanted to tell the story about why rates were rising but were effectively gagged by the terms of the inquiry. The mayors – or at least our one – were probably going to tell the wrong story because the real answer is very technical but it does  lead back to central government which was what they wanted to say.
 
Bear in mind that 75%-ish of Council expenditure already goes to the Big Five: Roads, Water Supply, Waste Water, Storm Water/Drainage, and Parks. Slightly more than that percentage of rates funds those activities.
 
1.       The most significant element of LGA2002 was the introduction of the Long-Term Council and Community Plan – the Annual Plan on steroids.
2.       There is a provision within the act that requires Councils to present a balanced and accurate budget.
3.       There is also a provision that requires the Office of the Auditor General (Audit NZ) to approve draft LTCCP’s before they can be released publically ( a process that Audit NZ had never done before and was not particularly well set up to carry out)
4.       Behind the scenes Audit NZ decided that budgets related to the Big Five had to be based on sound Asset Management Plans before they could be approved.
 
And that is mostly where the money went and this why: an asset management plan is a pretty sensible concept that details how an asset owner will manage and pay for an asset over its entire life. Sensible yes but almost no-one was doing it before Audit NZ put their oar in. But it does make explicit a whole bunch of stuff that we used to ignore.
 
As an example you build a bridge today for $1m, its design life is 100 years. Your asset management plan is pretty simple: budget minor maintenance amounts yearly, depreciate the capital expenditure so that you can replace the bridge after 100 years, budget for operational costs such as inspections, asset management, revaluation and insurance. Annual charge for this bridge: $11K - $12K maybe. A politician could reduce this to $1K by ignoring the need to replace the bridge one day.
 
In many cases the rate rises of the last decade arose from Councils recognising what had been unfunded liabilities – capital expenditure they would have to make one day but were either ignoring or didn’t even know they would have to make – explicit.
 
Asset Management Plans going out 30 years are common in Councils but the numbers only had to be really accurate for the three years of the LTCCP. Even so there are some pretty big questions about the methodology. Depreciation (which can represent about 10% of entire asset budget) is based on replacement not historic cost. Every three years the billions of dollars of assets held by Councils are revalued and depreciation charges updated to reflect how much it would cost to replace those assets today. Even if all else is left the same revaluing assets can automatically add %1 to rates. That’s because construction costs are not the same as consumer prices. Over the last decade there have been many times when construction price rises have far exceeded consumer price rises.
 
So what happened to rates over the last decade? Councils went out and checked that their asset records were accurate (in many instances finding stuff that wasn’t in their records), put some dates on necessary upgrades and replacements, calculated all the costs in today’s dollars not yesterday’s, totted up all the numbers to give to Audit NZ and found their rates going through the roof. You will note that there was no political input to this process at all.
 
Compliance Costs
 
The last decade has also seen the introduction of some very expensive regulations by central government. New Drinking Water Standards have forced many Councils into expensive upgrade programmes as have higher standards around the quality of water discharged into receiving water from drains and stormwater systems.
 
Add all the legislation related to building, gambling, dogs, prostitution, record-keeping etc that successive governments have cheerfully dumped in local governments’ laps and it’s no real wonder that rates and fees and charges have gone up.
 
Summary
 
The good intention of the reforms of local government financial planning and reporting since 1996 were to (a) create transparency and (b) eliminate surprises. There is a real choice here: short-term planning with more political input will limit rate rises sometimes with occasional nasty surprises (“no-one could have foreseen this (hand-wring, hand-wring)---we have no choice but to spend this money....”) or use a long-term but largely technocratic process to generate very predictable.
 
At first glance there is plenty to agree with in Smith’s proposals but there is very little that directly impacts the costs of running a Council. The cunning bugger has timed it well as most of the asset related one-off charges have flowed through the system.
 
Even so the only real way to truly contain local government costs in the near future is for them to do less

No, they're not 'one off

No, they're not 'one off charges which have flowed through the system'
 
Note the percentade rise in cost of bitumen, as mentioned on Morning Report. This is about us not having valued natural capital at more than the extractive cost, and about us now facing the real cost. There will be a continued bidding-war - despite denial, scarcity is the underlying issue, and that scarcity is in the face of growing demand -  and no way will infrastructure costs stay as low as average incomes.
 
Not ever, from here on.
 
I was talking as a Local Authority elected member, about this process happening, and that talking was being done in 1986.
 
There is no excuse for continued ignorance this much later, particularly from the media.

Sorry should have posted the

Sorry should have posted the above as myself instead of via Bernard (I prefer editing in my mail editor not the blog one).
The reference to one-off rises refers solely to ones related to the accounting for assets.
I absolutely agree that rising energy costs (pumps, street lights etc), rising oil costs and rising insurance costs have a significant impact on LG budgets and will continue to rise ahead of CPI.
If ratepayers don;'t want to pay for these costs then this year being an LTCCP year is a great opportunity to submit to your local COuncil on what services you want run down. For instance you can choose:
 
- more potholes
- less reliable water supply
- 4 foot grass cover on rugby grounds
 
All of these will save big money.

So the councils are doing a

So the councils are doing a great job then, Kumbel, no need for any changes? The real problem lays with the elected politicians and the rate payers; they are the ones who are screwing it all up?

Councils don't do a great job

Councils don't do a great job they do an OK job. MY point is that no-one is screwing anything up (broadly speaking). Current rates are the rates they are because
(i) that's what it costs to provide those services and we know this because the real money is spent by tender not directed internally
(ii) Councils have responded to a steady stream of Central Govt requirements to do new stuff
(iii) Councils have followed Central Govt/agency requirements on financial planning and reporting that have taken off-balance sheet liabilities, put them on the balance sheet and required they be funded
 
My experience of working within Councils is that there are no magic wands that will let you have lower rates now with no change to services provided. Of course Councils can be improved but Smith cannot provide hard evidence of Councils being out of control any more than Hide could once he got hold of the reins of power. Remember Hide went strangely quiet once he found out more about the sector.
 
My point here is that you can have lower rates now but you will have to suck up a reduction in services provided. And these are the tough decisions that no politician local or central has the backbone to make. Instead we get entertaining sideshows that will do nothing but fade to a distant memory relatively quickly.
 
 

well said, should be comment

well said, should be comment of the day.

Kumbel/Speckles - agreed  

Kumbel/Speckles - agreed   I've been arguing for years that we will be forced to apply triage, and at exponentially-increasing rates (sorry about the pun).
 
When was K Road last gravelled?
 
Makes a nonsense of the expand-suburbia forever brigade. Timing says most of it won't happen now.

Not sure how the Auckland

Not sure how the Auckland Council and others bury this in their accounts but in Auckland there are hundreds of millions of leaky house claims being settled and many more to come. 
Somehow the data on these is hidden mainly due to the confidential nature of the settlements.
Anyone have any idea where in the council accounts these leaky home settlements are buried?

It will depend on how they

It will depend on how they intend to fund it. Individual settlements may be confidential but the total cannot be.
Remember that the budgets that are published are not the working documents used by staff and councillors. There will be a 5,000 page Excel spreadsheet in behind it which is discoverable under the Local Government Official Information and Meetings Act.
Look under overhead sections like insurance rather than under the Building budget.
I don't know much about how this works but if insurance is paying Council's share of the costs then the paymentsmay go directly from the insurer to the homeowner and never grace Council books.
Of course they may be hiding their heads under their pillows and leaving these costs unfunded for now.
 
BTW add this one to the list of Central Government stiffing local government. Not time to go into it here. Somewhere on the Not PC blog is the best and most accurate account of why we have a leaky buildings debacle and it mostly if not all falls at the feet of Central Government and its agencies. Yet Councils are being asked to pick up the tab for simply following Government imposed rules.

Under the 'social' aspects of

Under the 'social' aspects of our local council (where I live, but don't farm)  they are raising farmers rates with land values over $2.4m by avg 18% and reducing rates on low income housing in the town by avg 20%.  When told that most of the low income housing was owned by out of town landlord's the council's reply - 'Well, we are hoping they will reduce the rent to their tenants' - yeah right!!
A couple of years ago when some in the rural district got a petition to move from the current council, it came out that the council collected $2m more from this rural ward than went in to it - despite the little village community, within the ward, having sewage spill in to the street anytime we had decent rain. Said sewage then flowing via strom water drains, straight in to the river. And of course no prosecution from Regional Council for doing so.
The council now is considering what needs to be done to sort the sewage spills (it's been happening since 1986). To fix it once and for all will cost $7m. A band aid will cost $2m.  Many concerned councillors over the cost.  Funny though they had no such concern over building a new library for $8m despite the locals all saying the current one was ok.
Four years ago Matata had devasting flooding.  The council employed consultants designed a 'debris dam' to stop the damage that occured previously from happening again.  Concerns were raised by other engineers about the design that had been produced. Now after >$1m being spent, the council, due to the engineer concerns,is only now getting the design peer reviewed and is talking of buying up the houses in the 'debris path' as the solution. No start has been made on the construction of the dam.  If a private business ran it's business this way - it would be broke.

Key is backpeddling already.

Key is backpeddling already. (Nat Radio, noon).
 
Run 'er up the flagpole boys - oops, is that cannons? Starting to look like swiss cheese boys, pull 'er down.
 
Ideology, meet brick wall. Brick wall, meet ideology.
 
Hopeless.

Smacking a little of the boys

Smacking a little of the boys in Red doing the old republican withhold on a local level to Johnny Blue there PDK....... it took Labour years to ensconse  the political rejects into cushy  little numers white anting at a local level.
 John Boy may find the termite mounds harder to kick over than at first thought.

Dammed like a river if I no

Dammed like a river if I no what you be talkin' about, Count.
 
The exponential complexity forced on all things, is a driver. You complexify houses from Gran's lean-to cottage, to the need-an-intercom 'I-AM' statements, and you complexify coulcils. They had a Town Clerk, who knew you, now there are a million unter them, you're just a number, can't be any other way. The biggie is oil, as it is intrinsic in all things. Bitumen costs twice what it did in 2000.
 
Keys real dilemma is that Councils aren't there to be in business first, they're there to govern, electedly, people. So it's socially driven. That's anathe-whatsit to ideologues, and to those who know better but who choose to lie down with them.
 
Hope you ain't itchin' , Count.

Allow me to illuminate devoid

Allow me to illuminate devoid of inuendo..PDK..
John Boy is currently on a crusade to downsize for efficency in both Govt. and local Govt (where influence can be applied) ..further to destabilize key Union hot spots.
 Len whilst playing reformist is just another beuracrat happily growing the machine that is council....it's efficency is not the prerequisite, but it's growth through promotion is.
 Labour (I believe) hold strong positions in key council appointments throughout N.Z.
 John Boy...a little high on his own self determination has thought to kick a few rocks as it were and see if any of the mould can be shaken off.
 Len ,along with others I'm sure, have reminded him of the inverse influence large local bodies can have on implementing some of the changes he will require going forward...in the areas of say...mining...electricity... the unimpeded sale of SOE's and so forth.
 John Boy has felt the tug of the rug and while not going over is now a little unsteady on his feet....the wolf is a little sheepish about now.
 The gambit ( I believe) was more politically motivated out of a certain frustration the public may not yet be aware of ...a show of political muscle, if you will....the counter..(I believe) was a solid two fingers in contempt.
Yes I understand energy is a the root of all progress for better or worse, but let's not condone ineficency as a growth industry...that said , lets not condone sending in a power crazed little johnny come lately to do a job requiring ..tact...
 Cheers my good man...! 

Facinating nonetheless that

Facinating nonetheless that the Minister of Tourism left Auckland Council on the longest of  chains while it suited his purpose to impress a few more dollars out of Rugby tourist pockets...not to mention hyping our image as a (can do) town for transient squillionaires.......and now he says to lefty Len....uuuuhh no I don't think so...nosireebob I don't like it at all.
Lenny.... why is that now, John Boy...?
 John Boy...you seen my F#$%*#g rates bill...?..now you just get in behind  ya mutt..!!..heel boy.
 

Now I know why bloggers get

Now I know why bloggers get so apoplectic. I cannot believe how "economic with the truth" the Better Local Government document is. There is what amounts to an outright lie in the very first paragraph!
Page by Page
P4. "Councils were given responsibility for the [well-beings]" Bzzzt.. Read the legislation: LGA 2002 s10 the word used is "promote". Any Minister of the Crown who cannot tell the fiscal difference between 'being responsible for' and'promoting' should resign immediately.
Couple of eye-catching graphs. Even the poodles at Local Government New Zealand pointed out years ago that you also need to look at the Construction Price Index cause that's where most of their money goes. Wow - look at that 10.8% increase straight after the LGA was brought in. The only problem is(i) the Act waspassed in December 2002 by which time almost all Councils had drawn up their budgets for 2003-4; and (ii) the changes caused by the act came into effect in 2004 which would be the 3.9% year.
Notwithstanding the DIA logo we can already see this document is political propaganda.
P5 Again look at what else was happening at the time: rising insurance, energy and construction costs. Central Government ramped up its construction programme around 2003-4 which led to soaring prices charged by contractors. Remember 80% of all LG income goes straight back out the door to suppliers and contractors.
Not all debt is bad debt. Given that Councils can't issue shares debt funding is the fairest way of allocating costs to the users of assets over the long haul (it's called trans-generational equity). The real question is whether the debt is sustainable.
P6 Broadly agree except its not the purpose statement that is wrong but the requirement under the Act to compile and monitor Community Outcomes. No-one in LG would mourn the demise of this requirement. Note also that Councils were already undertaking programmes for which they had no legislative mandate long before the act was passed. LGA2002  has probably made no discernible difference to the activities Councils are involved in.
P7 Good luck with that one. When costs over which we have no control rise in price faster than overall CPI (construction, energy, oil, insurance etc) government will have no choice but to cut services (bumpier roads, fewer libraries and pools, muddier sports grounds, more sewage spills).
P8 Employment and remuneration policy. Mostly silly if only because very few if any councillors have the technical skills to devise such a policy. Has the potential to go disastrously wrong with little discernible upside. Believe me, CEO's already have ongoing discussions with their elected members over staffing levels and remuneration its just not public. And again even if done brilliantly will only have marginal benefits as most work is already contracted out.
p12 Efficiency Taskforce - yet another one to go with "Catch up with AUstralia" and "Tax Reform" and....
Central/Local Government Regulatory Framework - hurrah!!!!!!! At last
P13 Infrastructure provision - this is the one proposal that could deliver results that impact ratepayers wallets. Shame most of the likely recomendations will have all the sex appeal of the International Financial Reporting Standards. And no votes.
Development Contributions - when properly used they are a fair and useful way of raising capital to respond to rising populations.
 
In sum - outright blooey used to justify a handful of proposals that will achieve no noticeable reduction in rates and one concrete proposal that might.
It would have been easier though less sexy to simply review the LGA and ask the Councils themselves what's working and what's not.
 
 

The sort of poorly reasoned

The sort of poorly reasoned drivel in that report is the sort of thing you should expect when Rodney Hide was the Minster for much of its preparation -- awhole lot of ideological drivel lifted from the worst practice he could find in the USA.

I suppose Auckland Council

I suppose Auckland Council Culture Unit budget will be cut under this proposal.  Its purpose has been looking after the taniwha that lies under the old Auckland city swamp for many years.  It will now create havoc in our city... be afraid, be very afraid...

OK I really do have to go and

OK I really do have to go and do some real work. What really upsets me about the Smith proposal is how feeble it is. Successive governments just keep on skirting around do the hard work of a real reorganisation of local government.
 
Let's think about how over-governed this country of 4million people is. Here are our five! levels of government:
1. Liz/Jerry (and the FBI and Warner Brothers)
2. Central Government
3. Regional Councils
4. City/District/Island Councils
5. Community Boards
Do you really want to save money? Here's a plan
Phase 1: Goodbye Community Boards - just ignore the fluffy sentiments about democracy and show me a Community Board that has achieved something useful that would not have been achieved by its parent Council anyway
Phase 2: Goodbye Regional Councils - weird amalgam of remnants from Catchment Boards, Harbour Boards, the Nisella Eradication Boards, bus companies and the Ministry of Works and Development.. Reallocate functions to central government agencies
Phase 3: gut remaining councils. All utilities to an SOE and roads to Land Transport for the whole country. Building, Environmental functions back to Central Government. Shut down Service Centres.
There is some thinking behind this.
First,  improved communications makes the need for local management of local work irrelevant. A country of 4m only really needs one office to manage the country's many water, sewer, stormwater schemes even though field workers will be stationed all over the place. The advantages of consolidating asset management in one place would be enormous.
Second and more importantly there are few if any democratic decisions to be made for these schemes any more. Almost all decisions are engineering decisions or are made for Councils (i.e. assets created by developers). The days of driving new public roads across the countryside are behind us so we no longer need democratic processes to prioritise this work locally. The main new road builder is already central government with local councils being mainly tweakers of existing roads.
 
If Smith had come out with something bold like this I would have got excited but instead we got the "ambition-free" version that is the hallmark of successive Key governments.

Spoken like a true

Spoken like a true totalitarian. The best solution is the complete opposite.
Reduce central govt to a minimal level of things that affect the entire nation (defence etc). Devolve the rest down to a regional/local govt level.
But heres the kicker - reform the taxation system so central govt receives a fixed flat amount of the taxation stream, the bulk of which is moved to instead be collected at the regional level.
Thus creating viable compeition between regions and different areas can set the tax mix to suit the voted intentions of the local populations. Institute direct democracy, so the population can vote down legislation via referendum upon the petition of say 10% of that regions population.

sure looks as though the

sure looks as though the bosses at the Hamilton CC are getting rid of the indians as fast as possible...but none of themselves!...strange that. I wonder how the qualifications of the bosses stack up against those of the people they are booting out....what's the bet there are a few holes on the CVs!