New local govt benchmarking

Business

Local Govt Minister says new financial prudence regulations will tighten financial reporting, lift transparency and encourage excellence in local government

13th Nov 13, 3:34pm by David Hargreaves

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

The Government has announced new regulations aimed at standardising financial reporting among local authorities.

Local Government Minister Chris Tremain said the new "financial prudence regulations" would tighten financial reporting, lift transparency and encourage excellence in local government.

He released a Cabinet paper on the regulation and also a regulatory impact statement from the Department of Internal Affairs.

"The regulations will provide a standardised way of financial reporting which will encourage council efficiency and improve accountability to ratepayers. We need to learn from issues that have had an impact on ratepayers and residents in Kaipara," Tremain said.

He said from next year councils would have to report against "a set of benchmarks" based around three key elements of financial prudence – affordability, sustainability and predictability.

"Affordability will be measured through rates and debt information, sustainability through a balanced budget, expenditure on essential services, and debt servicing and predictability through cash flow from operations and debt control information.

"Performance results will be collated in a way that recognises each individual local authority’s situation. I want to see councils measured and benchmarked against each other to help lift performance and focus on excellence."

The regulations are part of the "Better Local Government" reform programme and Tremain said they were" part of the commitment to delivering better services within tight financial restraints".

"I am proposing the new benchmarks will be used by local authorities in their annual reports 2013/14 which are due to be published by October 31, 2014."

The body representing the country's local authorities gave a thumbs up to the new measures.

Local Government New Zealand President Lawrence Yule said benchmarking would provide an effective measurement of local government performance.

He cautioned, however, that measures needed to be supported with "relevant contextual comments".

"Our councils are accountable to the communities that have elected them

"This includes being transparent in the way their rates are invested in infrastructure, the amount of debt they need to service and their overall financial performance.

"The new regulations and benchmarking, when paired with relevant commentary, will illustrate the prudent financial stewardship of the sector, highlight best practice and provide a clearer picture on where investment is occurring."

LGNZ contributed to the regulations and will be supporting sector members in helping them meet the new reporting criteria.

Yule said that LGNZ would, over time, also be investigating and working with its members on additional sector-led benchmarks to further assist and support local authorities to "demonstrate the value and effectiveness they deliver to the community".

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15 Comments

by Kumbel | 14th Nov 13, 8:08am 1384369726

Of course LGNZ support these regulations: they require ratepayer-funded effort and achieve nothing. There's some feelgood over action(!!) being taken but otherwise a meaningless exercise. If the government wanted to make a difference to rates they need to set up a technical team to review how asset management is done. So, wake me up if Tremain and Yule decide to do anything significant.

Just in case anyone still thought that accounting in local government is a bit wild-west I should point out that:

Councils have had to publish ten-year budgets since 1996
Local Government Act 2002 requires a balanced budget for operational expenses and only allows debt for capital works
LGA 2002 prescribes a number of mandatory financial reports and policies such as the Funding Impact Statement
LG must comply with generally accepted accounting principles and many if not all now comply with International Financial Reporting Standards

I love the reference to Kaipara District. No matter how many requirements there were on transparency and benchmarking KDC would still have ended up in the same place because they cocked the implementation up not the original decision.

I have done some local government bechmarking work and it is very difficult mainly because the wide variation in history, geography, and organisational structure between councils makes an apples with apples comparison near impossible.

by Kate | 15th Nov 13, 11:36am 1384468590

Couldn't agree more. I think all the public really wanted was a sort of 'league table' comparison - which could simply be accomplished by collating the debt per capita and $ rates per $1,000 capital value of rateable assets.

Simple. However, this show of "we're doing something about it" from the Nats must go on.

by Kumbel | 15th Nov 13, 1:31pm 1384475505

And that's why it would be hard to put up a meaningful league table. Some councils rate based on land value only and the rest on capital value. Some have transferred lots of rates into "regressive" Uniform Annual General Charges some have stayed on the more "progressive" valuation-based rates.

by Kate | 15th Nov 13, 2:49pm 1384480193

My point is - ratepayers don't really care about that sort of detail. They understand the concept of RV - so you just compare like RVs. For example;

Rates comparisons on an RV range of $430-440K (all houses on sections; no apts or t/houses):

$2,966 = Palmerston North

$2,666 = Kapiti

$2,314 = Wellington

$2,184 = Tauranga

$1,934 = Auckland

Such a list across various dwelling types and price brackets would force some councils to really look a bit harder at whether they are value-for-money/attractive - and legitimate the differences. Palmy North for example has no water metering/charging; whereas Auckland of course does. So does water cost the average Auckland family another grand a year? These are the straight-forward comparisons and simple questions homeowner ratepayers would like to see answered.

They don't want the technical explanation about rating base, general vs targeted rates, UAGC vs fixed charges etc. etc. Simple question is "for a property with a valuation of "x" - how do you compare to other local authorities". If the government wanted to be really helpful, they would provide an online tool which allowed you to put in the "x" and the "dwelling type" and get a list of rates by local authority sorted from lowest to highest.

by Kumbel | 15th Nov 13, 3:49pm 1384483743

And what will ratepayers do with that information? Shift?

Information is only valuable if it enables decision-making.

No matter how hard it wishes Dunedin City will always reticulate water up and down hill and will have to source water from difficult locations. It will always have expenses Christchurch City doesn't have.

by Kate | 15th Nov 13, 5:02pm 1384488138

And what will ratepayers do with that information? Shift?

Well yes, possibly over time.

I see this as the kind of information we need in order to consider (and perhaps direct) regional strategy. If, for example, unit title rating is significantly less expensive in one district versus another - it would make sense for fixed-income pensioners to shift to these districts - provided central government also concentrates medical services and facilities suited to pensioners in these districts.

Or, if it is all that much more expensive to install and maintain reticulated services, roadways, bridges etc. in Dunedin, not to mention the extra cost associated with providing adequate heating - should central government fund a large university there?

Sure, they are all politically charged issues but at the end of the day we simply can't afford to carry on as we are - at least that is what ratepayers are generally saying.

by Kumbel | 16th Nov 13, 2:48pm 1384566491

Sure - there will be some niche areas where these league tables can be used. However I am very dubious that councils will alter any of their plans just because of their place on the tables. They will rationalise away their place by appealing to history, geography and other special circumstances. Hence the appeal of this policy to LGNZ - looks like action but will result in no substantive change.

"we simply can't afford to carry on as we are"

Really? Based on what? And why would league tables be the solution?

by Kate | 17th Nov 13, 8:47am 1384631230

Based on ratepayer feedback and on those affordability studies that I have seen. Kapiti for example does such an analysis to determine the affordability of their rates based on the median incomes of the ratepayer base in specific neighbourhoods. They found that rates were causing financial hardship in many cases (given their high number of pensioner/fixed income residents). They subsequently introduced a hardship subsidy on top of the central Government's rates rebate scheme;

Mayor Rowan said Council was mindful of the impact of the rates increase. “Given this, we have introduced a new rates remission policy for those suffering financial hardship. This is in addition to the scheme run by Central Government.” Council would be publicising details of the policy in due course.

As soon as you need to start introducing subsidies like the Rates Rebate Scheme and other remission policies - it is a clear signal that we can't carry on like this.

League tables are not a solution - they are simply one of many conduits toward a solution.

by Kumbel | 17th Nov 13, 1:08pm 1384646890

Your argument is really about rates incidence. KDC has a few blunt tools to shift the rates burden from low-income households to higher-income ones if it wanted to.

But from what I make of this article the league tables will be about aggregates not household-level incidence. Name and shame is pointless until the government gains an understanding of why constructions costs have been rising 50% faster than consumer costs for at least the last decade.

Councils spend 80% of their money on infrastructure assets. Rates rise faster than CPI not because of slackness or stupidity (although I don't preclude either) but beause costs are rising that much.

Think of other asset-intensive industries such as energy or airports and we see the same story: charges rise faster than CPI.

by Kate | 17th Nov 13, 1:39pm 1384648797

Yes, such league tables (if we ever get any such thing!) might well be about aggregates in the first instance .. then as time goes by they can be improved and become more relevent (such as producing household-level incidence).

And I hear you to a degree about the fairness of a "name and shame" type aggregate comparison. But the point is - for every reason you give about how construction/infrastructure costs are rising at a rate above inflation - I can give you an example of a "glory project" from some local body authority that had a significant impact on rates rises.

For Kapiti (as an example) it was a bells and whistles "Aquatic Centre" rather than a plain 'ol replacement indoor swimming pool that did it.

by Kumbel | 17th Nov 13, 2:23pm 1384651425

I don't have many good examples of "glory" projects at my fingertips so thanks for that.

I'm not trying to make out that there are no ways to limit or reduce rates but the low-hanging fruit are long gone. Now there has to be reduction in services or service levels to make a noticeable dent in rates. And there is no question that councils absolutely refuse to make these hard decisions.

In the absence of tough decisions I reckon I could slash tens of millions off the country's rates bills in six months with the help of a top flight accountant and engineer. The line item 'depreciation' is a bit of a slush fund for staff and a good hard look at how that is calculated could seriously reduce rates.

I won't be holding my breath that councils will take any notice of league tables.

by Stephen Hulme | 17th Nov 13, 4:58pm 1384660709

This may be a poor example, but certainly indicative of the underlying ideology.

Hutt City could be on the verge of a period of development not seen since Percy Dowse was mayor in the 1950s and ‘60s.

Mayor Ray Wallace last week told the Hutt News that after years of austerity, the time has come for the council to again play a major role.

The council has operated a tight financial strategy that has kept debt low and restricted rates increases to the lowest in the country.

That is a strategy he has supported but he said it is not set in concrete and it is clear the city needs to grow. Read more

by Kate | 17th Nov 13, 5:30pm 1384662622

That's a perfect example;

Projects he supports include; Starting the Walter Nash Stadium and Taita centre development as soon as possible. A learners pool at Huia. Fraser Park Sportsville. A major upgrade of Avalon Park. Upgrading suburban shopping centres, including Taita, Naenae, Wainuiomata and Stokes Valley.

But they sound modest compared to many. Also, check out nearly every council in the country with a council building that has been a past "glory project" for some Mayor and council at the time of concept development. They tend to be in many cases the flashest commercial property in town.

by Kumbel | 17th Nov 13, 6:17pm 1384665437

<---- Before we get squished into a 1 word column

by Kumbel | 17th Nov 13, 6:31pm 1384666263

The difference this time round ought to be LGA 2002 Amendment Act 2012. In theory councils now have to consider (i) the need for new stuff now and into the future and (ii) whether any proposal is the most cost-effective solution.

Wellington City celebrated the passing of this legislation by unanimously approving upgrading of the Wellington Town Hall against the advice of their own CEO and without any analysis of the community's wishes and alternatives.

I am very disturbed by this notion of giving up austerity. Councils don't do austerity. Given that most of their dosh is tied up in long-term physical assets they tend to ignore short-term economic fluctuations.

On the other hand this is eerily similar to the binge North Shore City went on just prior to amalgamation. Maybe Hutt City knows something we don't?