Key agrees with LGNZ that rates not perfect, but not interested in 'opening floodgates' to new council taxes and spending; suggests they use more debt, delayed rates for pensioners

Key agrees with LGNZ that rates not perfect, but not interested in 'opening floodgates' to new council taxes and spending; suggests they use more debt, delayed rates for pensioners

By Bernard Hickey

The Government has slapped down Local Government New Zealand's (LGNZ) suggestion that councils be given the right to raise income taxes or their own forms of GST, saying that could 'open the floodgates' to new council taxing and spending that hard-up ratepayers could not afford.

Key said councils should instead look at their own spending, potentially raise debt or sell assets, and allow pensioners unable to pay rates to defer them to be paid out of their estates when they die.

"We'd be very reluctant," he said when asked about the prospects of Council expenditure and income taxes in his weekly post-cabinet news conference.

"The whole issue of funding councils and whether they look to alternative funding streams is something that's raised time and again. We're happy to have discussions with them, but we're very cognisant of the costs on taxpayers and ratepayers," Key said.

"No one's arguing rates are a perfect system. There are examples of local communities where there's a big influx of costs from tourism perspectives, but not necessarily the ratepayers to pay for that," he said, referring to the Government's decision to allow Stewart Island to apply a levy on visitors.

"But as a general rule, massive increases of costs on ratepayers is not something we're looking towards."

LGNZ issued an 81 page discussion paper from its own funding review yesterday, saying that its 78 councils relied too heavily on property rates that an ageing population could not afford and needed other ways to bridge a looming infrastructure deficit.

Asked about a looming infrastructure funding shortfall, Key said: "They've been funding that infrastructure -- it's not a new issue -- for a very long period of time. They don't as a general rule have excessive levels of debt. They have a range of different assets that they own. There are specific examples like Christchurch where we're working with the Christchurch Council, but that's because of the Christchurch earthquakes."

"Across the board wholesale restructuring and reform of the way local government is funded is not something we have on the agenda at this time," Key said.

'Ageing not that big a problem'

Key did not think the ageing of the population changed the equation much for Councils.

"Councils for a long time have been deploying the capacity for people to fund their rates bill out of their assets, and for it ultimately to be paid for by their estate if they're cash strapped," he said.

Key said he wanted to cautious about adding any new costs onto ratepayers.

"There's a lot of cost coming at them and we want to make sure money isn't being wasted," Key said.

"I don't think anyone has argued that rates is the perfect system, but one concern we really have is we open the floodgates to a whole range of taxes and ways of funding them, then the costs will dramatically go up and services won't necessarily improve, and you could see consumers paying a lot more, so we're just concious of that issue."

'Control your costs first'

Local Government Minister Paula Bennett was also sceptical in this Radio Live interview, saying Councils needed to look at both their expenditure and their revenue.

"They do need to look at their spending and what their priorities are, but I also welcome them looking at how they fund that," she said.

"It's not always about just more money. But I have some sympathy for the older people that are on a real fixed income, and yes in Auckland their house price might have gone up by heaps, and their rates have gone up by heaps, but they don't have much more income to cover that, so I think there is something in looking at how they funded," she said.

Labour Finance Spokesman Grant Robertson was also sceptical about the prospects for any Council expenditure or income taxes, saying the bureucracy around collecting those taxes would be difficult.

3,000 extra social houses

Elsewhere, Bennett was asked how many extra social houses would be built in this three year term of Government.

"We are on track to do just over a 1,000 a year, but we think they can do much better than that," she told Radio Live. "I would say worst case scenario 3,000 new, but we think they can do far better ahead of the review," she said.

Housing New Zealand had been building 500 a year and it was on track to double that.

"We actually think we can do better when you look at some of the developments that we've learnt from that can happen in different areas," she said.

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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Well that didn't take long. Just remember that that report issued by LGNZ was paid for by the ratepayers of this country and had a half-life of about eight hours.
 
Speaks volumes about the quality of judgement in the local government sector.

Sadly this is not an isolated incident, nor confined to local government.

This is typical Key - wanting to be the populist by defending us from evil.
Key did not think the ageing of the population changed the equation much for Councils
Ummm ...some would disagee
http://www.nzherald.co.nz/wanganui-chronicle/news/article.cfm?c_id=1503426&objectid=11244717
Very similair to his approach ot the retirement age.  Kick the issue down the road - won't be dealt with on his watch.
And of course councils can just sell off assets to fund the problem. Most councils struggle to meet budget and often due to the requirements imposed by gummit - not to mention the encouragment by gummit to spend (anyone want to buy a ex world cup covered rugby stadium). 
Yep, Key appearing to be the good guy fighting to keep our taxes down, real motivation is a different agenda alltogether.
 

Cut spending.
 
If the government wants loss making stadia and convention centres, then the government should pay for them, not ratepayers.
 
If the government is obsessed with flooding the country with more people than it can fit, then they should pay for the infrastructure upgrades too.
 
In terms of actual local authority spending, what is wrong with a footy field having a grass embankment?  What is wrong with parks only having lawns and trees?  ...roads only having asphalt pavement?  ...libraries and council offices utilising existing buildings?  ...waterfronts being sandy?  ...riverbanks being grassy?  ...bush tracks being dirt?
 
Council's need to forget the grandiose and do the sensible...
 
 

For once I largely agree with Key.  Local bodies have been out of control for years now, raising rates well above the inflation rate for years. They need to get back to basics, forget the grandiose projects and get their bloated departments down sized and under control.
I have some limited sympathy for the councils because they are having to provide new infrastructure to service the large number of immigrants comming into the country.  If we have to find some extra funding for this I would suggest that overseas investors in NZ property and farmland should be taxed at 2% of the capital value.  This could be rebated by any income tax resulting from the property.  This seems fair to me because they benefit from many of the services and security paid for by NZ tax payers and I suspect that many pay little or no tax in NZ.  You could extend this to all nz property investors. 

You agree with Key that council's who can't afford their operating bills today should borrow money at interest to pay their costs?

Or that the councils should start selling their public owned assets to private sector (thus lose control of the services that the councils are probably still paying off)?

Fair points.  No, neither.  Just the bit where they need to learn to live within their means or more to the point, the means of their masters, the rate payers.  Although having said that, we were recently surveyed by the Queenstown lakes District Council about what we wanted in the way of a public swiming pool at Wanaka.  The public chose one of the most expensive options.

"LGNZ issued an 81 page discussion paperfrom its own funding review yesterday, saying that its 78 councils relied too heavily on property rates that an ageing population could not afford and needed other ways to bridge a looming infrastructure deficit."

The councils need to get funding from somewhere.
Many changed there rating system so they could get money from capital value rather than just the land value.  They were warned at the time that this would just create a _temporary_ honey moon period which would see expenses and debts rise to meet ther new income.  This was unversial denied by councils because they insisted that this time was different and they were experts and no-one else knew anything about councilling...and that somethings were just more important than mere monetary concerns.... well time they financed things on those "more important" factors.

Every business person who wants to be around for another year knows the golden rule.  You've got to have the gold, that's the rule.

The Palmerston North City Council was questioned on one of it's big projects about how the city could afford the millions required.  The mayor and council officers replied that because the bank said they would lend them the money the council could afford the project, and was trying to work out where to spend the loan.

Another time questioned on the proposed velodrome the Palmerston North City Council stated in writing that it would never break even for even basic operating costs, so would be sponsored by ratepayers indefinately.

That kind of spending and thinking cannot be permitted.
Not when the coucnil has legislative power of fund raising.  Not even against people who can't defend themselves (dead peoples' estates) !

As for Clown-Key.  If the council can't afford it on their current budget, how can they be expect to have the same budget and debt servicing on top of that.  Perhaps Key needs to read some of Elizabeths columns on basic finance principles.   

Clearly if the customer base (ratepayers) can't afford the services, then cost of services _must_ be reduced.  Transfering it around won't make it anymore affordable, it will just suck the life out of new victims.  Increasing the funding didn't solve the problem the last couple of times...in fact it has made it worse, as we need even more funding for the growing beast.
 Time for the councils to stop acting like Audrey II in Little Shop of Horrors.

add: It also doesn't help when our economy has an artificial chokehold on it which stops the growth that would help cover the councils costs... but councils like the rest of us, must take that into account, and not just spend up on increasing number of credit cards.

Thank heavens for John Key . It was an utterly  hare -brained scheme in the first place , devoid of any sense of the realities of those of us who actually work for our money .
It was never going to get past first base , and I wonder what planet the people who commissioned the report were sitting on and what they were smoking .
 

The more you give them the more they will spent the more they will want it's somebody else's money therefore there is no repsect.
 

Oh so true , Colin .
The first rule to remember , no one spends your money as carefullly as you do , and that says a lot about how the Govt at all levels wastes your hard earned  money
It applies to humans too ,  does not matter how much we earn it never seems to be enough and we always want more ......... like getting a pay increase , in six months time nothing has changed , your lifestyle is as it was , and you wonder where its all gone

Councils manage to increase their rates on a regular, read annual, basis. Like to see the government try that with taxes, the outcry would be party toppling. Not so when the council increases rates by 8 % or more every year, a bit of fuss but nothing to worry about. Of course the 8% is less in $ terms then a 1% income tax rise, in most cases. People basically just accept it.
And they will still tell you with a straight face that the increase is only at the rate of inflation (the rest is due to property value improvements).
Charge for some of the services, some they already do, most councils have a charge in the rates for rubbish collection but also charge $1.50 or more for each rubbish bag you have to get in the supermarket, they may get 50 cts or whatever for the selling of it but $1 or more goes to the council. That is another $100 or more per year per household.
Libraries are a thing of the past, very quaint, but no future. Charge the under 65 years of age using them, the ones most likely to use the internet mainly for their information. This will drive them away even more but then you can start to reduce the work force first and eventually the number of libraries. Longer term that one.
Every new mayor and council want to leave something behind of unpayable proportions so they will be remembered once voted out of the joint again. That sort of nonsense needs to stop. All done of course in the name of creating a "liveable" city/town.
More financial oversight is needed by people who are not elected but put there by the govenrment and who can only be removed by the government to avoid undue pressure from mayor and councils to approve what should not be approved.
While numbers can be explained in so many different ways, if the money is not there to pay for it something has to give. Smaller councils would be a good start, they might stop the waffling and get on with it.
A committee is best comprised of 4 people of which 3 are permanently absent.

The multimedia services of the library would be better served by providing internet capable boxes to centralised servers.   "Internet capable boxes" that could connect TV (such as those connected to playstation/xboxes) and take a browser or keyboard/mouse.  

Even a NZ sponsored playstation/xbox prog to interface those multimedia/school research/news articles/NZ-tube   could be worthwhile.  Reduce the book service to what it needs to be, rather than an expensive subsidised commercial service.
 Heck with a few basic humble advertisers, the NZ-box could pay for itself, especially if it has a robust DVD / BR tray for the kids own videos & parents own music (jack plug or CD or USB) even license Bluetooth.  Considering a DVD player is now commercially under $40, and a Raspberry Pi isn't much more, it's not a unviable proposition.

Far cheap than renting and cleaning shelves and stacks, way more availability.  Better usage info.  Just wonder what cost the Data-Road would be.

And if the councils were clever about it they could start slapping a few raspberry pi boxes together and then begin exporting them too. There's your new revenue stream right there!

Oh a banker suggesting using debt to cover an income deficit, no surprises there.  Oh yeah don't forget to sell some assets to reduce your future income.  What a tragic comedy. 
"In the future we are all dead (broke)"

Ok time for a little summary here.
 
Yule clearly misread the public mood when he released this report. I have never seen so many comments posted so quickly on a single story on this site before. Pretty much every political party has also rejected this paper within a few hours of its release.
 
I take Yule’s word for it that the intention is to broaden the methods for obtaining funding not to actually get more funding. Although, given that he highlights the supposed gap between requirements and funding, he can only be right if he proposes taking some existing funding off the government.
 
Most of the reaction here is either of the spend less or get more value from the existing take varieties. So some thoughts in these suggestions:
 
Salaries. Easy target but no magic bullet there. Councils tend to contract out these days so (i) salaries are generally only 20% of costs and (ii) occupational classes are skewed in councils towards higher paid jobs (more skilled jobs, less semi-skilled). Even if you could knock 10% off the salary bill it might only knock about $70 off a rates bill. Not nothing but not a king hit either. I agree that senior staff are over-paid.
 
Tendering purchases. They already do and they have access to various bulk purchase prices for the public sector.
 
Cut out wasteful spending. This one is both right and wrong. There are some glaring examples of things that councils shouldn’t do like covered stadiums, convention centres, street races. But there aren’t that many examples. Everyone has their pet hate like spending on art or signs or opening libraries late. But for every person who hates that thing there will be someone who likes it. It does tend to balance out.
 
The real problem is much harder than just what choices are made at a high level it is the endemic culture of not caring about spending across the board. cowboy described this way more elegantly than me last year and I wish I had printed his comment off and kept it. In essence he described the world of any small business owner who has to scrutinize and justify every dollar spent, “look after the pennies and the pounds look after themselves”. Each item is small but repeat that across 8,000 employees and the numbers get big after a while.
 
The other problem is that councils are basically run by accountants who know the cost of everything and the value of nothing. Councils think they know what their communities want by I doubt whether they could ever prove that they do. My challenge to councils is to prove that they have more than 50% support of their communities for any significant decision. Currently they can only prove it by pointing out that less than 50% objected during a consultation. Simply not good enough. Some of the things diligently done by staff have just sort of come into being and really aren’t vital. Many of the little things councils do just rile their residents.  And they don’t do the things that residents do care about. Way more attention has to be spent on aligning effort and spending with perceived value.
 
Strangely I understand what Yule is asking for and I have advocated for some of it in the past and still do. The major flaw in the rating system is that it has no link to how the community is going so councils have no incentive to deliver value to their communities. By getting a cut of GST or fuel tax councils would actually start to care whether their communities were vibrant or not. And those who think central government doesn’t put taxes up all the time are seriously wrong – the government clips the ticket of the whole economy so they get automatic CPI adjustment and any of the gain in economic growth. Councils don’t get that ever.
 
What Yule didn’t get was that the local government sector has used all its political capital up. No-one is going to listen to anything that sounds like “we need more money” until they have earned our respect again. Three things local government could do to regain their political capital:
 

  1. Lower senior management remuneration – we only need good enough
  2. Wean senior management off nursemaiding elected members, off endless “strategy” concerns, off various forms of junket and focus their attention on the nuts and bolts of their organizations. They need to endlessly ask the questions “What are we doing, why, how much does it cost, what would happen if we didn’t do this, is there a better way?. And this needs to be about the shop floor not the chapter headings in the Ten Year Plan.
  3. Fire all the PR staff and policy analysts; hire an independent organization to get the real answer to one question, “Do you want us to lead, to create community or do you want us to follow when there is a clear need or desire for something?”; then rebuild your methods of connecting to your communities based on that answer.

Agree with most of that, but not the tired, lazy old cliche about knowing the cost of everything and the value of nothing.  For a start, "the cost" does actually matter - it represents money taken away from people who have homes to maintain, mouths to feed, lives to live.  And nobody can "know" the value of something - it's a matter of opinion, and the people whose money you want to spend may not be as enamoured of the "value" of the stuff you want to spend it on as you are. 
 
So using "knowing the cost of everything and the value of nothing" as if that were a bad thing, doesn't fit at all with the rest of your piece, which is actually about Councils wanting to buy stuff that they think has value - they think it will impress voters  - but not caring about how much it costs - precisely the opposite, in fact, of knowing the cost but not the value.
 
I've always thought this a good predictor of behaviour:
 

  • People spending their own money on themselves want both low cost and high quality.
  • People spending other people's money on themselves want high quality but don't care about cost.
  • People spending their own money on other people want low cost but don't care about quality.
  • People spending other people's money on other people care neither about cost nor about quality.

Crossed wires somewhere in here, MdM. I thought I was saying the same thing as you.
 
People should never assume that councils administer their finances badly. Once a budget is adopted great focus is turned to insuring that promised outputs are delivered and that the budget is kept to. The real budget documents are way more detailed than the summary versions published in the Ten Year Plan. Line items can be down to a few dollars. Looked at from that point of view I say that council costs are highly controlled. In that sense I do say that councils know the cost of everything.
 
Almost everything because it is rare for councils to review their processes in any detail with a view to squeezing out costs. Even rarer for them to look really hard at what they do and propose to do and to make sure that their communities will think that is good value for money. They are quite happy to count non-response at consultation time as tacit approval on both dimensions. In that sense I don't think they could account for the value they deliver as perceived by their communities.

Good thread.
 
My additional points:

  • Councils are economically clueless.  There are few economists employed, the staff would not recognise an economic principle if it kissed them on both cheeks, and don't even mention the elected members:  a passing parade of buffoons around a distant table.  So Councils don't understand the notions which the rest of us run by:  the notion of competing jurisdictions, the notion that their revenue is someone's cost, the notion that time=money (your local banker is always happy to explain this in some detail), and the notion that raising prices can lead to less demand as alternatives (e.g. other, marginally less stupid Councils) compete; as developments are deferred or canned (land, subdivision, building are clear examples); and as other products (e.g. Tiny Houses instead of the typical 200-squares McMansion) present themselves for the price of a deposit on the McM. 
  • Councils have poorly developed risk appetites.  They will always prefer a rules-based approach, rather than assessing risk and thereby moderating their demands.  Building is the clear example here:  Schedule 1 to the Building Act 2004 is consent exemptions, and some of the wording requires explicit risk judgements:

 
"2 - Territorial and regional authority discretionary exemptions

Any building work in respect of which the territorial authority or regional authority considers that a building consent is not necessary for the purposes of this Act because the authority considers that—

(a)  the completed building work is likely to comply with the building code; or

(b)  if the completed building work does not comply with the building code, it is unlikely to endanger people or any building, whether on the same land or on other property."

 

Needless to say, the number of exemptions recorded under Sch1 (2) (b) is most probably able to be accurately counted by a pre-schooler.

 

The inevitable results of this risk-assessment deficiency are higher costs all round, greater time elapsed (and hence interest or opportunity costs) between plan and implementation, gold-plating of all solutions to de-risk them totallly (with time, cost and quality penalties), and missed opportunities galore.

 

Such are the times in which we live....

.

Point three is essential, and where to you have to start before you can have any hope of achieving points one or two.