Last month Local Government Minister Peseta Sam Lotu-Iiga provided the first peek at the latest round of Local Government Act reforms, dubbed the Better Local Services package.
The announcement was not a surprise, particularly as it came in the wake of failed council amalgamation proposals in Wellington, Northland and Hawke’s Bay.
They had also been signalled well in advance by Mr Lotu-Iiga’s predecessor, Paula Bennett, at LGNZ’s conference last year. Though light on detail at the time, Ms Bennett’s speech left little doubt about central government’s plan for local authorities: Where they impede economic efficiency, councils could expect to face consolidation, even if outright amalgamation was off the table.
So it was somewhat of a surprise when the Better Local Services package was greeted with a “whew” rather than groans and gnashing of teeth. That is probably because the sector had been bracing for a brickbat.
What they got instead was a discussion document that outlined a possible framework for greater services collaboration as a local government sector. Principally this would involve setting up regional council-controlled organisations (CCOs) to handle functions that cross jurisdictional boundaries or benefit from economies of scale, such as transport, roading and water.
Revealing the government’s preference for amalgamation, the discussion document seeks to make it easier for the Local Government Commission or councils to propose mergers between units. However, this power will be counterbalanced by requiring greater process transparency, and that any commission-led merger be put to a local poll (unlike the Auckland amalgamation).
The idea is not new and has a precedent in places like the Netherlands. There, local government has the constitutionally mandated freedom to enter any form of partnership agreement deemed necessary to deliver local services.
This is an important feature of the Dutch system. The Netherlands is a small country but highly populated one, with 17 million people. The country is further divided into 400 municipalities, making economies of scale difficult to achieve, particularly in the rural areas that are struggling with an ageing and shrinking population.
The Dutch get around these problems by partnering. At the most basic level these agreements involve pooling of services, such as rubbish collection or waste water provision. These agreements can also include shared service centres whereby a single entity performs payroll or IT services for a group of councils.
The idea is to allow Dutch municipalities to achieve economies of scale in the delivery of local goods and services that they could not otherwise achieve on their own. Critically, they can do this without sacrificing their political autonomy.
These agreements also extend beyond basic service provision, and often cities partner with provinces, surrounding municipalities and private groups such as businesses and universities to plan infrastructure and promote investment in the region.
Little fuss vs planning lag
Under this type of arrangement, Eindhoven and its surrounding municipalities built a new airport on the outskirts of the city-region and set up a compensating payment structure with little fuss. In New Zealand it is conceivable that a similar project would take over a decade just to get out of the planning process.
For those with strong centrist views, this may seem like a recipe for chaos. But the flexibility of these arrangements, and the proven ability of local people to make the best decisions for their communities, appears to be working.
According to the World Economic Forum, the Netherlands is rated as the fifth most competitive country globally. Indeed, authors of the latest Global Competitiveness Report commended the country for its education system, infrastructure and institutions. Furthermore, they state the Dutch economy is one of the most sophisticated and innovative in the world, characterised by open and efficient markets.
Lack of incentives
So can we expect the same results in New Zealand, if Mr Lotu-Iiga’s discussion document makes its way into law and councils get greater flexibility to partner up?
That is a difficult question to answer with certainty, since so little of the detail is available at this stage. To give Mr Lotu-Iiga the benefit of the doubt, let us say “maybe” and note that there are several hurdles that need to be overcome before it can become a success.
The most important one is the lack of incentives. Local body politicians, like their central government counterparts, measure their fiefdoms by the size of their asset base, and there is no clear incentive for them to expend political capital to shrinking their kingdoms.
Furthermore, handing control over these assets to a technocratic third party is likely to shine some daylight on poor asset management practices in the local government sector.
Councils looking to create CCOs are likely to be faced with accusations of trying to privatise local government by stealth. That is because any attempt to roll things like roading and water into a CCO is likely to be greeted with ratepayer protests over “privatisation by stealth.”
Even where ratepayers are more rational, there is still no incentive for them to approve these motions. Under Prime Minister Norman Kirk, the third Labour government set about consolidating the sector by beefing up the powers of the Local Government Commission. But since the local authority mergers offered little direct benefit to voters, few amalgamations received community approval.
The Better Local Services initiative, while laudable in trying to give councils more flexibility, appears to be heading nowhere fast. Central government appears to have left little room to force councils to seek efficiencies (an approach we at the Initiative do not advocate), and neither does it give councils and voters a clear incentive to approve these measures.
Perhaps some of this uncertainty will be resolved later this year when more details behind the thinking are released. But at this stage there is a strong likelihood that local government history will repeat itself.