Fixing local government is a slow-burning issue

Dr Eric Crampton
The Dominion Post
18 October, 2021

In 1996, Reserve Bank Governor Don Brash highlighted the political importance of speed in the 1980s reform agenda. Drawing on an earlier speech by Sir Roger Douglas, he noted that “opponents’ fire is much less accurate if they have to shoot at a rapidly moving target.”

Policy over the past two years have moved at similar pace, but rather less coherently, and in the middle of a global pandemic that also requires at least some minor attention from the ministries.

So, you could be forgiven if you missed the announcement, almost a fortnight ago, of the interim report of the Review into the Future of Local Government.

This one does bear some attention, even where attention is a desperately scarce resource in a policy world of many rapidly moving targets.   

The Review was established in April of this year as the Government came to realise it had something of a problem in local government.

The Government’s urban growth agenda could not proceed successfully without clearing some of the hurdles facing local governments in enabling consenting.

Funding and financing for local infrastructure, especially water infrastructure, proved a major hurdle in enabling new development. And some councils had made a hash of their water infrastructure management, deferring necessary maintenance and renewal to find funds for flashy convention centres and festivals.

The Government proposed taking water assets away from local councils and amalgamating them into new bodies.

Whatever the merits of that move, taking water infrastructure from councils brought a different problem. Councils would no longer have water to manage. And proposed sweeping resource management reforms would pull a lot of responsibilities up to regional council.

So just what might be left of local councils? And what would they have the capability to do? For smaller councils, managing the waterworks also meant having staff who could serve in myriad other roles. Taking water away from those councils would gut their capabilities for doing other things.

Hence the need for the Review.

In a world of fast-moving policy targets, it’s easy to miss those running on a slower burn. The Interim Report released just over a week ago is part of a two-year review process. A year from now, it will provide draft recommendations. In April 2023, it will deliver a final report.

The Interim Report identifies the problems. Councils are burdened with onerous compliance requirements while facing funding and capability problems, leading to mistrust between central and local government.

Current approaches do not really work well for anyone. Business sector needs are not met. Innovation is not fostered. Consultation requirements burden iwi “without improving Māori wellbeing.”

And new approaches to council funding and financing are an important part of fixing it.

The incentives created by inappropriate council funding and financing mechanisms have seemed to lie at the root of local government dysfunction. Prior to the reforms of the late 1980s and early 1990s, councils could set special purpose bodies to fund improvements. They could charge users or levy beneficiaries to cover the costs.

Moving infrastructure costs onto councils’ main balance sheets came at a cost. Existing ratepayers would bear the burden of infrastructure of which they were not the main beneficiaries and would consequently see growth as a cost to be avoided. And councils at their debt limits would be unable to finance the necessary infrastructure anyway.

Over decades, those incentives built a culture planning culture inimical to urban growth. When growth is a cost to be contained or avoided, rather than an opportunity to be embraced, it is difficult to build a culture that welcomes growth and innovation. Those incentives instead build a culture in which process planners will send back consent applications for the most trivial of reasons – for example, not liking the colour of the doors in a planned development, regardless of whether new owners can paint their doors any colour they like.

Changing that culture requires changing the incentives facing councils. When growth is a cost, institutions build processes to contain that cost. Cultures develop around those institutions and become embedded. Changing the incentives changes the game, but it can take a while for institutions to respond.

Central government has thus far approached the problem with measures blocking councils from the more pernicious ways of inhibiting urban growth. The National Policy Statement on Urban Development requires councils to allow more density. But they still need ways of funding the infrastructure necessary to deliver it.

Building local government funding mechanisms that not only provide better ways of paying for infrastructure, but also reward councils for enabling local innovation, would not just help in solving the housing crisis. It would also enable the transformation in local government that is yet to come.

Fixing local government is a slow-burning issue in a world of fast-moving policy crises. But it is one that bears attention.

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