Time to reform the nut house

The National Business Review
11 November, 2016

The highly clichéd pop psychology definition of insanity is doing the same thing over and over and expecting a different outcome. If we accept this meaning, then local government in New Zealand is just plain nuts, cuckoo, cray cray, whacko and doolally.

That may seem obvious to many, particularly where the sector’s zeal for red tape appears matched only by its appetite for rates increases. This diagnosis explains why 58% of eligible voters chose to sit out the latest local election, and why central government continues to push for further council and local service consolidation.

But before hauling the straightjacket out, it is worth considering whether the patient is incurably mad or just a product of the nuthouse. The Initiative’s upcoming report The Local Manifesto: Restoring Local Government Accountability, makes the case that councils only appear insane until you examine the regulatory environment in which they operate. Part of the problem as we see it is that councils serve two masters. The Local Government Act 2002 (LGA) states that local authorities are democratically answerable to their communities, and are obliged to provide goods and services in a way that is the “most cost-effective for households and businesses.”

The other master is central government. As a creature of statute, and absent a constitutional separation of powers, local government is obliged to take on any regulatory or task handed to it by Parliament. In addition, central government can dictate the terms of service at a local level.

On paper this appears to be a reasonably sound set up, in that councils are largely free to respond to community needs but with the benefit of central government oversight and national standard setting. At the same time, central government can pass regulatory tasks to councils to leverage their proximity to local communities.

Unfortunately, when looking at these arrangements in practice, it paints a picture of buck passing, unfunded mandates, one-size-fits-all policymaking and a lack of local accountability – in other words the status quo so many New Zealanders find frustrating.

Whose job is it anyway?

One of the aspects of local government’s workload that is least understood by the public is how much comes from central government. According to the Productivity Commission, there are more than 30 acts that confer regulatory responsibilities on local government. These cover activities ranging from prostitution control to planning and just about everything in between.

And, while central government tends to be more than willing to pass on tasks, it is less forthcoming with funding. The introduction of minimum drinking water standards in 2005 is a clear example. At the time it was estimated councils would conservatively need to invest between $309 million and $527 million in plant upgrades to be compliant but central government only set aside $150 million for this. The shortfall had to be funded out of local taxes, yet communities had little say in the setting of these standards, possible trade-offs, or workarounds.

Drinking water is not the only area where central government passes mandates to local government but not funding. A 2009 study found amendments to five pieces of legislation resulted in an additional 720,000 hours of council staff time, excluding one-off contractor costs.

Accountability gap

Another of the problems with this arrangement is that it creates an accountability gap between those who set policy and those who bear the effects and costs of it. A central government review of alcohol sale rules saw the costs of the system refresh recovered from alcohol licenses. Unfortunately bar owners had little visibility into who was driving the costs, setting councils up to cop the blame for a regulatory process they had little control over. Forthcoming amendments to dog control laws are likely to run into the same problem.

The problems with the blurred lines of accountability flow both ways. With no bright lines delineating who is responsible for what, councils can – and do – shift the blame for poor local performance on to central government.

Rapidly rising house prices in Auckland are often blamed on the Resource Management Act. This legislation certainly plays a significant role but nowhere in its 681 pages does it state that Auckland is required to have an urban-rural limit. This is an artefact of local policy, which was found by one study to increase the cost of residential land by between eight and 13 times relative to rural land.

It gets worse when you look at the quality of local spending. Councils and central government can argue about the merits of which comparative cost index to use as a yardstick but when local cost benefit analyses amount to little more than a list of pros and cons, the quality of local expenditure decisions is open to question.

The lack of transparency and accountability on both sides explains the rise in disenfranchisement and political intransigence seen in many communities. This is where communities resist moves to increase rates, borrow more, sell assets or do just about anything even where there are long-term benefits from doing so. Queenstown Lakes District Council, for example, is wrestling with a housing affordability and tourism infrastructure crisis but term debt was equivalent to just 6% of assets in 2014. Similarly, Auckland officials regularly bemoan the fact that debt limits constrain their ability to expand the city’s infrastructure. But calls to sell the city’s investments holdings (which were about five times bigger than the value of its infrastructure assets in 2014) are thin on the ground.

Reforming the nut house

Clearly there is a need to identify and fix the source of the local government madness. Is it the inmates, the institution or the house rules? In our report we propose untangling this mess by amending the Local Government Act so that councils are wholly answerable to one master. It is hard to shirk responsibility when there is no one to pass it to.

The Initiative’s master of preference is local communities. If these are the people who pay for the services that councils provide, does it not make sense to let them decide what services they receive? If communities want to boil their water instead of fixing their water plant, or want gold-plated sewer pipes, should they be stopped if they bear the full costs of their decision? (Luckily, local government’s record in other parts of the world suggests communities make sensible decisions when the buck stops with them.)

Of course the devil is in the detail. Handing over decision-making power to communities without checks and balances risks making the problem worse. There are also instances where central government control may be preferable. And, provided the conditions are right, there is an argument to devolve more power to local government. Those details will be disclosed when we launch The Local Manifesto on November 21 (details available at www.nzinitiative.org.nz).

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