Whither local government?

Dr Eric Crampton
13 December, 2022

Perhaps the timing was simply a coincidence. But not long after central government firmed up its intention to take water infrastructure away from local government, and its intention to shift planning up from local councils to regional bodies, Local Government Minister Nanaia Mahuta opened a review of local government.

Without its main jobs, councils would be an answer in search of a question. What would be the point of local government when its main tasks were gone?

So, in April 2021, Local Government Minister Nania Mahuta set a Review into the Future for Local Government. Its mission: to provide the ultimate question to which the ultimate answer would be local government.

To relatively little fanfare, the Review provided its preliminary answer, or rather the questions to which local government would be the answer, in October.

Local government would be about the same things that most things now seem to be about. It would be about wellbeing, based on authentic relationships with hapū and iwi, and genuine partnerships.

It all sounds lovely for those already deeply in love with the Wellington zeitgeist. And wellbeing is not new terrain for local councils, which have been responsible for promoting the ‘four wellbeings’ from 2002 through 2012, and again since 2019.

Sceptics of that zeitgeist, which could include an incoming government later next year, may be less convinced.

Central and local governments have been at odds for decades, regardless of whether National or Labour holds the government benches at Parliament.

Where central government reaps most of the rewards of urban growth while local government is left to find ways of funding and financing the infrastructure to support it, conflict is inevitable. When central government is disappointed in local governments’ performance, it centralises tasks that are the natural remit of local government. Lifting tasks from councils inevitably hollows out council capabilities, setting the stage for the next round of disappointments.

The Review Panel had an opportunity to break this cycle.

What little attention the Panel’s report received focused on its ideas to reduce the voting age to 16, to change to four-year council terms, to set the single transferable vote system across all local elections, to impose co-governance with unelected mana whenua appointees on councils, and to require councils to embrace te ao Māori values in all they do.

These could be great ideas if there were evidence they would improve council effectiveness and efficiency, resulting in better outcomes for their communities and a lower rating burden. The evidence base seems thin on that front.

It makes for a wasted opportunity, especially where the Report does point, more quietly, to real problems and potential solutions.

The draft report observes that very few recommendations from numerous reviews into local government funding have been implemented.

It warns, as have others, that central government often imposes responsibilities on councils without funding to cover necessary costs. Councils also deal with pressure from tourism, impacts of climate change, lack of incentives for growth and development, volatile investment income, and specific challenges from natural disasters.

And the Report provides a few reasonable suggestions.

Unfunded mandates from central government should end. Government-owned properties should not be exempt from rates. And councils should be able to issue ring-fenced revenue bonds to cover long-lived capital investment. These bonds, separate from councils’ main balance sheets, are financed by the beneficiaries of that infrastructure over decades.

But core work seems to have been left to the final report. Revenue bonds on their own could deserve a chapter; the draft report provides only a cursory paragraph.

Also underdeveloped are funding mechanisms for the broader wellbeing task that the Review Panel would set for councils.

The beneficiary principle has traditionally underpinned thinking around how local government services are funded. Those who benefit from a service should be the ones to pay for it, where it is possible to apportion user charges. Equity issues around ability-to-pay are best dealt with through income redistribution by central government.

The principle has not always been well-respected in practice but has at least been a lodestar.

And it was at least possible for the beneficiary principle to underpin the core services that councils traditionally provided.

Were councils to take up broader wellbeing responsibilities that have otherwise been the remit of central government, levels of services available to those in poorer communities would be well below those available in richer communities. Substantial transfers from central government would be needed.

In Canada, poorer provinces receive equalisation payments from central government so they can provide levels of services comparable to those available in richer provinces. In effect, people in richer provinces subsidise social services provided by poorer provinces.

Such an equalisation scheme might not be best for the kind of wellbeing role that the Review would set for local councils. But the draft report provides little hint of the magnitude of the policy task that could be ahead in figuring out how to pay for social services delivered by councils. And the report’s broader scepticism about the beneficiary principle may not bode well otherwise.

Submissions on the draft report are open through the end of February. But the final report, due in June, will be overshadowed by the coming election.

It is unfortunate.

Well-functioning local government is fundamental to wellbeing not because any report suggests new local government responsibilities using language and frameworks currently trendy in Wellington.

The core services that councils have traditionally provided are the critical underpinnings of thriving cities and regions. When those services are delivered well, no one notices. When they fail, everything falls apart. How can a country be productive or its citizens flourish when its cities do not work?

If councils cannot get those basics right, they will neither have nor deserve the trust of central government officials for delivering more complex services. But getting those right is hardly encouraged by the framework within which councils operate.

The Review’s final report needs to focus on setting core council funding, financing, and capabilities on sounder footing. Whatever government is formed after the 2023 election will need all the help it can get in strengthening local government.

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