Scoop Election 08: edited by Gordon Campbell

On the local government reforms

March 20th, 2012

Clearly, centre-right governments dislike Big Government only when it isn’t their brand of government. When it is, many of the democratic brakes get removed, quick smart. At heart, the reforms to local government unveiled yesterday see central government dictating to local communities how much, and for what, their rates money can be raised and spent. Until now, I’d always assumed that voters could use the ballot box to respond, if they thought their local councils were not using their money wisely, or were raising their rates unduly.

Not for much longer. Local Government Minister Nick Smith knows better than we do, and is going to use the law to force local communities to share his vision. The local government reforms due to become law by September will work this way [Government PR here]:

The Local Government Act 2002 will be amended to replace references to the “social, economic, environmental and cultural well-being of communities” with a new purpose for councils of “providing good quality local infrastructure, public services and regulatory functions at the least possible cost to households and business”.

This would see councils steered away from spending on social and cultural activities in favour of “core” activities such as key infrastructure, regulations and public services. Dr Smith said council involvement in events such as arts festivals and firework displays could go ahead because they were public services. But councils should not try to replicate services provided by central government or that could be supplied by the private sector, he said.

The aim was to limit expenditure growth to “no faster than inflation and population growth, except in extraordinary events”. Benchmarks would be set for income, expenditure and debt levels and councillors would be able to set employment and remuneration policy, including limits on the number of staff.

This command by central government for local councils to stop raising revenue and providing for the social and cultural wellbeing of their communities seems particularly brazen given that – as Local Government New Zealand CEO Lawrence Yule pointed out to RNZ – local councils have only gotten into providing for social needs because central government has largely walked away from its responsibilities in some of those areas (for example, in the provision of an adequate level of low-cost housing). Over the coming months, will central government be prepared to make a commitment to meet the social needs that it is planning to force local government to abandon?

On other fronts… the occasional entrepreneurial foray into social and cultural events that come unstuck – such as the David Beckham promotion, years ago – are more than matched by the many current success stories, such as the involvement say, by the local council in putting on the annual Womad festival in New Plymouth.

Supposedly, one of the goals of our tourism industry is to promote a New Zealand with more to offer than our natural wonders, and to portray the social and cultural richness well worth exploring in our cities and regions. (That was one of the key messages of the Rugby World Cup tourism promotion only last year.) Now, the Key government seems to be doing a 180 degree turn on tourism. Because if it will soon no longer be legal for local councils to help to support this kind of socio-cultural activity in our towns and regions, who will support it? No-one. Again, aren’t these the sort of decisions that local communities should be being left to make for themselves?

Unfortunately, the reforms are all about ideology, not efficiency or social need. The buzzwords give the real game away. Councils will be restricted to the provision of “core” services, to be defined by central government. Those core services, including regulatory functions will be required to be delivered “at the least possible cost to households and business…”. Leave aside for a moment just what level of regulatory protections we’ll have when they’ll need to be carried out at the least possible cost to business. Those “least possible cost” provision are codewords for councils being made to pursue the short term cost savings of job cuts, contracting out and outsourcing. In the process, the councils’ in-house expertise and experience will be lost by a contracting out process that will be socially destructive and which will – in some regions – leave the councils open to price gouging by a limited pool of local contractors.

The big giveaway in the buzzwords is the phrase about limiting expenditure growth to that caused by ‘inflation and population growth’ – other than in exceptional circumstances, such as natural disasters. This mechanism has been imported wholesale from Colorado’s TABOR tax measure, which former Act Party leader, Rodney Hide has long admired.

Back in 2008, I pointed out how Hide had made explicit mention of TABOR as the inspiration for his initial private members bill on local government reform. At the time, Hide didn’t mention that TABOR had been so destructive to Colorado’s provision of social services and maintenance of its core infrastructure that voters had just given themselves a reprieve from it for 5 years, and only re-introduced it since, in amended form. Here’s how I explained it in 2008:

In sum, New Zealand is about to adopt as an instrument of restraint on government spending, a measure known to have already caused havoc, division and shortfalls in public service provision in its state of origin. The detailed evidence of TABOR’s flaws is contained in this extensive Bell Policy Center Report.

So how do the TABOR mechanisms actually work? As in Colorado, the measures Hide has been proposing would limit the growth rate of the revenues that government can collect and spend, and allow them to be adjusted upwards only to compensate for inflation and population growth, and nothing else. Not wage increases, or a desire to improve services. If revenues exceed the prior year’s allocation, this is returned to taxpayers as a rebate.

Crucially, the measure has a rachet down effect on public services. During boom times, central and local governments are prevented from using the higher revenues to expand or to improve public services, or to save for a rainy day. Moreover, because revenues will fall during a recession, the year-to-year measurement will mean that the new base for determining spending growth will become the low revenue point created by the recession. Hence, the TABOR approach renders permanent any cuts to public services that are imposed during bad years.

An exemption from the TABOR process can only be gained through the government holding a referendum, which has to be held in the same year as the mooted increases would take effect.In Colorado, some local governments found TABOR’s restrictions too constraining, and hundreds of cities, counties, school districts and special districts successfully appealed to voters over the years for a partial reprieve from some of the law’s provisions.

Two years ago, the UK Independent newspaper carried this report about how destructive this brand of local government reform has been in its state of origin, Colorado.

It is hardly surprising that the Act Party – the $2 Shop of US Political Wingnuts – would have imported wholesale a method of reducing the size of local government. Nor will it bother them unduly that Doug Bruce, the inventor and tireless promoter of the TABOR rates reduction mechanism, has just been convicted of tax evasion in the Colorado courts, and jailed.

But what does it say about New Zealand that we are about to copy a local body reform idea so damaging in its place of origin that its citizens sought and won a reprieve from it? And why are we copying an idea for transparency and efficiency in rates revenue collection that was devised by a convicted tax cheat?

The most sensible comment on the local body reforms so far – where are you, David Shearer? – has been by Green Party newcomer Eugenie Sage. As Sage pointed out, the proposed reforms are an ideological solution to a declining and self correcting problem, if problem it be at all

Council spending on so called “non-core services” — such as culture, recreation and sport — declined by $ 185 million between 2008 and 2010 to 13.2 per cent of authority spending. From 2007-2010 rates were a stable portion of household expenditure; holding steady at 2.25%.

The recent Productivity Commission’s draft report on housing affordability notes that rates have been declining in relation to property values, indicating that in terms of household wealth, rates are becoming less significant. [Also] Local government has been more efficient than central government at keeping labour cost rises under control.

In essence, councils incur debt at times for utterly sensible reasons, such as the need to spread the cost of infrastructure spending across the several generations that stand to benefit from them. That form of generational fairness makes good social, cultural, economic and environmental sense. Would Wellington for instance, under the reforms now being proposed, have been able to finance the sewage treatment scheme that it now benefits from? Probably not.

How will those well-used libraries in communities all around the country fare under this straitjacket on the provision of their core service, at the lowest possible cost? Quite badly, one would expect. Because the proposed reforms are a recipe for running down community services, by people who are ideologically opposed to the very idea of community.

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    1. 17 Responses to “On the local government reforms”

    2. By lyndon on Mar 20, 2012 | Reply

      From last Wednesday: Local authorities move into operating surplus

    3. By Bizsmyth on Mar 20, 2012 | Reply

      Thanks Gordon for putting this argument into its wider context.
      I thought the whole idea of local government was to take us away from the meddling big daddy of central government. Who’s the daddy now?
      Oh god, what is a ‘public service’ and what isnt?

    4. By Gary Chiles on Mar 20, 2012 | Reply

      Surprise surprise.
      Yet another bad idea direct from the USA – that none of us voted for.
      Can anyone name me anything we’ve ever copied from the USA in the past, that turned out to be a good thing?
      No, me neither.
      The only mandate Kim John Key has ever had, was his pre-election man-date with John Banks.
      We didn’t vote for this, we don’t want this, we don’t need this, and we very much resent being told about it AFTER the elections.

    5. By John Clarke on Mar 20, 2012 | Reply

      Isn’t it interesting that Nick Smith seems to take a fiscal crisis with him wherever he goes. When he was ACC minister there was magically a crisis with ACC’s finances, and now that he’s minister of local government – surprise surprise – there’s a debt crisis with the councils.

      I think we should learn the lesson that Nick’s grasp of basic economics is actually quite poor, given that these crises miraculously disappear as soon as he does.

    6. By Joe Blow on Mar 20, 2012 | Reply

      It’s interesting how any problems that local councils are having suddenly become a perfect reason for continuing Hide’s policies without anyone noticing that they are just that = Hide’s policies.

      The Marrayatt salary increase, squabbling over logistics relating to the Christchurch rebuild and then the Kaipara District Council’s woes… Actually, that’s something you didn’t mention Gordon = debt. These new proposals will limit the amount of debt local governments can borrow. That would soon put the breaks on any plans for a rail system in Auckland…

      So if you are limited in the rates you can levy and how much you can loan, your only choice is to cut spending (on non-core services) or sell off assets.

      In Hamilton, the local community didn’t like proposals to get rid of the rose gardens, charging $2 each for library books or introducing user pay fees for rubbish bags or moving to a capital value rating system so they moved to an annual rates increase of 3.8%. That’s the best way for local governments to fight back. They should suggest scrapping the amenities that everyone takes for granted in order to cover costs. Stir up some animosity for next election.

      Yeah, where is David Shearer?

    7. By John on Mar 20, 2012 | Reply

      Gordon Campbell, in his desire to have a crack at the Government, misses the point. For the last 10 years I have received superannuation and each year I get an increase based on the consumer price index or inflation. In that decade I have, in real terms, not received any increase as rate rises, firstly by Waitakere City Council and now by Auckland Council, have swallowed any government largesse.Iam fortunate that I am not reliant on sperannuation,but many people are. And those in local government coudn’t care less. Otherwise they would not waste $300,000 putting flag poles on bridges instead of fixing stormwater culverts.

    8. By Marie R on Mar 20, 2012 | Reply

      Core services up until now anyway have included those precious public libraries that you mention, Gordon. They were listed in the 2002 Local Government Act and included in section 11A:
      “Core services to be considered in performing role:

      In performing its role, a local authority must have particular regard to the contribution that the following core services make to its communities:
      (a) network infrastructure:
      (b) public transport services:
      (c) solid waste collection and disposal:
      (d) the avoidance or mitigation of natural hazards:
      (e) libraries, museums, reserves, recreational facilities, and other community infrastructure.

      Section 11A: inserted, on 27 November 2010, by section 5 of the Local Government Act 2002 Amendment Act 2010 (2010 No 124).”

    9. By MeToo on Mar 20, 2012 | Reply

      An interesting time to put limits on rates increases – right when Auckland Council in particular faces huge liabilities from the leaky homes debacle. Central govt has very generously said local government will stump up 25% of the cost of repairs.

      Marie R – libraries are core services, but this change makes Councils provide them at least possible cost. Plenty of opportunity for funding freezes or cuts or refusals to fund new projects.

    10. By Ianmac on Mar 20, 2012 | Reply

      Well the answer of course is to sell Council owned assets like ports, airports rose gardens and so on. And get rid of tarseal on poorer suburban areas. Simple. Why didn’t Nick think of that!

    11. By Bryan on Mar 20, 2012 | Reply

      David Beckham? It might be worth comparing the per capita cost of the the Rugby World Cup to Auckland ratepayers…

    12. By nznative on Mar 20, 2012 | Reply

      Who in the hell is going to pay for my frigging cycle way then ???.

      My bikes getting rusty

    13. By Uniculture on Mar 20, 2012 | Reply

      It is time to tell the council where they can spend and where they cannot.
      It defeats common sense to build a BILLION dollar rail system in Auckland where there are 1.5 million and maybe slightly more in the future. Such a small population can still make do with the existing transport lines. One can just improve the services, fleet, etc but don`t have to spend BILLIONS on such a big project. Poor rate payers having to live forever with higher rate increases just to be in Auckland where the jobs are more available there…you are chasing away the citizens to Oz and other places where owning your house is much cheaper as the population is bigger…the costs of sharing the debt become smaller with more people….it is simple mathematics…

    14. By Bob on Mar 21, 2012 | Reply

      I’d be really happy if my rates stopped going into propping the Eden Park White Elephant. Somehow I suspect it will become essential infrastructure unlike all our community festivals and beaches.

    15. By Adrian on Mar 21, 2012 | Reply

      It looks like John Banks gets to play at being Auckland mayor again after all!

    16. By Len Houwers on Mar 21, 2012 | Reply

      Nice argument except that it misses the point that most of our elected officials including mayors/ councillors are not competent in their role. They find it hard to distinguish between public and private benefit but find it real easy to spend public money. Most rely overly on Council Officers to tell them what is going on and don’t have the intellectual capacity to ask the really important questions. They are great at ticking process boxes and pushing their own barrows and narrow agendas. If you can’t get qualified people on the Council then better to limit their scope for damage.

    17. By millsy on Mar 24, 2012 | Reply

      Hey Len, you going to close our parks and libaries? Come on, come clean with your Tea Party bullshit.

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