New Zealand: Short back and sides for local government - legislative reform to impact local government
Brief Counsel

The eight-point reform programme prescribed in Better Local Government is designed to promote consensual amalgamation among, and to impose stronger fiscal and political disciplines on, the country's 78 councils.

The reforms will be advanced in two stages – a bill to be introduced in May and passed by September this year, and a second bill next year.

There will be an opportunity for submissions on the legislation.

The May Bill

The first four items in the reform agenda will be implemented through the May Bill, which the government wants to have passed in time for the October 2013 local body elections. The first three reduce the scope of council activities, expand the Auckland mayoral model to the rest of the country, increase councils' ability to keep control of wage costs and impose new fiscal constraints. The fourth is focused on reducing the barriers to council amalgamations.

1. Replace references to the "social, economic, environmental and cultural well-being of communities" in the Local Government Act 2002 (the Act) with a new purpose of "providing good quality local infrastructure, public services and regulatory functions at the least possible cost to households and business".
2. Set benchmarks in the Act for councils to meet in respect of income, expenditure and debt levels, these to be developed in consultation with Local Government New Zealand (LGNZ). These will be "soft caps" which will be subject to threshold tests with new powers for central government to intervene in council affairs if the a council is in breach or potential breach of the thresholds (refer to box below).
3. Strengthen governance provisions by:
   • empowering councils to set policy on overall remuneration and limits on staff numbers (these decisions now belong to the chief executive). The CEO will remain the only direct employee of the council and will retain responsibility for employing all other staff, but within the parameters set by the council. Councils will be required to provide in their annual reports information on the number of staff employed in different salary bands
   • extending to all mayors the powers (now specific to the Auckland Mayor) to appoint the deputy mayor and the council committees and committee chairs and to propose plans and budgets, and
   • providing a graduated scale of intervention which the Minister can activate to support the new fiscal responsibility requirements or, in other circumstances, if requested by the council. The Minister can already review the performance of councils, replace elected councils with a Commissioner or call fresh elections. But these interventions are aimed more at dealing with crises than avoiding them. The new approach is designed to be more proactive.

Amalgamations

Of the 11 proposals considered under the current regime, only one boundary change and one abolition proposal (Banks Peninsula) were successful. The Auckland Super City was achieved through special legislation.

The existing process requires a petition of 10% of affected electors to initiate a proposal and that the proposal be supported by a majority in each district. Proposed changes are that:

• a poll will only be required where a petition of at least 10% of affected electors requests one, and
• success will require majority support within the area of the proposed new council rather than in every existing district or city (although there must be "significant community support" in each of the affected territorial areas to prevent hostile take-overs).

Where no poll is required the Local Government Commission can confirm the proposal after hearing submissions and determining whether the statutory criteria are met.

In addition, the statutory criteria used by the Local Government Commission will be amended to:

• equire that the Commission consider the benefits of the reform proposal for simplifying planning processes – a change which is intended to facilitate a shift to unitary councils, consistent with the government's preference for unitary planning documents, and
• to put greater weight on the benefits of efficiency improvements.

Second round reforms

These will be implemented through the second Bill.

1. Establish a Local Government Efficiency Taskforce to report by 31 October this year on the planning, consultation and reporting requirements of the Act. (The Government is known to be sceptical about the value of ten-year plans, and whether the public reads them.)
2. Have the Productivity Commission review the balance of functions allocated to local government by central government and ways to improve regulatory performance in the sector. The Commission is to report to the government by April next year.
3. Appoint an expert advisory group with a mix of financial, local government and engineering expertise to explore how the provision of infrastructure such as that covering the three waters, roading, footpaths and cycle ways can be made more effective. This would include ideas such as volumetric charging for wastewater.
4. Reviewing the use of development contributions – in particular the inconsistency in application among councils, whether they are affecting housing affordability and whether they should be subject to rights of appeal. (This picks up on the Productivity Commission's work in this area, Chapman Tripp's commentary on which is available here.)

Chapman Tripp comments

The overall thrust of the reforms is to give local government a 'short back and sides' haircut in that they are designed to reduce councils' freedom of manoeuvre and to put them much more overtly under the thumb of central government.

However, although the intentions of the 2002 Act and the extension of local government's mandate to the "four well-beings" was well-intentioned, there is evidence that it may have distracted councils from their core functions and put their budgets under pressure.

It is uncertain at this stage how large the contraction in council activity will be. The Government has hung a question mark over council economic development units, saying that economic development services are provided by central government. He has said that fireworks displays fit into the discretionary category of "public services" but that councils should focus on local rather than national events – which may create problems in the future for Wellington's International Arts Festival.

Also uncertain is how much appetite there is for council amalgamations, although we are aware that this is being actively pursued in the greater Wellington area, Hawke's Bay and the Far North.

The potential demise of 10-year plans will create efficiencies by removing a laborious process from the council calendar. But it will not remove the need for local government to plan strategically over a period longer than the three-year electoral cycle. It will be interesting to see what the Efficiency Taskforce recommendations are.

Potential reforms stemming from the many reports and reviews may include:

• the removal of some regulatory roles from local government to central government, such as setting urban limits
• amalgamation to provide efficiency in the provision of infrastructure, and
• the pendulum of development contributions swinging back to the Resource Management Act allowing appeals on individual projects.

It will be important for any proposed amendments in the Bill to strike the right balance between efficiency and ensuring that communities receive the right level of services from local government. We consider the changes move broadly in the right direction but if councils do not take advantage of them to engage in voluntary reform, they may find that the government (or a future government) will take further action to force their hands.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.