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Another step forward in the discussion on local government funding and financing

July 05, 2019

Contacts

Partners Josh Cairns, Jonathan Salter, Matt Conway, Bill Loutit, Padraig McNamara
Senior Associates Lizzy Wiessing

Infrastructure (inc funding) Urban development

Summary

The Productivity Commission’s draft report recommendations in respect of new funding tools are generally positive, if not overly surprising.

There is some of the usual negative comment towards local government decision-making and operations, but to be fair, the report does record that some of the perceived poor performance arises from structural issues with the legislative decision-making and reporting requirements. It also recommends changes to the central government’s relationship with local government, which is long overdue.  

There is a bit of a back-to-the-future feel with the recommendations about the best way to use current funding tools. These include recommending that considerations be benefits/exacebator driven (with considerations of ability to pay at a second stage), and changes to rating mechanisms to reduce the number of available tools. We see this as curtailing the current scope for political discretion in the funding of activities in favour of more of a standardised template approach. On first blush, it also feels no less clunky and onerous than the existing framework and reporting requirements.

Report background - 30 second catch-up

The Coalition Agreement between Labour and New Zealand First included a coalition priority to hold an inquiry into local government funding “a decade after Shand.”

In July last year, the Government charged the Commission with inquiring into local government funding and financing, and where it found issues, to examine options for improvements.

The Commission’s Issues Paper released in November last year sought comment on the pinch points in local government funding, and on future funding and financing tools.

The report released yesterday is the Commission’s draft report setting out its findings and recommendations, for comment.

Findings and recommendations

In summary, the Commission’s findings and recommendations include that:

  • The current funding and financing framework (based on property rates) is generally sound.
     
  • Better use could be made of existing tools (through better local government decision-making and operational performance, and through rejigging the criteria for funding decisions to be based primarily on beneficiaries and exacebators).
     
  • New tools are required for the specific cost pressures of:
    • Supplying enough infrastructure to support rapid urban growth (see comment on this below);
    • Adapting to climate change (recommendations: central government led frameworks and data for decision-making, extending NZTA’s role in funding councils with roads and bridges at threat from climate change, establishing a climate-resilience agency and associated fund);
    • Coping with the growth of tourism (recommendations: accommodation levy, more user-pays, provide funding from the international visitor levy);
    • The accumulation of responsibilities placed on local government by central government (recommendations: a reset of the relationship - to ensure appropriately designed and regulated funding systems).
  • The report also recommends a new regulatory regime for the three waters.

The recommendations regarding new funding and financing tools for growth infrastructure broadly reflect what we discussed in our report launched at the 2018 LGNZ conference: Unlocking the local authority infrastructure funding puzzle.

At this year’s LGNZ conference we released the next instalment of our thinking in this workstream, focussing on the keys to delivery: Urban Growth - Time to deliver.

Opportunity to comment on the Commission’s draft report

The Productivity Commission is accepting comments on the draft report by 29 August 2019. It will release its final report to the Government on 30 November 2019.

Please get in touch with any of our contacts above to discuss the report and for assistance with preparing any comments you may wish to make.