Council finances have been under significant pressure for some time. In many districts, this has resulted in year-on-year - sometimes substantial - rates increases, which contribute to cost of living challenges of New Zealanders. This year, council rates increased, on average, by around 15 per cent, which is four times the rate of inflation.

The expressed aim of the Local Government (System Improvements) Amendment Bill (Bill) is to help alleviate pressure on council rates, by amending the purpose and role of local government so that councils focus on specific core services and “spending on the basics”. These amendments, and other proposed changes, are intended to address the Government’s concern about a lack of financial discipline by the local government sector.

Purpose of local government and “core services”

The Bill is the latest episode in a tug-of-war between successive National and Labour governments about the statutory purpose in section 10 of the LGA. The current framing (put in place by Labour in 2019, replacing that of National in 2012 which in turn had replaced that of Labour in 2002)   says the purpose of local government includes promoting the social, economic, environmental, and cultural well-being of communities in the present and for the future. The Bill will remove reference to the “four well-beings”, which the Government considers provides authority for councils to spend money on activities which stray from core services. 

In its place, the Bill will reinstate (with one addition) the purpose statement that existed during the last National government, so that the focus is instead on the cost-effective provision of good-quality local infrastructure and public services and performance of regulatory functions. Consistent with the Government’s clear emphasis on economic growth, a new clause will be added: to support local growth and development. 

The removal of the four well-beings is to apply across the LGA, in order to achieve internal coherency. In some cases, however, this simply involves replacing the word “well-being” with different, and potentially broader, language (such as “interests”). There is a question mark over whether this will make any substantive difference. 

Linked to the narrowing of the purpose, the Bill defines the core services of local authorities These are framed as capturing: network infrastructure, public transport, waste management, civil defence emergency management and recreational facilities, such as libraries, museums and reserves. In making decisions, Councils will be required to have particular regard to the contribution made by these core services to their communities. This is also a return to the position that existed under the previous National government. 

The effect of these changes will be to prioritise the defined core services, but they do not entirely rule out councils delivering other services or activities, so long as they can be brought within the new (arguably narrower) purpose statement. 

The Bill’s explanatory note says the Government is continuing to investigate tools that will limit council expenditure on certain activities, such as the rate peg (maximum annual percentage increase in income) used in New South Wales. This Bill does not legislate for this, instead saying that its focus on core services is intended to encourage similar financial management. This seems to be a veiled threat that there could be more significant intervention if councils do not “stick to their knitting” as established in the Bill.

Looking ahead, the focus on core services will be expected to work in tandem with any rate capping tools, with non-core activities likely the subject of any limitation. The question will be whether the prioritisation on core services will, in fact, see rates increases soften - as recent experience tells us that it is the need to address historic under-investment in network infrastructure, and increases in the cost of providing that network infrastructure, that are largely responsible for these rate increases.

Measuring and publicising council performance

The Bill aims to improve council performance and accountability by increasing the scope of reporting requirements, including the potential benchmarking of council activities. This will lay the foundation for a proposed performance measurement framework, which would be administered (and published) by the Department of Internal Affairs. The intention is to give the public access to information about their council’s performance, and enable comparison between councils, to encourage more effective performance and accountability to communities.

Strengthening council transparency and accountability rules

The Bill includes provisions designed to enhance the connection between councils and their communities. These include:

• Providing for the issue of standardised codes of conduct and standing orders which will apply to all councils - currently each council adopts its own code of conduct and standing orders. The reasons for this change, and how it will promote greater transparency and accountability, are not entirely clear. At present, codes of conduct and standing orders are adopted by councils separately (mostly based on existing templates developed for the sector), and they reflect each council’s local democratic intentions as to how they will conduct their business and dealings. There does not seem to be any real need for complete consistency as between councils, but if there remains some room for local preferences, that may be acceptable to the sector. 
• Giving elected members a right of access to documents held by the council which are reasonably necessary to enable the member to effectively perform their duties. This is simply enactment of the “need to know” rule which already applies under the general law, and while not unhelpful, may be regarded as unnecessary.
• Adding new governance principles that will apply to elected members, namely the fostering of the free exchange of information and expression of opinions by members, and their responsibility to work collaboratively to set the council’s agenda, determine its policy and make decisions on behalf of its communities. This reference to collaboratively setting the council’s agenda could potentially clash with (or at least soften) the mayor’s role in section 41A of the LGA, which is to lead the development of the council’s plans, policies and budgets. Otherwise, the new principles are valuable in encouraging members to avoid factionalism, including the selective provision of information to some members, which sometimes occurs at present. 

Reducing regulatory requirements applying to councils

The most significant of these changes are:

• removing the mandatory requirement for councils to consider the relevance of knowledge of tikanga Māori when appointing directors of council-controlled organisations;
• requiring that third-party funding for specific community facilities is applied solely to the capital expenditure on those facilities which is growth-related, which will prevent double charging where there is dedicated third party funding. If, however, any funding is not explicitly growth-related, it will need to be split between growth and other uses, which may provide greater flexibility when assessing development contributions. 

Our thoughts on the Bill

The proposed changes to the purpose statement are the latest pendulum swing between a broader well-beings and narrower core services focus. While the Government’s desire to alleviate rates pressure for communities is admirable, whether the new framing will actually assist to address the underlying issues leading to rates increases is questionable. 

This is because, as the Bill’s explanatory note acknowledges, rates rises have been primarily driven by the rising costs of critical infrastructure. Providing this infrastructure is a core service as defined in the Bill and will be unaffected by the narrowing of the purpose statement. These costs must still be funded, and it is likely that rates pressure will remain unless other cost efficiencies can be achieved. 

The “refocused” purpose will likely give a council pause about whether it should be involved in some activities, but these are likely to be rare cases. Further, the amended purpose refers to “good quality…public services”, which is potentially capable of a broad interpretation, and could still involve consideration of the well-beings, under a different name. As mentioned above, in some cases the consequential changes to other sections of the Act may not make any substantive difference because the replacement wording is still broad (ie communities interests, rather than well-being). 

Overall, the practical effect of these changes may not be overly significant, as the vast majority of local authority activities will be consistent with the reframed purpose and list of core services. Where there is some risk to councils will be for the non-core activities, which communities may expect or even specifically want councils to deliver, but which are on the fringe in terms of meeting the purpose statement. Delivering such activities could potentially lead to legal risk, and should cause councils to first ask “can” they do something, rather than “if” they should (based on the broader well-beings).

Although the statutory purpose is clearly of some political significance (as the ‘back to basics’ narrative and to-ing and fro-ing since 2002 suggests), in our view this is largely a secondary concern, with the fundamental issue being the ever-increasing costs in delivering core services, and the lack of sufficient and appropriate funding tools for local government. 

In relation to the other clauses in the Bill, while some of the regulatory interventions will be useful, and while the introduction of additional measuring and publicising of council performance (benchmarking) may help to improve accountability, the new reporting requirements could also be counterproductive if they only add to the already extensive regular accountability and compliance obligations (and costs) placed on councils. 

Get in touch

We are very happy to be supporting the local government sector with submissions on the Bill, and would be happy to provide additional advice to any council considering making its own submission.