MEDIA RELEASE
Funding, not spending, is the issue for councils
For immediate release on 8 June 2009

“Funding, not spending, is the issue,” Lawrence Yule, President of Local Government New Zealand said today, in response to the Minister of Local Government statement on councils’ long-term plans.

“It’s essential for communities that councils maintain local infrastructure and services – what councils are facing is how to fund them fairly.

“Property tax is the major source of council funding. Therefore, rate rises will be unavoidable for most councils if they are to provide services their communities want and need.

“Councils have done an extraordinary job to keep their operational expenditure, including inflation, at only 4.8 percent a year for the next ten years. Council inflation rates are noticeably higher than household inflation rates. Yet, councils have managed to absorb these costs and deliver improve levels of service.

“Let’s not forget that New Zealand families are still only paying the equivalent of a cup of coffee a day for their council services – and any new facilities under development,” says Mr Yule.

There are several issues that are contributing to rates rises:
• the recession means interest earned on council investments and council funding sources have fallen dramatically. To meet this shortfall, councils face the unenviable choice of borrowing more, putting up rates or reducing service levels
• despite cost cutting and deferring specific projects, councils are under pressure to stimulate local economies by undertaking major long-term infrastructure projects to keep people in work
• construction costs have risen more than the level of inflation.

“The cost of providing today’s level of services is expected to increase by 31 percent over 10 years. Councils are maintaining services, while managing expectations around levels of rates and borrowing. Obviously this is not easy. If communities want lower rates they may have to decide which services they can live without”, said Mr Yule.

This analysis is based on draft councils’ long-term plans, which will not be finalised until July. The national data provides a high-level view and figures quoted have been averaged out. The information does not truly reflect the variations in council sizes, population or expected growth.

“For example, says Mr Yule, “There is some uncertainty about the status of the Auckland long-term plans. Forty percent of the data is based on Auckland and we don’t yet know what effect the changes in Auckland will have on proposed expenditure plans.

“These long-term plans reflect the needs and priorities of individual communities. They are reviewed regularly based on feedback gathered during community consultation.

“We would advise the Minister to consider the analysis after the long-term plans have been finalized. If the Minister is seriously concerned, he may need to work on developing more sustainable funding tools for councils.

“Finally, the Minister has plans to ensure councils are more accountable to their communities. I would like to remind the Minister that our elected members certainly hear from their constituents on council decisions, and whether they have got it right or wrong. Our final accountability is every three years at the ballot box.” said Mr Yule.

ENDS

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