Rodney Hide

18 June, 2010

Speech to 2010 Local Government Chief Executives’ Forum

Thank you all for inviting me here today. It is a pleasure to speak to the 2010 Local Government Chief Executives' forum on my "view at half term".

The last twelve months have been significant for Local Government reform. As you know, this Government acted swiftly to address Auckland's Governance issues.

Now is not the time to rest on our laurels, however, and as I know you will be aware the upcoming year has an some exciting Local Government reforms lined up, each with its own challenges.

In keeping with the forward looking theme of this forum, I will lay out the Government's upcoming priorities in the Local Government portfolio.

I look forward to your feedback on these issues.

Last year we began a review of the planning, decision-making and accountability aspects of the Local Government Act, with the aim of improving the transparency, accountability and financial management of councils.

Judging by the letters I receive and public meetings I attend, it is clear that ratepayers are struggling with rate increases.

These concerns are well founded.

Councils are forecasting in their 2010/11 draft annual plans a rise of 5.4%, and recent analysis by the Department of Internal Affairs of data from 2009 to 2019 long-term council community plans shows that the cumulative increase in rates per head over the next 10 years is 49 per cent.

Needless to say, it is over the rate of inflation, and this is unacceptable.

Rates funding will increase as a proportion of councils' operating receipts, and this is not good enough.

Obviously, Councils need to do better, and I am very pleased to note that this year, Councils have collectively reduced their projected rates increased by a total of %1.5 which by my calculations amounts to $50m in savings for ratepayers.

That's good, but we can do better. We must do better.

The proposed amendments to the Local Government Act will require councils to provide in depth information about their costs, rates and activities that will make it easier for constituents to understand, assisting them in influencing their councils' decisions and direction.

These amendments will help cut back on wasteful spending, pet projects and ill informed decisions that so often leave councils with debt burdens for little gain, and ultimately, pass the cost on to the ratepayer in the form of increased rates.

These transparency and accountability mechanisms will aid ratepayers and help to ensure that council decisions reflect their preferences, as well as improving the legislative framework for councils to create a more accountable and responsive system of local government for ratepayers and citizens.

These proposed changes have been included in the Local Government Act 2002 Amendment Bill, which is currently being considered by the Local Government and Environment Committee. The Committee, at this stage, is expected to report back on the Bill in November this year.

I would like to take this opportunity to outline the key aspects, as I think they are something worth repeating.

The three underlying principles guiding these amendments are:

• local government should operate within a defined fiscal envelope;
• councils should focus on core activities;
• council decision-making should be clear, transparent and accountable.

In general the changes agreed to by Cabinet will help ratepayers and residents to understand council costs, rates and activities a whole lot better so they can exert greater influence and control during planning and decision-making.

Long-term council community plans will be simpler and more strategic in focus, financial disclosures will be in plain English, and councils will have more flexibility in choosing effective and efficient delivery methods for water services.

Council reporting will be consistent so that residents and ratepayers will be able to make comparisons between different councils.

From 2013, every council will produce a pre-election financial report to allow voters to make a more informed choice about candidates and which projects they are likely to support, and spend ratepayer money on.

I also believe councils' consultation processes are unnecessarily onerous and complex. Worst of all, they are largely meaningless to the average ratepayer.

Most LTCCPs are bulky documents running to hundred of pages and often more than one volume. This makes it difficult for residents to identify the things that really matter to their communities, and can also deter them from taking part in decision-making processes.

It is possible to remove a lot of the more descriptive, highly technical and non-strategic material from LTCCPs to produce a single document people can more easily understand, this will be renamed the "long-term plan" and will have a more strategic focus. This will eliminate the costs and inefficiencies of running two separate long-term planning processes.

The return to a focus on core council services will mean that processes are simplified and streamlined. By core services, I mean, those things that most people understand and expect their councils to provide, such as waste collection and public transport.

Greater disclosure concerning Infrastructure information is also key. As core services, these items make up around 70% of capex budgets nationally.

The Bill will ensure that all infrastructure services data will be disclosed separately, ensuring greater transparency and improve the level of service provided. They will also be held to stringent performance measures.

There have also been a number of examples of poor investment decisions taken by councils over recent years, and the amendments ensure that councils will weigh the expected returns against the inherent risks involved.

This will help protect ratepayers from council involvement in novel, or financially risky activities. What is scary is that no such principle currently exists in the Act.

The point is to increase the average ratepayer's knowledge about what their council plans to do . Decisions concerning council spending need to be made locally, by well informed communities, without interference from Wellington's bureaucrats and politicians.

It is important for me to clarify the changes to water and wastewater contracts, which have been the focus of much misinformation.

What the proposed amendments do with regard to water services is provide councils with greater overall flexibility in selecting service delivery modes that best meet local needs.

Local Authorities are responsible for supplying drinking water to about 87% of our population, and for managing a water supply infrastructure estimated at around $1.1 billion in 2009. Collectively they budget $605 million on opex and $390 million on capex to maintain and manage these water supplies.

Work is still required however.

The recent auditor-general's report into Local Governments Water Services Planning found that one in four local authorities needed to do more to forecast and plan for future demand, better manage existing demand, and to upgrade water infrastructure.

Unfortunately, the LGA2002 is restrictive for councils when attempting to structure their water services in a way that best meets the needs and preferences of ratepayers and residents.

The Amendments ensure that this restriction is lifted, boosting council flexibility when it comes to choosing the best water service delivery methods that suits its ratepayers specific needs.

This includes changes that will allow greater use of public-private partnerships (PPP) in the construction and operation of water and wastewater treatment plants. Build - Own - Operate - Transfer (BOOT) schemes will become more feasible.

As you know, many councils already contract with the private sector to manage council assets. Contracts for services such as park maintenance, swimming pool operation and roading maintenance are routine.

Currently councils undertake an exhaustive consultative procedure when looking to change to systems that may utilise private sector partnerships - all the government is doing is proposing to remove these requirements. In my view, councils are capable of recognising when private sector partnerships would be beneficial and can engage with other organisations when ever this is necessary, without potentially costly and complex processes.

Another proposed legislative change is to extend the 15 year limit on water services contracts and joint arrangements with the private sector, to a potential 35 years. This change will allow both public and private partners to realise long term benefits from more efficient planning for their investments.

Any suggestion that this is a privatisation of these assets is simply false.

Under the Local Government Act 2002, councils are not permitted to privatise water related assets. This legal provision will remain after this bill passes.
Councils will still be able to terminate these agreements and will retain the right to control water pricing and policy.

At no point may any Council divest itself of its interests in water management or supply to a private entity.

No council will be under any obligation to change any of their current arrangements with regards to water, or enter into any private arrangement when and if this bill becomes law.

The other major change in New Zealand's local government landscape is, of course, the Auckland governance reforms.

The Local Government (Auckland Law Reform) Act has paved the way for change, but while the legislation is now passed there is still a lot of work for the Auckland Transition Agency to get through before the election in October.

Auckland has had too many missed opportunities. Important decisions affecting the lives and well-being of our largest population base are delayed, or not made at all.

Services are poor and cost more than is necessary. Roads are clogged. Councils across Auckland cannot agree on, or apply, consistent standards and plans.

It stops now.

There has been a lack of leadership and no single vision for Auckland, but soon its leaders will be able to think regionally, plan strategically and act decisively.

At midnight on October 31st, multiple organisations will be disestablished and their staff and assets moved into new or different organisations.

At one minute past Midnight on Nov 1 the new Auckland council will be up and running. Local boards, a brand new local government structure in NZ, will be established and integrated as part of the Auckland Council's planning and decision making systems.

The council will have two decision-making groups in the new Council - the governing body made up of the Mayor and councillors, and the local boards which have specific decision-making responsibilities. The local boards ensure local democracy and community input.

The main governing body is responsible for the overall financial management and the provision of services and facilities and activities across its region.

It is responsible for the council's regulatory functions of the Council as a local authority, and also has the power to delegate these functions to local boards.

There will be one Mayor for the whole region and 20 councilors, elected by voters using a ward system. The region has been split into 13 areas, or wards. Some of the wards will have one councilor and larger ones will have two. This guarantees a fair spread of councilors from across the region.

And there will be 21 local boards to meaningfully represent local communities.

Local boards, as a key part of the Council, will make decisions on local issues, activities and facilities and will work with the governing body to ensure that community interests are well represented in regional decision making.

Local boards, a completely new creature for local government in NZ, have their statutory powers enshrined in law. They will have far more extensive powers than the former community boards.

They will have decision-making responsibilities in their own right for local matters, while the governing body, the council, will have responsibility for the wider picture, or regional matters.

The local boards will have responsibility for promoting the well being of their communities, including the content of strategies, policies, plans and by-laws that impact on their communities.

The Council must listen to their preferences on funding and how that is allocated in local board areas.

The Royal Commission on Auckland Governance estimated the total cost of their proposed reforms to be between $120 -$240 million, across four years. The transition cost is now expected to be just $94 million in less than half that expected time, with further benefits soon to be announced.

To put the transition expenditure into context, local government in the Auckland region will spend more than $2 billion dollars this year, and has a total asset base of more than $27 billion.

A full third of the submissions to the Royal Commission expressed real anger, despair and frustration over the regulatory red tape, and the cost of complying with different district and rural plans across the region. They complained of ever poorer services for ever higher costs, a process that was blocking development.

The changes, the improvements, won't happen overnight but rationalising the tangle of plans and policies will deliver consistency.

The focus will be on lowering fees and costs and simplifying the paper work.

A single district plan will go a long way towards that.

Costs will be lower with better customer service.

There are a bewildering number of fee categories across the region. Take dogs - there are sixty categories for registering, impounding, and adopting dogs. There will now be half that number with charges dropped to the lowest levels.

Then there are building inspections, currently charged at an hourly rate varying from $110 to $178. In future there will be a standard hourly charge of $110 across the region. I should mention that Franklin district is excluded for the moment while some inconsistencies there are worked out.

And the resource consent forms! Over 850 forms currently used by councils will be reduced to 120 simplified forms for consistency across the region. Wherever you are in the region, the consent application will be the same.

And there will be a single Building Control Authority. This will deliver a standardised control policy and acceptance criteria, a consistent policy for reviewing and deciding on applications.

There will be full service centres in Central Auckland but also in Takapuna, Henderson and Manukau with local services centres at Orewa, Waiheke, Papakura and Pukekohe.

Plus there will be neighbourhood service centres at Warkworth, Huapai, Helensville, Great Barrier and Waiuku.

And, it is intended that service centres will be provided for each of the local board areas where one does not currently exist.

As for staff, there have been job losses at senior management level creating a smaller and tighter top management team to drive the necessary improvement and consistency across the region.

Significantly, front line staff numbers will not be reduced.

Auckland's CCOs will be the most accountable of any council in the country.

CCOs are there to enable the Council to make use of specialist commercial expertise that is not available within the Council itself. And remember, there is nothing new in this. Councils had this form of arms length entity under previous Local Government legislation (called Local Authority Trading Enterprises) then the LGA 02 created the CCO model. The Auckland region councils have some 40 of them.

They will have boards appointed by the Council that may also dismiss directors. The council determines the policy and appoints a board to ensure its wishes are carried out. Failure to do so can lead to the wholesale dismissal of a board and the appointment of directors who are determined to carry out the will of the council.

The Auckland council will have ultimate control of the board appointees, appoint the chairman and deputy chairman of each CCO, have the security of being able to fire directors, open up meetings to the public and determine the strategic objectives of each CCO to comply with the Council's long-term plan.

Forget any notion that the CCOs will be a law unto themselves.

What's more - with the exception of Auckland Transport, which will require an Act of Parliament to disband it - there is no impediment to the Council disestablishing any of the CCOs.

Critics of the new city structure are pointing to the CCOs as having some form of secret agenda to conduct council business behind closed doors, away from the public gaze. Interestingly, these same critics do not seem to see such a problem with any of the existing such entities.

As you will be well aware, there is nothing new in arms length Council Organisations. They have been in existence all around the country since the former government allowed Councils to set them up in 2002.

In Auckland alone there are now more than 300 council-owned or council-funded such entities with some form of corporate or business-like structure, spread across the existing eight councils. No less than 41 of these are CCOs, primarily companies or trusts that have been established for community, service delivery or commercial purposes.

CCOs will have to hand over minutes and decisions on request. We have closed a potential loophole that might have allowed the CCOs to find ways around allowing the public access to their meetings.

The Government has decided that CCOs must hold at least two meetings in public every year, and give people the opportunity to speak and ask questions.

We know the people of Auckland want their rates kept low. We know they fear a lack of local community involvement and local democracy. And we know they are looking for an improved transport system, and they will get it come November.

As to whether any of Auckland's reforms will be carried out elsewhere, let me be clear: the Auckland governance reforms are the Government's response to a unique set of circumstances.

The Royal Commission of Inquiry made a clear recommendation for change due to long-standing and irresolvable problems with Auckland.

I don't see problems of a similar scale anywhere else in New Zealand, and would prefer individual councils.

Nevertheless, it has been pleasing to see councils in other regions taking a critical look at the effectiveness of their own governance arrangements in response to the changes in Auckland.

Improving the overall effectiveness of our framework of local government has always been a priority of mine. In my view, there is a need to look critically at the framework and to consider if it needs to be improved further.

Councils play an important role in peoples' lives, and in local economies and the national economy, so it is very important that they run at optimal efficiency.

Central government can help to achieve this by ensuring that:
o any barriers to collaboration between councils are removed;
o the right framework is in place to achieve optimal efficiency of local government functions across our cities, districts and regions;
o the framework is flexible enough to enable local solutions to achieving effective and efficient local governance; and
o the balance of functions between central and local government is right.

In essence, in the coming year I want to consider how central government can facilitate local, community-led solutions to achieve better governance, and therefore better results for residents and ratepayers. I also want to look at whether we need to clarify the role of local government and the relationship between central and local government.

In the past, reviews have dealt with narrower issues such as local government funding, rather than these broader, more fundamental questions. It is important to allow time to carefully scope this work, which would include determining the most effective way of involving the sector and key stakeholders in this project.

I would expect the work I'm proposing to be carried out over a longer timeframe of, say, two to three years. I envisage that once we've sorted out the parameters of the work a discussion document will be drawn up and that the sector and key stakeholders will be fully consulted.

As you may be aware, in the coming year, I also intend to undertake a first principles review of the Dog Control Act 1996 to investigate whether the present regime is effective, efficient and fair.

Since the Dog Control Act was passed in 1996, it has been reviewed and amended several times, often in order to provide more powers for dog control officers.

These changes have usually followed a particular dog attack, when concern about public safety around dogs has been high. The changes since 1996 have therefore been ad hoc, and the regulatory framework has grown over time. As a result it is not clear which of these changes have been effective in improving public safety, and which may have added an unnecessary regulatory burden without a corresponding benefit.

I expect that the review will seek to identify the most effective way of providing for public safety around dogs. To look at what elements of the current regime work well, examine new approaches that could offer improved public safety, and without increased costs for the vast majority of responsible dog owners.

I have asked the Department of Internal Affairs to begin to scope the review later this year. I will be seeking the public's views on the proposals in due course.

In conclusion, the past year has been a busy one and the next will be similar.
It has been a pleasure to address you all and update you on where the Government is taking Local Governance in 2010.

I am happy to hear your comments on any of these matters and answer any questions you may have.

ENDS

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