Ratepayers beware: the government is coming for you

This must seem a strange title for a think piece on the future for ratepayers when the Prime Minister has been positioning himself as the defender of ratepayers against the depredations of councils.

His speech to the LGNZ conference was deliberately designed to present a pro-ratepayer image with statements such as “Ratepayers are sick of the white elephants and non-delivery. So, my challenge to all of you is to rein in the fantasies and to get back to delivering the basics brilliantly.” Never mind the offence this gave to most of the delegates to the conference; the public response was overwhelmingly positive. Perhaps not surprising given that most councils were in the middle of striking double digit rates increases with more to come for future years.

It’s time for a reality check. Don’t measure the government’s concern for ratepayers by looking at the output of a well-oiled PR machine. Do look at what it is actually doing and proposing to do.

Start by recognising that somewhere in the order of 5%-10% of residential ratepayers already find rates unaffordable (rates plus water user charges when those apply) if affordability is understood to mean being able to pay rates without compromising payment for other essential but non-compulsory services such as insurance, healthcare, maintenance…

Then look at the impact of local water done well (LWDW). Councils will be required to prepare plans (for the council itself if water services remain in-house, otherwise for a related CCO) to ensure all water and wastewater facilities are brought up to and remain at an acceptable standard. The killer for ratepayers is those plans must also include the council’s proposals for ensuring water services are financially viable.

Repeated acknowledgements of the scale of New Zealand’s water and wastewater infrastructure deficit make it clear implementing LWDW is going to impose significant additional costs on residential ratepayers (among others) via rates, water user charges, IFF levies or some other means.

Accurately estimating the probable impact requires hard data (we are currently seeking council support for a survey which will produce this but that’s another story). However it seems likely first that this will seriously increase the pressure on residential ratepayers for whom rates are already unaffordable and, secondly, it will increase that proportion of ratepayers to something like 15%-20%. Not many ratepayers are likely to see this as delivering the basics brilliantly! They are much more likely to see this as largely the fault of councils - that is almost certainly how it is going to be played, with government and others blaming councils for the consequence of years of underinvestment.

That’s far from the end of the story. Government has repeatedly made it clear it is not simply going to hand out additional money to local government to mitigate the impact on ratepayers. Again, from the Prime Minister’s speech to LGNZ “Shifting your costs onto taxpayers doesn’t save anyone any money. It means ratepayers pay more tax, and are left with less of their own money, to meet the cost of a slightly smaller rates bill.”

He has suggested the possibility of further revenue tools. However, what he and ministers are saying generally suggests these will be new means of extracting revenue from the same already hard-hit ratepayer group and so not a solution to the issue of affordability.

Instead, the government seems to believe that somehow ratepayers will magically afford the cost of additional infrastructure which government deems to be the responsibility of local government.

Consider this extract from the Minister of local government’s announcement on 20 November that the Local Government Funding Authority had increased the debt leverage for high-growth councils “The Government … has clear expectations that councils will use this additional borrowing capacity to deliver the must-have infrastructure and services that our communities need, such as roading, water, wastewater, and stormwater to unlock land for housing, and invest in the critical infrastructure growing communities need.” No concern about the likely impact on ratepayers; simply a focus on pushing on to councils and thus ratepayers responsibility for funding New Zealand’s infrastructure deficit regardless of whether or not they can afford to do so.

Meantime, councils (primarily TLAs) themselves for the most part have been reeling under the impact of successive government announcements of policy initiatives which will significantly downsize their scope, scale and capability. This is an extract from an email from a very capable and concerned CEO reflecting on the impact of what government is doing “For …….District Council the transfer of the above functions to other entities would also strip the organisation of approximately a third of its total revenue. The impact of stranded overheads amongst other things is going to be a real challenge. Regardless of the financial implications, when government is driving an agenda of economies of scale, bigger is better and centralisation – I fear there won’t be many basics left for local councils to get back to!”

Unsurprisingly councils are in the throes of considering how to deal with the impact on the organisation. Managements are considering options, and reporting on possibilities to elected members. There is a serious but unrecognised problem with this approach as the advice is being prepared by people largely focused on the impact on the organisation rather than on the impact on local governance which is more the domain of elected. It is likely to mean most councils will find some sort of organisational solution to the immediate structural challenge they face. What it won’t mean is providing any effective defence against any further arbitrary (or non-arbitrary) government intervention.

It’s the classic challenge of problem definition. The problem councils are facing with government intervention is not a problem of damage to the structure of councils as organisations. Instead, it is a problem resulting from widespread lack of confidence in councils stemming from a failure over the years for councils to engage effectively with and empower their communities.

To put it bluntly, if councils exercised effective local governance, they would largely ‘own’ the support of their communities especially on matters affecting their place. Instead, by failing to engage, councils have allowed that ‘ownership’ to default to central government.

Government’s clear intention to impose on localities, especially ratepayers, the costs of addressing New Zealand’s infrastructure deficit should be a major wake-up call, not just for councils, but also for residents and ratepayers. Whether it is now depends almost entirely on councils.

Understanding the complexity of what is happening is difficult, even for people with a good working knowledge of local government. The complexity is compounded by the reality government policies will continue to be presented in as positive a light as its PR advisers can manage.

Gaining the understanding of ratepayers and residents is possible if councils take an engagement/community empowerment approach. There is a very good opportunity for doing so immediately ahead of councils. It will involve councils working as closely as possible with their communities, helping them understand the realities of what is happening, and developing ways of responding able to return the ‘ownership’ of community support to councils.

LWDW provides the opportunity. We are strongly urging councils to step outside the conventional statutory provisions for consultation currently contemplated for the WSDP process and instead, in partnership with other key stakeholders within their communities (including Tangata whenua), embark on a broad-based community conversation about what’s happening, how it’s going to impact on ratepayers and residents, especially the less well off, and how to deal with government itself. This is going to mean moving rapidly to empower communities, important for bringing communities (including Tangata whenua) together to build strong expressions of community response which central government cannot dismiss as just a few squeaky wheels.

This is a response very much in parallel with a discussion taking place in England currently about how to reposition councils away from the burden of major and eventually damaging service delivery responsibilities. In organisational terms this is broadly the equivalent of what’s happening with councils here. In contrast to what is the almost ‘woe is me’ reaction within New Zealand local government to the changes taking place, in England the think tank leading this discussion, Demos, is talking about liberated local government. At last councils will be free to exercise leadership within their communities, promoting local governance and working with other key stakeholders and communities to shape their futures.

The catalyst for a similar change in New Zealand is a shift in mindset; it requires councils to recognise that they are not just creatures of statute within the instrument of government policy understanding which has prevailed since the Roger Douglas reforms of the late 1980s. They are also the elected leaders of their communities with the mandate, should they choose to exercise it, to lead local governance as a means for shaping the future of their communities. It is a mandate which has rested with governing bodies in communities for millennia.

The tools and processes for empowering communities are very well understood in a number of other jurisdictions. Enabling and supporting self-identifying communities as practised in Portland Oregon and a number of other US cities, in some councils in England and increasingly in Scotland… The use of local place planning as a means of giving communities the opportunity of setting out who they are, what their issues are, and who should do what - the government’s current approach to infrastructure would be very unlikely to survive the feedback from local place planning. Participatory budgeting so that people in communities have a say in what could be done, and see their voices being translated into action (Scotland as the exemplar highlighting how important this is for strengthening local democracy).

The alternative to the liberated local government/leaders in local governance approach is continuing with the organisational approach to dealing with the impact on the council as an organisation. That does nothing to address the underlying problem of lack of engagement between councils and communities and hence the loss of trust. Worse, it leaves councils still exposed to the likelihood of ongoing intervention by central government in the interest of further ‘efficiency’ gains with a continuing decline in the scope, capacity and capability of councils.

There is likely to be something of a downward spiral effect as it becomes increasingly difficult for diminished councils to attract and retain competent management and high-calibre elected members. There is a credible scenario that government, concerned at the declining capability of councils, could decide to do away with Elected members and move to all appointed councils on the argument that this provided the means for putting in place people with the requisite mix of skills and capability - another ‘efficiency’ gain but at the expense of the loss of local democracy.

Whether it’s the liberated local government scenario with its potential to rebuild the trust of communities, or the declining council, lack of engagement, appointed members scenario is now largely over to councils themselves. If councils genuinely believe their job is to represent the interests of their residents and ratepayers the way forward is obvious.

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