Dawn chorus: A review of how to pay

Local Government review launched without limits on funding and financing; Democratic deficits in councils also in scope; Success would be a share of taxes to fund growth and doubled turnout

TLDR: Local Government Minister Nanaia Mahuta capped off her biggest week in Government last Friday by launching a broad review of how councils are elected, how they are run, what they do, and, most importantly, how they are funded.

As Foreign Minister, Mahuta started the week with a major speech detailing Aotearoa New Zealand’s approach to China, which has caused quite a stir for being either too blunt or too weak on China.

But it is the review of councils that may have the bigger long-term impact, particlarly if it as wide and deep as the terms of reference appear to allow. In my view, the key problems for councils are problems of the political economy and structural funding.

The problems to solve?

In essence, voters in council elections are overwhelmingly older, pakeha owners of stand-alone houses who want little change to their suburban idyll and haven’t approved of the Beehive’s decision through both Labour and National-led Governments to let and/or encourage an extra million people to join the population in the last 20 years. Councils can generally only raise money through rates and parking and consenting fees. That means they don’t see or feel the financial benefits from fast population economic growth, but still have to pay to build and run at least half the infrastructure for all those extra people. With their current financial tools, they need to both increase their debt and increase rates much faster than inflation to pay for their share of the infrastructure.

Councils are now under enormous financial and political pressure because of both the growth, and the lack of infrastructure investment over the last 20 years by both central and local Government. Ratepayers have revolted against high rates increases regularly and debt fear campaigns are a regular feature of local elections. That means they have usually voted in councillors and mayors opposed to big infrastructure builds and lots of new housing. The RMA has given councils and NIMBYs the tools to slow approvals and expansion right down. Now there’s a massive problem with too many people, not enough houses and infrastructure deficits all over the place causing congestion, productivity and health problems.

These problems will only get bigger as the Government tries to achieve its climate change and housing affordability targets through a combination of lots of new medium-density homes built in or close to city centres and around bus and train routes. That requires massive investment in pipes, roads, railways, trains, buses, paths and public green spaces, all of which requires the active support of councils.

Essentially, the Beehive needs the councils to cooperate and the current trends are towards rates revolts at next year’s council elections that stop those reforms dead in their tracks. Just think Island Bay cycleway and Queen St pedestrianisation protests on steroids. Car-driving suburbanites want to keep their roads for cars to drive everywhere for work, school and play, want to be able to park next to the shops in town, and don’t want to subsidise public transport or pay for all the changes needed for ‘ugly’ apartment blocks in their back yards.

The solutions?

In my view, the solutions are two-fold. Councils need much higher turnout rates in elections to ensure their legitimacy and remove the skewed incentives where they’re mostly elected in the biggest cities by older, home-owning suburbanites, rather than younger, renters from Māori, Pasifika and new migrant communities. Currently, over 80% of the ‘old leafies’ vote, while closer to 30% of the young renters vote, creating democratic deficits that skew councils towards the status quo.

It will require a massive re-engagement with those non-voters, and changes to the way local elections are run. For example, they’re mostly done now via postal votes, which a lot of young renters struggle with because they bounce from house to house and are hard to track. Using the Electoral Commission to run elections with an actual voting day with booths everywhere would be a start.

Secondly, councils need to feel and see the financial benefits of growth, possibly through a share of GST or income taxes, to help pay for the capex and opex of infrastructure. Suggestions include granting the GST from house building in council areas to councils, and taking GST off rates and consenting fees. National has proposed a per-house capital grant for consents above the long-run average, although that does not solve the opex problem.

Why solutions are unlikely?

The big problems to finding solutions are around trust, legitimacy and the still-dominant ideology in the ministries of Wellington that Government and councils are bad builders and managers of assets, and should be removed wherever possible. The aim of Government, in their eyes, is to reduce taxes and to keep rates increases low: to starve the beast. It appeared to work for 30 years, but it’s clear it does not work when you have fast population growth.

The ministries don’t trust the councils to competently spend any of the precious GST and income taxes. Voters and these bureaucrats and Parliamentary politicians often see councillors and mayors as squabbling lightweights, thanks in part to the way councils are governed without party discipline, in-confidence cabinet meetings or CEO/PM-style leaders.

The councils don’t trust the Government because all they feel they get from Wellington are orders to improve water quality, monitor and police environmental regulations, allow more ‘ugly’ apartment buildings and run public transport without much funding. The un-approved extra million people without much infrastructure funding capital has been the last straw.

The review’s first draft is due in by September 30 this year, a final draft with recommendations is due by the end of September 2022, and the final report is due by April 30, 2023.

My current view is Treasury, DIA, MBIE and councils don’t trust each other enough to see councils given a share of taxes and the power to spend it, and the ‘old leafies’ currently dominating councils will successfully fight rearguard actions to stop reform, arguing any moves will force amalgamation and more control by ‘faceless’ bureaucrats in Wellington.

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