Dawn chorus: Council funding review eyed

LGNZ Chair Stuart Crosby lets slip Govt to announce review of councils' guiding legislation and provision of "sustainable funding streams"; Councils face rates revolts next year without reform

TLDR: The Government looks set to announce a major review of councils’ guiding legislation and funding streams as it grapples with a fundamental mismatch between its aims for new housing and the intransigence of voting ratepayers wanting low rates and low debt.

Essentially, it can’t solve the housing supply crisis without the approval of council election voters, who currently don’t see ‘growth paying for growth’ and keep vetoing by stealth the high population growth model of central government.

The Government is finally getting its head around the need to invest in infrastructure to cope with growth (or at least catch up with the last decade of population growth), but it needs the cooperation of councils, who have plenty of mechanisms in planning departments, the RMA, urban limits and zoning rules to frustrate that. The risk is that the rash of big council rates and debt increases to pay for catch-up infrastructure currently going through in long term plan reviews will spark revolts at next year’s council elections. (See below on Porirua’s 8% rates increase and tripling of debt)

A new social and financial contract needed

The Government and councils need to come to some sort of truce that rewrites the funding rules and incentives so councillors and mayors feel they can ‘go for growth’ without getting dumped every three years by angry ratepayers. Councils want a share of the revenue benefits of population growth, which are currently all hoovered up by the Government through GST, PAYE and corporate profits. For example, ACT wants to see a share of GST go back to councils, while others, such as Shamubeel Eaqub, want the Government to stop charging GST on rates.

Suggestions include a share of GST receipts broadly linked to construction spending or population growth, or GST rebates on rates and the Government starting to pay rates on Crown land. The problem with suggestions such as these are essentially cultural.

Firstly, Treasury and the apparatus of Government doesn’t really trust councillors to manage that extra revenue well. General election voters, especially the ones who don’t vote in council elections, are also sceptical, given the regular publicity around infighting councils. Unlike the central Government, where the PM is paramount, cabinet is confidential and there is strict party discipline enforced in Parliament, councillors often don’t vote along party lines, have to hold cabinet-like meetings in public, and the mayor is often just a figurehead without the power to pursue a coherent set of policies.

Secondly, neither sets of voters or the Government or councils have had a proper debate about very fast population growth via migration (1-2% per annum) that would involve voters generally giving a social license to that growth and the inevitable increase in taxes, public debt and rates to fund the infrastructure needed for that growth. By the way, Treasury and councils need to stop kidding themselves they can find some sort of PPP or hybrid funding solution to pay for the infrastructure without having to put it on the Crown’s or councils’ balance sheet. It won’t happen in New Zealand because we don’t have the depth or sophistication in ‘muni’ or local debt markets and the implied cost increase is substantial. Just use public debt because there is no shortage of demand, but a shortage of supply. This ‘social license’ really has to come via both main parties and the various planning arms of Government agreeing on an appropriate level, and being to fund it and enforce. Currently, it’s very haphazard and backward looking.

Thirdly, there is a big democratic deficit at council voting level, which means the central Government and the public generally can’t really trust or feel ownership over council policies. Turnout rates in council elections of around 42% nationwide (and 38.2% in big cities) in the 2019 elections were about half the 82.2% turnout seen in last year’s general election. The dominant voters in council elections are older, property-owning suburbanites who have not given permission for lots more people living near them and forcing them to pay more rates. Rates revolts are actually a code for a revolt against population growth. Young, Maori, Pacifica tenants just aren’t in the picture.

Review in April on ‘funding streams’

Why am I writing about this? LGNZ Chair Stuart Crosby let slip deep in the bowels of this Felix Desmarais piece on council workshops that the Government is planning an announcement next month of a review of councils, including “sustainable funding streams.” This is code for changing the underlying revenue incentives of councils to enable growth of housing. This Government and the last one tried to change the equation with capital loans and grants schemes (last week’s $3.8b grant scheme is the biggest yet), but councils still argue these grants don’t pay for ongoing operational spending and maintenance, which have to come out of rates.

Currently, councils frustrate plans for growth because older, suburban ratepayers who vote in council elections dominate, and they don’t want growth near them they don’t want to pay for. They haven’t given their social license for 1-2% population growth. They might be more amenable if there’s share of GST or some other mechanism that changes their belief that ‘growth doesn’t pay for growth.’

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Ka kite anō

Dawn tomorrow is at 7.36am. Today was 7.34 am.