Local Government Funding: transTasman comparisons

1
Local Government Funding trans-Tasman comparisons

• Peter McKinlay
• Local Government Centre
• Auckland
• 30 July 2007

2
Scene Setting

• Similar but different jurisdictions the
  influence of federal versus unitary systems (and
  from a New Zealand perspective, Australian local
  governments obsession with its inferior status).
• Rating/funding inquiries everyones must have.
  Government led as in Ireland, Scotland, England,
  New Zealand and Australias Productivity
  Commission.
• Local government led as in New South Wales, South
  Australia, and the Australian Local Government
  Association.

3
Political Risk

• Everyone agrees that change is needed. No one
  changes.
• Lyons Inquiry dismissed within 24 hours of
  delivery despite close working relationship
  between Sir Michael Lyons and Gordon Brown/Ed
  Balls. Scottish and Irish enquiries have been
  sidelined.
• The classic political dilemma. Winners will see
  changes as proving they have been hard done by.
  Losers will see their loss. No one will thank
  the politicians.

4
The Basic Question to Resolve

• Are we dealing with local administration or local
  government?
• Local administration the delivery of a range of
  basically housekeeping services to facilitate the
  functioning of the local community.
• Local government determining the future
  economic, social, cultural and environmental
  direction of the community and leading the
  initiatives to achieve those.

5
The Funding - Autonomy Link

• Very common for higher tiers of government to
  restrict local government funding, e.g.New South
  Wales ratecapping, UK budgetary control.
• New Zealand one of very few where local
  government has freedom to set its own revenue and
  borrowing levels (there are some constraints on
  charging in areas such as liquor licensing).
• Question can local government be genuinely
  autonomous and accountable primarily to its
  communities if it does not have funding autonomy?

6
Evolution of the New Zealand System

• Differentials introduced in the 1970s.
• Uniform annual general charge in 1982.
• Removal of borrowing constraints mid-1990s
  (abolition of Local Authorities Loans Board).
• Introduction of targeted rates in 2002.
• A general theme of funding autonomy but
  increasingly demanding prospective and
  retrospective accountability requirements.

7
Role of Government

• Limited central government funding and largely
  ring fenced roading some water and sewerage
  subsidy the main elements.
• Generally a hands off approach. Governments
  role is to set the framework rather than
  determine the outcomes.
• Contrast with Australian emphasis on targeted and
  general purpose grants (and note that rates in
  most Australian jurisdictions are significantly
  lower than their New Zealand equivalents).

8
Flexibility

• The New Zealand system is highly flexible. South
  Australia is the only local government system
  which comes close.
• Profound implications for the role of Council.
• Under a rigid system and the only question is how
  much what is the rate in the dollar or the
  level of the Council tax.
• Under our flexible system the question becomes
  who pays, how, for what, and why?

9
The Role of Funding

• Just to pay the bills?
• To provide incentives which encourage desired
  behaviour?
• To serve as the basis for local
  government/community partnerships?

10
Just to Pay the Bills?

• Remains important and highly contentious.
• But is funding as just to pay the bills now a
  necessary but not sufficient role?
• Should we now consciously adopt a dual objective
  approach any funding instrument for local
  government should be designed both to raise
  revenue and to incentivise outcomes that are in
  the communitys interest?

11
Some Dual Objective Possibilities

• Environmental taxes a New Zealand equivalent of
  the Irish plastic bag levy?
• Full environmental cost pricing for water and
  wastewater services (and should we see the
  current debate over water charging in Auckland as
  evidence of the death of good public discourse?).
• Road pricing.
• Etc

12
Intergenerational Equity

• New Zealand local authorities are generally under
  borrowed.
• Rates are used to fund both capital expenditure
  and operating expenditure and yet we want them
  linked to the rate of inflation.
• Why do todays ratepayers demand that councils
  charge them both for this years share of capital
  expenditure and for the share of future
  generations?
• Exacerbated by the impact of depreciation under a
  balanced-budget regime.

13
The Growing Conflict Between Rising Expectations
and Willingness to Pay

• The dilemma facing virtually every New Zealand
  and most Australian councils at one and the
  same time ratepayers criticise the excessive
  level of rates and charges, and demand more and
  better services.
• The special case of the older ratepayer the
  so-called asset rich, income poor retiree.
• Is this simply a need for improved financial
  planning, efficiency and communication, or is it
  evidence of a fundamental disconnect between
  councils and the communities they serve?

14
Rates as the Basis for Local Government/
Community Partnerships

• Partnering with the commercial sector targeted
  rates and Main Street programmes targeted rates
  and enhanced security.
• Partnering with residential ratepayers. The
  emerging possibility of a local government/Energy
  Efficiency and Conservation Authority
  joint-venture to provide a range of energy
  efficiency and related services for older
  ratepayers funded through a combination of
  government subsidy, targeted rates and rates
  postponement (as an alternative to the ratepayer
  paying themselves).
• Possible extension to other services to support
  ageing in place.
• Are we witnessing the emergence of local
  authorities as enablers of community-based
  cooperatives for a range of innovative
  activities?