Chief Executive's Office 26 July 2012 Local Government and Environment Select Committee Parliament Buildings Private Bag 18041 Wellington 6160 Dear Madam Chair SUBMISSION TO THE LOCAL GOVERNMENT ACT 2002 AMENDMENT BILL 1.0 INTRODUCTION 1.1. Hamilton City Council (HCC) welcomes the opportunity to make a submission to the Local Government Act 2002 Amendment Bill (the Bill) and acknowledges that it is an important milestone in progressing the first phase of the Government s programme of Better Local Government for reform of the local government sector. 2.0 KEY POINTS 2.1. Robustness of the Bill 2.1.1. The Bill was drafted in a very short timeframe. There was no consultation with LGNZ or the sector on the Bill s design and LGNZ was not asked to provide input into the policy settings for the Bill. Input into the Bill by the sector is now only at the Select Committee stage. The timeframe for making submissions is also very tight. 2.1.2. The Phase 2 analysis should have preceded Phase 1 reforms to enable more robust decision-making, particularly the analysis and recommendations on the efficiency of local government via the Local Governance Efficiency Taskforce - a view that is shared by many local authorities. 2.1.3. With Stage 2 underway, we expect a full collaborative approach with the sector. 2.1.4. Along with LGNZ and SOLGM as well as many other councils, we are concerned around the quality of policy analysis underpinning the Bill, especially those concerns expressed in the Treasury Regulatory Impact Statement (RIS) around the Bill not being evidence based. In particular, the RIS states that: The short timeframe available for formulating and drafting the legislation creates some risk that interventions could be incorrectly aligned, and/or require subsequent amendment to address unforeseen circumstances. There is limited evidence to inform the development of these proposals, and the timeframe within which the proposals have been developed has restricted the ability to assess multiple options. As a result, the problem analysis and option assessments of specific proposals rely on assumptions that are not, or only partially, tested. 2.1.5. In addition, the RIS should have been peer reviewed by the local government sector to make the Bill s analysis more robust. This never occurred. Page 1 of 5
2.2. New Purpose of Local Government Leave the Purpose of Local Government As Is 2.2.1. We agree with LGNZ/SOLGM s view that The Government has produced little or no evidence that the present purpose statement in the statute is problematic 1. 2.2.2. There is little evidence to show that the sustainable development approach of the four well-beings (introduced in the purpose of local government of the LGA 2002 in December 2002) has led to a proliferation of new or inappropriate activities being undertaken by councils during the past 10 years. 2.2.3. Removal of the four well-beings would, in fact, be problematic for unravelling the myriad of activities and agreements that local government currently undertakes in partnership with various agencies, including central government. 2.2.4. Alignment with the four well-beings is also embedded in other legislation, which may prove problematic e.g. the overarching purpose of settlement of the Waikato- Tainui Raupatu Claims (Waikato River) Settlement Act 2010 is to...restore and protect the health and wellbeing of the Waikato River for future generations. 2.2.5. The four well-beings also assist in ensuring greater alignment with the various partnerships that many councils currently have with Maori. 2.2.6. Clarification is required as to what is meant by the term local public services. 2.2.7. We also share LGNZ s concern that the term most cost-effective" in the Bill s new purpose could expose councils to legal action e.g. if a council had to choose the "most cost-effective" option for building a footpath, it could potentially face legal challenges if it failed to choose the cheapest construction option. The term most cost-effective clearly needs better definition to ensure that cost is balanced against other procurement evaluations such as quality, past experience, timeliness and methodology. 2.2.8. The purpose of local government should therefore be left as is i.e. as per Section 3 of the LGA 2002. 2.3. Regulations Setting Benchmarks for Financial Prudence 2.3.1. We support LGNZ and SOLGM s opposition to the imposition of Government benchmarks and that a self-regulatory approach be developed i.e. establishment of a central set of benchmarks by and for the local government sector. 2.3.2. Local government is already subject to a range of rigorous financial checks and balances through the likes of: Financial requirements of the LGA 2002 for 2012-22 Long Term Plans (which will be very much self-regulating in terms of debt and rates), and in particular those requirements around the inclusion of a Financial Strategy (Section 101A). In HCC s case, its 2012-22 LTP provides a financial programme that has reviewed the Council s business (as well as the cost of delivering services to the city) to ensure that Hamilton receives good services in a cost effective way and continues to grow and develop. Rates will increase on average by 3.8% each year, the cost to run the city will be reduced by $15 million over the next three years, and projected debt levels 1 The Local Government Act 2002 Amendment Act 2012: A Discussion Document by Local Government New Zealand and SOLGM (June 2012). Page 2 of 5
will fall from a forecasted $700 million to around $440 million. HCC s 2012-22 LTP has been used by other local authorities and commentators as a blueprint for getting it right. Ongoing scrutiny of council finances by Audit New Zealand, including their assessment of various key ratios such as debt to revenue. The ongoing assessment our finances, financial procedures and financial policies by HCC s credit rating agency Fitch Ratings, including the likes of operating cash flow and interest to total revenue. Requirements such as the Local Government Funding Agency (which currently has 18 member councils, including HCC), which is already setting financial limits for the local government sector based on prudent debt targets to enable councils to borrow from the LGFA. 2.3.3. The Bill s imposition of soft caps on rate increases and debt will be interpreted by credit rating agencies and investors as a limit on the ability of local authorities to prudently manage debt and their financial affairs, as well as their ability to raise revenue. It will therefore diminish investor security. Local authorities and the newly established Local Government Funding Agency (LGFA) would be negatively affected as the cost of borrowing would increase due to an increase in margins. This would include all debt, including that sourced from the bank market, domestic and international capital markets and the LGFA. 2.3.4. Incurring such additional costs is not in alignment with the aims of Government s Better Local Government reforms. The Bill s provisions around such caps should therefore be removed. 2.3.5. If this part of the legislation remains unchanged, setting the likes of limits on debt levels needs to be undertaken in full consultation with the local government sector. 2.3.6. Similarly, if the legislation remains unchanged, use of the CPI should be replaced with the Local Government Cost Index as it more accurately reflects the true costs facing local government. 2.3.7. In addition to inflationary cost pressures (as measured through the LGCI or CPI), high growth councils have additional costs relating to the need to grow infrastructure networks to support development. Any constraints placed on council expenditure will need to take account of this growth dynamic. 2.3.8. Any criteria used to establish benchmarks should take a long-term financial sustainability approach and not just focus on short term financial targets such as debt and rates increase caps - otherwise there is potential that the best long term decision for a community is traded off against the requirement to operate within short term arbitrary limits. 2.4. Role and Powers of the Mayor Support the Existing Mayoral Provisions of the LGA 2002 2.4.1. We question what is considered broke and therefore support the current provisions in the LGA 2002, as fundamentally the system appears to work well. 2.4.2. While the change to Auckland s Mayoral powers via the Local Government (Auckland Council) Act 2009 may be regarded as good for Auckland, it does not necessarily mean that such provisions will be good for all other councils. 2.4.3. The existing provisions balance the mandate of the Mayor and Councillors and also encourage teamwork and consensus e.g. the process of replacing Committee Chairs Page 3 of 5
and Deputy Chairs is seen as fundamental to the checks and balances required of the current democratic process - removal of this power is likely to compromise the process. 2.4.4. The Bill s provisions have the potential to depower Councillors and divide a council, which could possibly lead to an A and B Team scenario of Elected Members. 2.4.5. We agree that Mayoral leadership is important, but development and promotion of a Vision for a city or district should be undertaken by all Elected Members, not just the Mayor. 2.5. Ministerial Intervention 2.5.1. In most cases, existing local democratic processes are seen as having sufficient checks and balances to address any problem situations that may arise within a local authority. 2.5.2. However, if problem situations arise, an external view may be of value to a council. We therefore support, in principle, the Bill s provisions around Ministerial intervention, particularly the progressive intervention steps of a Crown Review Team, Crown Observer, Crown Manager and appointment of a Commissioner. 2.5.3. These provisions should incentivise councils to ensure that the relevant processes and checks and balances are in place to address any problem situations. 2.6. Remuneration and Employment Policy 2.6.1. Support the introduction of a policy on employee staffing levels and remuneration. 2.6.2. This policy should be mandatory for all local authorities, but greater clarity is required in the final legislation around the expected level of detail. 2.6.3. We also support introduction of the Local Government (Salary Moderation) Amendment Bill that was recently drawn from the Member s ballot. 2.6.4. This Bill proposes that while conditions of employment, including remuneration of the Chief Executive (CE) will be determined by agreement between the local authority and the CE, the local authority must also obtain prior written consent of the State Services Commissioner. The main advantages appear to be: Independent input into a CE s remuneration, terms and conditions. Protection for Elected Members and CE s from public criticism through use of a more open and independent process. Use of appropriate comparison for determining a CE s remuneration, terms and conditions. 2.7. Conflicting and Pecuniary Interests 2.7.1. While not addressed in the Bill, HCC would like Government to consider making it mandatory for all councils to have in place a policy on Conflicting and Pecuniary Interests of Elected Members. 2.7.2. HCC is currently looking at this issue through its Governance Group. It also made a comprehensive submission in November 2011 to the Department of Internal Affair s discussion paper Review of the Local Authorities (Members Interests) Act 1968 and Associated Issues. 2.8. Reorganisation Proposals 2.8.1. We are concerned that any person can make an application for a reorganisation proposal the Minister needs to remain independent of this process and should not Page 4 of 5
have the power to defer or accelerate proposals or to set priorities for the Local Government Commission. 2.8.2. Agree with the Bill s provision whereby majority support (more than 50%) for the poll of a final proposal is measured over the total area of the new council (as opposed to the current provisions of looking at individual results from the component councils that will make up the new area). 2.9. Phase 2 of the Reform Programme 2.9.1. The Local Governance Efficiency Taskforce needs to consult with the sector in a meaningful way. 2.9.2. The review of development contributions needs to be considered alongside the other mechanisms councils have for growth funding e.g. financial contributions, private development agreements and rating growth. 2.9.3. As financial contributions are part of the Resource Management Act (which is a separate reform package and being spearheaded by a different Ministry), this work needs to be pulled together with the work that will take place on development contributions as a single analysis i.e. growth funding needs to be looked at in a holistic manner. 3.0 HEARINGS FOR SUBMISSIONS 3.1. Hamilton City Council does wish to be heard at the hearings of the Local Government and Environment Select Committee in support of this submission. 3.2. There is a high level of interest in this Bill by a number of councils throughout the Waikato. Given this, HCC requests that the Local Government and Environment Select Committee hold hearings in Hamilton for those councils in the greater Waikato area who have made submissions and wish to speak to the Committee in support of their submission. Yours faithfully Barry Harris CHIEF EXECUTIVE Page 5 of 5