NZCPR | 19 Feb 2015
Noosa, a seaside township of some 30,000 residents on Australia’s Sunshine Coast, was established as a local authority in 1910. In 2008, following the recommendations of the Local Government Reform Commission, it was disestablished by the Queensland Government and amalgamated into a Sunshine Coast Council. A total of 157 councils were consolidated into 73 during Queensland’s reform period.
Noosa residents were deeply unhappy about the forced amalgamation and the removal of local democracy. They vowed to fight back, and in the lead up to the State Government elections in 2012, they, along with three other Queensland communities, won the right to de-amalgamate.
The “de-amalgamation” vote in 2013 was supported by over 80 percent of Noosa residents. They rejected the forced amalgamation agenda of the central planners, who saw super-councils as the way of the future. The other three Queensland communities also succeeded in their battles to restore local democracy.
In Canada there were similar controversies over forced amalgamations in Toronto and Montreal. In both cases the provincial governments were attempting to reduce the number of local bodies to save costs. Amalgamation was extremely unpopular in both cities, particularly in Montreal. In 2006 residents forced de-amalgamation and just four years after Montreal’s amalgamation, at a massive cost, the city de-merged into 15 municipalities.
Not all countries believe bigger local government is better. France has developed economies of scale for infrastructure such as roads and water (five water companies manage supplies for the whole of France), but not for local government. There are around 130,000 local bodies and a Mayor for every 300 or so residents. In Switzerland, one of the most successful economies in the world, where great emphasis is placed on both efficiency and democracy, the average Swiss Commune (local authority) has two thousand residents.
Assessing amalgamation proposals in New Zealand is the responsibility of the Local Government Commission. Established in 1947, the Commission is an independent statutory body with three members appointed by the Minister of Local Government. The present Chairman is Basil Morrison, a former Mayor of the Hauraki District and President of Local Government New Zealand, who is also a member of the Waitangi Tribunal.
In 2012, the National Government changed the Local Government Act to facilitate amalgamations. Previously the consent of each affected council was required – now it merely needs a council, or indeed a lobby group within a local authority area, to lodge an amalgamation proposal to trigger the process.
Since the law change, the Local Government Commission has considered three regional amalgamation proposals – for Northland, the Hawke’s Bay, and Wellington. In each case, the Commission has recommended abolishing the existing councils and replacing them with a single unitary authority, multiple community-based boards, and two powerful Maori advisory bodies. The Commission is clearly running an amalgamation agenda that is heavily weighted in favour of Maori sovereignty demands.
In Northland, the Commission has recommended abolishing the Far North District Council, the Whangarei District Council, the Kaipara District Council and the Northland Regional Council, replacing them with a single unitary authority. The new Northland Council would consist of a mayor and 9 councillors, along with 42 community board members. In addition, two powerful Maori committees would be established – a Maori Board with the power to assign representatives onto council committees, and a Maori Advisory Committee on Resource Management, which the council must consult on all resource management issues.
The Hawke’s Bay proposal follows the same template – the Wairoa District Council, the Napier City Council, the Hastings District Council, the Central Hawke’s Bay District Council, and the Hawke’s Bay Regional Council would all be abolished and replaced with a new unitary authority. The new Hawke’s Bay Council would consist of a mayor and 18 councillors, along with 37 community based local board members. In addition there would be a Maori Board and a Maori Advisory Committee on Resource Management (the Hawke’s Bay Regional Planning Committee).
Unsurprisingly, the Local Government Commission has used the same template to recommend the same format for Wellington. Ten councils would be abolished – the Masterton District Council, the Carterton District Council, the South Wairarapa District Council, the Upper Hutt City Council, the Hutt City Council, the Wellington City Council, the Porirua City Council, the Kapiti Coast District Council, the Tararua District Council, and the Greater Wellington Regional Council – and replaced with a single unitary authority. The Greater Wellington Council would have a mayor, 21 councillors, and 60 community based local board members, along with a Maori Board and a Maori Advisory Committee on Resource Management (the Natural Resources Management Committee).
Don’t forget that submissions on the Local Government Commission’s Wellington amalgamation proposal close at 4pm on March 2 – the submission form and more details can be found on the Local Government Commission website.
The evidence used to defend local body amalgamations is weak. While some economies of scale may be achieved by taking a regional approach to capital intensive network operations such as transport and water services, such cooperation does not depend on the councils being amalgamated. And when it comes to the labour-intensive services provided by councils, experience shows the savings arising from local authority amalgamations are insignificant or nil. This suggests that those seeking efficiencies and cost savings should be focussing on regional cooperation and best-practice, rather than amalgamation.
This was also the conclusion of the Productivity Commission’s review of local government regulation: “The Commission found that the size of the local authority did not seem to be a factor in the extent councils followed adequate regulatory decision-making processes. Rather, leadership, culture and organisational management are the key driving factors.”
A 2005 report by Professor Paul Rouse of Auckland University, points out that while the United Nations strongly advocates amalgamation and larger units of local government, larger councils are associated with higher spending. In comparison, the increased levels of public scrutiny and personal accountability of elected representatives in smaller councils, leads to lower levels of overall spending.
In most cases of forced local body amalgamation, the net benefits being touted do not materialise, as any proposed savings become dwarfed by the cost blowouts of the amalgamation process and the increase in the size of the council bureaucracy.
To the residents living in the regions where amalgamation is being considered, the loss of local democracy and council representation is a key concern.
On an international scale, New Zealanders are grossly under-represented by local authorities. As a result of the Labour Government’s forced amalgamations in the late eighties, which saw the number of councils reducing from over 800 to 86 (there are now are 78), New Zealand has one of the highest ratios of population per council of most western nations.
While England has the biggest councils, with an average of 123,000 residents per council, at 67,000, New Zealand ranks in second place. In comparison, Australia has 37,000, Sweden 29,500, Holland 20,500, the US 9,000 and France 1,300 residents per council.
When it comes to direct representation, New Zealanders are even worse off with an average of 5,000 or so residents to each elected council representative. In comparison, in the UK on average one councillor represents 2,600 citizens, in Denmark 1,000 citizens, Sweden 650 citizens, Spain 600 citizens, Italy 400 citizens, Germany 250 citizens, and in France just over 100 citizens.
As many Aucklanders can testify, forced amalgamations can be very disruptive, with detrimental outcomes in terms of an escalation in rates, a decline in services, and a loss of local representation. It’s hardly surprising that the public at large are against amalgamations.
In Northland the Local Government Commission received more than 1800 submissions on their amalgamation proposal, with ninety percent opposed. In the Hawke’s Bay almost 800 submissions were received with over 80 percent opposed.
This week’s NZCPR Guest Commentator is Phil Barry, a director of TDB Advisory, a boutique corporate finance and economics advisory business with expertise in council amalgamations. In his critique of the Wellington amalgamation proposal, Phil reminds us of the statutory responsibilities of the Local Government Commission:
“The Local Government Act 2002 prescribes three key criteria that should govern the Local Government Commission’s decision-making process on local government restructuring:
– promoting democratic local decision-making;
– the cost-effective delivery of services; and
– improved economic performance in the wider economy.
“Given the three criteria stated in the Act, it is hard to see how the Local Government Commission could reach its preferred option of a supercity for Wellington. In terms of the first criteria, promoting local democracy, a government that is bigger and more remote from its residents can hardly help. Indeed, if the Commission’s proposal for Wellington were to go ahead, New Zealand would have almost half of the country’s population governed by two councils. In terms of the second criteria, the cost-effective delivery of services, the Commission’s preferred option ranks a lowly fifth out of the eight options it assessed. And finally, in terms of wider economic efficiency, to the extent that councils can influence regional economic growth, it is council policies rather than the geographical boundaries we place around the council that are likely to be the determinants of success.”
While the Local Government Commission is meant to carefully assess the suitability of amalgamation requests, it is clear from the three proposals released over recent months that in spite of strong local opposition to the creation of ‘super’ councils with powerful Maori boards, under the Chairmanship of Basil Morrison, the Commission is intent on pushing its agenda. Some have even described the Chairman’s reassurances that amalgamation will only go ahead if there is ‘demonstrable’ community support as “weasel words”, since it has become clear that demonstrable community support has nothing to do with popular community support – it merely needs to be demonstrated that someone within the community supports amalgamation!
Concerns have also been raised about the independence of the Commission, and in particular the strong links at least two of the three board members have with Maori: Mr Morrison is a member of the Waitangi Tribunal, and Anne Carter is a Council Member of Te Wananga o Raukawa and has a background in the public service included working for Te Puni Kokiri.
Given the Commission is a permanent Commission of Inquiry it is also surprising that none of the members have judicial experience. Typically governments appoint retired judges to chair such reviews since they have had a lifetime of experience in dealing with people involved in difficult issues and they know how to do so in a respectful manner. It is time for the Minister of Local Government, Paula Bennett, to address this matter.
A change of leadership is even more relevant given the residents and ratepayers of three large regions of New Zealand – covering 20 councils and around 800,000 citizens – are about to challenge the Local Government Commission’s amalgamation agenda. While residents in each of the regions covered by the amalgamation proposals will no doubt want a poll, they will also make it very clear that the lack of respect the Local Government Commission has shown towards public opinion is simply not acceptable.
Local Government Reform
Local government performance and reorganisation have been popular topics of debate in recent years in New Zealand and Wellington is the latest region under the Local Government Commission’s (LGC) scrutiny. In December last year, the LGC released its Draft Proposal for Reorganisation of Local Government in Wellington.
Following a Royal Commission on Auckland Governance in 2007, Auckland Council was established in 2010 combining the functions of the eight councils previously in the region. At the end of 2013, the LGC released draft proposals for the reorganisation of Hawke’s Bay and Northland: in both cases, the LGC recommended a full amalgamation of local government in each region and the establishment of a single governing entity.
The LGC’s proposal for Wellington (including the Wairarapa) fits the same mould: “the Greater Wellington Council will take on all of the responsibilities, functions, powers, assets, liabilities and obligations of the current regional, city and district councils”[1]. The proposed single council will have eight local boards to “share decision-making with the governing body”.
Local government has its issues and the performance of councils varies around the country. Residential rate increases on average across the country have consistently been higher than inflation over the past decade. However, is the creation of a single council for a whole region really the answer?
The Local Government Act 2002 prescribes three key criteria that should govern the LGC’s decision-making process on local government restructuring:
– promoting democratic local decision-making;
– the cost-effective delivery of services; and
– improved economic performance in the wider economy.
On the first criteria, in its draft proposal for Wellington, the LGC has unfortunately omitted the word “local” from its quote of the Act.[2] This rather important omission means in its assessment of “local democracy” the LGC focuses on region-wide considerations and not local ones. Leaving the word local out of local government means the Commission is able to conclude that even a single region-wide council without local boards ranks higher in terms of “local” democracy than the status quo of several smaller community-based local governments.
The LGC’s preferred option includes local boards but these are a poor substitute for local territorial authorities which have powers to regulate, rate, raise debt and make decisions that they are in turn accountable for. All 21 local boards in Auckland recently wrote to the Mayor with complaints of feeling stifled and ignored.[3] The local boards in Auckland account in total for only 12% of the Council’s operating budget and the boards have very limited decision-making powers.
It is hard to see how a single supercity option can promote local democracy. ‘Local voice’ and the power for local communities to impact local decision making is best enabled with smaller, approachable councils that can tailor decisions to local needs and preferences. Moreover, international evidence indicates that local government elections tend to get higher voter turnouts the smaller the local government units.[4]
On the cost-effectiveness of local government the Commission quite rightly identifies some council functions that can benefit from economies of scale. There are important capital-intensive networks, like roading and the three waters, that are suited to regional delivery. These functions account for about one third of council operating expenditure in Wellington. The remaining two thirds of spending is carried out on more labour-intensive services conducted predominantly by front-line staff responding to local needs. Services such as noise control, recreation and sport and refuse collection do not benefit from economies of scale and may even become more expensive to carry out with extra tiers of management.
The TDB report on Wellington governance[5] recommended an “enhanced status quo” where some council functions are amalgamated regionally into council-controlled organisations (CCOs) and council geographical boundaries remain largely unchanged. This permitted amalgamation to be targeted to where it makes sense, without disrupting the provision of other local council services. This option is similar in many ways to the ‘Stronger Regional Delivery’ option in the LGC’s draft proposal for Wellington that involved just the key regional functions being transferred to the Greater Wellington Regional Council while retaining the current council boundaries.
So which reorganisation option leads to the most efficient councils? The LGC conducted its own financial analysis and the standout performer was ‘Stronger Regional Delivery’. The net present value (NPV) of this option is expected to be $199m with an estimated transition cost of $129m. In contrast, the LGC’s preferred option of a supercity is expected to cost $210m with a NPV of $58m, ranking it fifth out of the eight options the LGC considered.
The concerns about a supercity in Wellington are exacerbated when we think about the risks involved: the LGC has recommended large-scale changes and the most expensive and riskiest option of the eight options it evaluates. The costs of transition are made up predominantly of IT expenses and the promised benefits are largely personnel savings. If we look at Auckland, it is exactly these two areas of IT budgets and personnel spending where Auckland Council has failed to deliver on its promises.
One IT project in Auckland Council, budgeted to cost $71m, is now expected to arrive a year late and up to $100m over budget.[6] In addition, big savings in personnel costs were expected to be one of the key benefits of change in Auckland: however, last year’s wage budget was blown by $50m as the number of staff paid in excess of $100,000 has gone up by over 50% in the last two years alone. These are worrying signs for Wellington. A similar story of over-estimated benefits and under-estimated costs can be seen in many countries undertaking local government amalgamations: the amalgamations in Toronto cost as much as $400m; South Australia hoped for 17% savings and not long after the reforms these expectations dropped to just over 2%[7]; Queensland has more recently experienced a handful of recent de-amalgamations due to extreme dissatisfaction.
On improved economic performance the LGC’s proposal provides no evidence linking the size of a council to the performance of the regional economy. This is probably not surprising as it is central and local government policies that will impact on a region’s economic performance, not the geographical boundary area that a council covers. Council policies on issues such as the implementation of the Resource Management Act, infrastructure provision and urban liveability may have important long-term impacts on the regional economy. However, there is no reason, in principle, to expect a council with 500,000 constituents to make decisions that better promote economic growth than a council with 100,000 constituents. We may hope for simplified planning processes under an amalgamated council but we’re just as likely to see increased complexity, bureaucracy and red tape. We lose the contestability of policy decision-making between councils, which drives economic efficiency, when we amalgamate local government.
In conclusion, New Zealand legislation is very clear about how local government reorganisation options should be assessed. Given the three criteria stated in the Act, it is hard to see how the LGC could reach its preferred option of a supercity for Wellington. In terms of the first criteria, promoting local democracy, a government that is bigger and more remote from its residents can hardly help. Indeed, if the LGC’s proposal for Wellington were to go ahead, New Zealand would have almost half of the country’s population governed by two councils. In terms of the second criteria, the cost-effective delivery of services, the Commission’s preferred option ranks a lowly fifth out of the eight options it assessed. And finally, in terms of wider economic efficiency, to the extent that councils can influence regional economic growth, it is council policies rather than the geographical boundaries we place around the council that are likely to be the determinants of success.
FOOTNOTES:
[1] www.lgc.govt.nz/the-reorganisation-process/reorganisation-current-applications/view/wellington-region-reorganisation/?step=34
[2] Local Government Commission– Draft Proposal for Reorganisation of Local Government in Wellington, Volume 2, p. 110, Section 4.96.
[3] www.stuff.co.nz/national/10630588/Browns-Auckland-masterplan-gets-21-gun-refute
[4] Bish, R. (2001), Local Government Amalgamations: Discredited Nineteenth-Century Ideals Alive in the Twenty-First, C.D. Howe Institute.
[5] www.tdb.co.nz/documents/050813-TDB-assessing-regional-governance-options.pdf
[6] www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11361387
[7] Dollery, B. and Byrnes, J, Is Bigger Better? Local Government Amalgamation and the South Australian rising to the Challenge Inquiry.
