Considering Council Conundrums: The Cogs and Camels of Council: With Local Government Elections to Be Held on October 13, Colin James Looks at the Issues and Opportunities Facing the Country's Councils-And Some Things Businesses Should Consider
James, Colin, New Zealand Management
Most of what a local council does is out of sight or out of mind: up in the hills, down in the dumps or under the roads which are under the wheels. So when councils raise charges their unseeing captive consumers get upset.
As a result, over the next month a lot of grumpy people, especially grumpy business managers and owners, will vote for candidates they hope will rein back council spending and, with that, rates. These same people will also moan loudly if the out-of-sight bits--the infrastructure--are not up to scratch.
The new councils, whatever their principles and prejudices, will have somehow to square this circle. Thanks to lower investment in infrastructure in the 1990s after subsidies were withdrawn in the 1980s, councils this decade have been fixing a backlog--some $10 billion worth over the past 10 years.
And their long-term plans tell them they face a $31 billion bill over the next 10 years if they are to meet their communities' needs. Of that 73 percent will go on roads and public transport and the 'three waters': supply, stormwater disposal and waste water disposal. A large proportion of the rest is for community facilities such as parks, swimming pools and new buildings which citizens expect.
And, if they go to change the plans, they will find roadblocks. They are the product of a tortuous consultation with citizens which has been overseen by the Auditor-General, who also audits performance measures.
So the plans' tripling of capital spending is not a good omen on rates.
But what's the fuss? In the 1970s and early 1980s rates nationwide were 2.3 percent of GDP, even with the pre-1980s-reform government subsidies. They are now 1.9-2.0 percent of GDR They are due to reach 2.2 percent of GDP by 2011-12, still below the level of 25 years ago. Hardly break-the-bank stuff.
Moreover, businesses' share of those rates has been falling as the differentials most councils applied in favour of residences and against businesses have been reduced. Some rural councils charge their farmers lower rates than their townies.
And, as retiring three-term Christchurch mayor Garry Moore says, "if the infrastructure doesn't work, business doesn't work".
So what's the fuss?
An easy answer is that councils do things businesses and many householders don't want, need or use, especially in the arts or social services, which could be left to the central government. The Auckland City Council sold off its community housing in deference to such complaints. On the other hand, businesses seldom complain when a council spends ratepayers' money for the likes of a car race which feeds business revenue.
A second easy answer is that Parliament keeps dumping extra functions on local councils without the cash to pay for the extra work: tougher dog laws, the sledgehammer Building Act, requiring councillors to get certified to hear Resource Management Act cases and legislating for higher quality of drinking water.
But, while these impositions are real, they are straws on camels' backs, not the bulk of the load. And councils recover a lot of the costs of services through charges to users, not through rates (dog laws and the Building Act are cases in point)--though businesses end up paying many of those charges and grumble that councils could do some of them more cost-efficiently.
A third easy answer is that there are wide variations in spending profiles and so, while some may be business-friendly, others are not--though in some cases this is to cope with big infrastructure backlogs and in fast-growing areas new infrastructure and services are needed for new suburbs and housing developments.
A fourth easy answer lies in the archaic funding mechanism. Land tax disappeared as a source of central government revenue long ago. Apart from government grants and subsidies, which are targeted to specific activities, and profits from council-owned businesses, councils have to rely on rates for spending not covered by service charges. …