The Government released the terms of reference yesterday for a Productivity Commission inquiry into local government Funding & financing arrangements, and Infrastructure NZ said they’d constrain an objective assessment of all options.
Finance Minister Grant Robertson announced the inquiry at the Local Government NZ annual conference on 15 July, saying it would investigate the drivers of local authority cost pressures and provide recommendations for how councils can maintain & deliver services & infrastructure in cost-effective ways.
In the terms of reference, Mr Robertson & Local Government Minister Nanaia Mahuta said local government cost pressures had grown significantly since the Shand inquiry report was issued in 2007, and that rates & payment increases had outpaced increases in the local government cost index.
They said some high-growth councils – Auckland is the most notable – were coming close to covenanted debt limits, constraining their ability to finance further infrastructure investment, while other councils took on very little debt.
Broad scope, but….
The scope of the inquiry seems wide: “Where shortcomings in the current system are identified, the inquiry is to examine options & approaches for improving the system of local authority funding & financing.”
Among other approaches, the Productivity Commission is asked to “bring new & innovative thinking to these issues”, investigate cost pressures, examine funding & financing models and how to manage transition to new models, and consider regulatory changes.
The ministers ruled out of scope some aspects of council finance which had already been well canvassed – mechanisms for rating Maori freehold land & Crown land, the valuation system & practices, and substantial privatisation.
The final report is due by 30 November 2019.
Inquiry director Steven Bailey said: “The commission has previously completed inquiries into local government regulation, better urban planning, using land for housing & housing affordability and is looking forward to assessing & analysing this sector further.”
He said the commission would publish an issues paper in October, outlining its proposed approach, the context for the inquiry and a list of key questions to be addressed.
So, what’s missing?
Infrastructure NZ chief executive Stephen Selwood saw ruling privatisation out of scope as precluding an inquiry into asset recycling, which had been a big success in New South Wales and has been started on a smaller scale by Auckland Council through its property agency, Panuku Development Auckland.
Mr Selwood also questioned leaving rating Maori freehold land & Crown land out of the inquiry.
Mr Selwood said: “It is particularly disappointing that ‘asset recycling’ – the process of selling down public shareholding in one public asset in order to invest in another more valuable asset – has been precluded from the terms of reference.
“Asset recycling is enabling Australia to respond faster & much more effectively to their growth challenge than New Zealand.
“New South Wales alone will spend $A14.7 billion on transport improvements this year compared to around $3 billion across New Zealand – twice what we are on a per capita basis. It has been able to do this by selling down nearly $A50 billion of underperforming assets in the last 5 years and using the proceeds to deliver heavy rail, light rail & roading, as well as urban redevelopment, schools & health investment.
“With better services and fewer public funding constraints on development, the Aussies are addressing homelessness & deprivation whilst investing tens of billions in road & rail transport infrastructure.
“Research has shown the asset recycling programme in New South Wales has very high public support – 61%, with only 9% opposed – when people understand why the programme is in place and where the money is going.
“High growth councils around New Zealand would provide a much better public service by selling down shareholdings in ports, airports or low-performing assets and ‘recycling’ the proceeds to invest in core transport & water.
“In Auckland, partial or full sale of Watercare would enable the council to release billions in capital to invest in stormwater, floodwater & transport infrastructure and would allow the company to leverage its balance sheet to invest in water infrastructure to support growth.
“The opportunity cost of having public money tied up in non-essential services is worse congestion & a prolonged housing crisis.
“If, for some reason, New Zealand is different than Australia and if advice from the OECD, World Economic Forum & others on good capital management is misplaced, the Productivity Commission is best placed to make that call.”
“The same can be said for the rating of Crown & Maori land. It is extraordinary that the Crown considers councils to be core infrastructure providers, but will not pay them to deliver services to Government assets like schools, nor even take advice on the issue.
“It is encouraging that the Government has launched this inquiry, but given the constrained terms of reference that the Productivity Commission has been given, the potential outcomes of the study have been compromised at the outset.”
Terms of reference, local government funding & financing.pdf
2007 Shand Report – local government rates inquiry documents
Department of Internal Affairs: Local government funding project
16 July 2018: Finance minister calls Productivity Commission in to examine local body funding
Attribution: Ministerial & Infrastructure NZ releases.