Councils to issue pre-election financials under Hide reforms

Wednesday 10th June 2009

New Zealand local government agencies will have to produce plain-English pre-election fiscal updates, just as central government does, under reforms proposed this week by Local Goverment Minister Rodney Hide and destined for implementation before next year's local body elections, if possible.

Analysis of Hide's paper to the Cabinet's Economic Growth and Infrastructure Committee by BusinessWire shows Hide is seeking to apply the principles of the Public Finance Act, which governs how the Crown reports its financial position, to local governments also.

That would shift planning to fit within a pre-defined fiscal envelope, determined separately from spending and revenue proposals and reflecting the council's fiscal position.

The rationale is that too many councils report too many things different ways, making interpretation and comparison very difficult, and that the Public Finance Act, especially as it applies to fiscal responsibility reporting, remains world best practice and has assisted macro-economic policy-making in New Zealand over the last 20 years.

The changes would slice through the current 10 year `Long Term Council Community Plan’ process undertaken three yearly by councils, which have created "very large" costs for many without creating the desired strategic transparency, according to the Cabinet paper.

"Much more information (is) being disclosed, but arguably without sufficient attention being paid to its usefulness," the Hide paper says. Meanwhile, "local government financial information is incomprehensible to most non-accountants."

The paper reflects Hide's own agenda, and is said to have been informed by a flood of anecdotal examples of local government waste and questionable decision-making. Cumbersome consultation processes are said to be causing "submission fatigue," encouraging non-core investments, and a rise in the influence of pressure groups, the paper said. Meanwhile, local body elections rarely focus on spending isues.

With a separate report to Hide this week showing forecast council indebtedness doubling over the next decade, with no let-up in rates rises, the core of Hide's thesis is that current mechanisms which are supposed to encourage local government to think carefully about spending intentions are not working.

Preparation of PFA-style fiscal strategy and pre-election fiscal updates would help focus councils on their core activities and improve their accountability, the report concludes.

A key part of the paper is the widely reported proposal to require referenda on strategic policy issues, particularly major sponsorship or commercial activities.

While Hide argues that there should be greater focus on user-pays charging, that should not be a first order priority.

Hide is due to report back to the Cabinet committee on his reform proposals by August 31, after a targeted consultation round without public submissions.

"To implement changes in time for the 2010 local authority elections would require a tight timetable for legislative drafting and subsequent parliamentary process," the paper says. Hide has already lodged a bid to introduce local government law reform legislation in 2009.

In its report to Hide on local government finances, also released this week, the Department of Internal Affairs analsysis of all councils' LTCCP's showed a 48% increase in local governments' income over the next 10 years, based in large part in rates rises averaging around 6% a year.

On top of that, councils plan to double their total current level of borrowings, with a forecast 101% increase in debt by June 2019.

"Possible reasons for the increased use of debt include the desire to keep rates down, the volatility of development contributions and reduced returns from investment," the department said.

Businesswire.co.nz

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