Local government: myths, facts and challenges

Dr Bryce Wilkinson
Insights Newsletter
4 December, 2015

Politics, not finance, is the prime factor stopping local authorities from being more pro-growth and pro-housing.

That is a primary conclusion of a report, Local Government: Myths, Facts and Challenges, that The New Zealand Initiative released this week.

Local authorities can fund increased spending on infrastructure for housing or other development purposes through any combination of development contributions, additional borrowing, rate increases, cutting back on non-infrastructure spending, or greater recourse to public private partnerships.

Contrary to the image of being irresponsible money managers, the great majority are operating well inside prudent borrowing and other limits. The median ratio of term debt to non-current assets across all district councils was only 3% in 2014.

Nevertheless, the appallingly high property values relative to incomes in some areas and the absurdly long delays in approving investment projects point to anti-growth pathologies in current arrangements.

Councils appear to be most constrained by voter resistance to both greater spending and more pro-growth regulatory policies, particularly in relation to land supply.

Ratepayer suspicion about the quality and necessity of much spending is understandable. Between 2004 and 2014, real per capita revenues from rates rose by 2.8% pa on average while GDP per capita rose by only 0.9% pa. Meanwhile operating spending on the core network activities of roads, water supply, and waste water disposal dropped from 34% of total operating spending in 2004 to 31% in 2014.

One challenge for local authorities is to ask themselves how they can better demonstrate the value to the community of current and proposed spending.

Political opposition on the regulatory side can arise variously from a combination of NIMBYism, a desire by home owners to keep house prices artificially high, and anti-growth environmentalism. Yet change is necessary if communities are to prosper.

The challenges here are to design proposals that demonstrate a fair distribution of benefits and costs and to communicate the benefits more convincingly.

The report briefly reviews the 175-year history of attempts to consolidate, contract and expand local government in New Zealand. It dispels misunderstandings concerning their public good role and assesses the sector’s performance. It comes down more in favour of the current rating system than against it. An annex compares and ranks individual local authorities according to diverse statistical measures.

Read The Local Formula here, or watch co-author Jason Krupp talk about it in this video

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