Address to Wairarapa Chamber of Commerce

Thank you all for inviting me here to speak this morning.

I'd like to take the opportunity to discuss the work we're doing in local government and how it affects smaller councils and their business communities.

The role of smaller councils within the wider local government sector and the ability for these councils to work together is key - something Carterton, Masteron and South Wairarapa's councils are all familiar with.

Local government delivers essential services vital to the lives of all New Zealanders and local communities. However, for many years ratepayers have expressed concern about the steadily increasing rates burden they face as a result of council spending, with increases well outstripping inflation.

Recent analysis by the Department of Internal Affairs shows the cumulative increase in rates per head over the next 10 years is 39 per cent. Rates income will continue to rise faster than council costs, while public debt for the sector is forecast to increase by 97% and interest expenses by 91%.

One focus of my tenure as Minister of Local Government has been on the Local Government Act 2002 itself, and what can be done to improve the accountability, transparency and financial management of councils.

This region in particular has been bold and used its initiative to come up with innovative ways to cut costs.

Cross boundary arrangements to share services and facilities are not uncommon nationwide, and I'm pleased with the progress the Masterton, Carterton and South Wairarapa District Councils have made working together under a Combined District Plan.

This consistency across districts produces a cost efficiency estimated to be around 20% when compared to your councils doing this alone.

Other examples of effective cost sharing benefiting local communities include Palmerston North City Council's after-hours phone service, which is used by seventeen other councils around New Zealand. The Bay of Plenty's eight councils also managed to save around $1 million in costs across 2008/09 by sharing back-office systems and services.

The benefits from such arrangements, especially for smaller councils are obvious; reduced costs, greater access to skills and expertise, the exchange of best practice between councils and procurement savings occurring from economies of scale.

A December 2009 Department of Internal Affairs report entitled A Review of Collaboration Among Councils, found that the key drivers of inter-council collaboration are fiscal constraints (the requirement to achieve more with fewer resources) and the increased expectations of customers with regard to council services.

The top two barriers to council collaboration were perceived to be ‘council leadership not supporting or promoting collaboration' (93%) and ‘councils operating in an insular way and taking a parochial approach' (90%).

This was half the problem with Auckland's Governance, which lead to our structural changes in that region, which I will discuss later.

The other main areas the report picked for potential increased collaboration were in the areas of geospatial information (53%), procurement processes (50%), field services (47%), and the management of water (45%).

Various Government departments, including the Department of Building and Housing, the Ministry for the Enviornment and Department of Internal Affairs all contribute funding and resources to support shared services arrangements, as well as options for networking and information exchange.

The Government is also working to contribute $5 million to the establishment of a single local government debt vehicle. It will issue bonds to wholesale and retail investors, and allow councils to meet their infrastructural and capital investment requirements. This will enable councils to borrow from capital markets more cost effectively than they are currently able to.

I am also looking at overall LG sector with a review of the planning, decision-making and accountability aspects of the Local Government Act. This aims to improve the transparency, accountability and financial management of councils.

The Local Government Act 2002 Amendment Bill is currently being considered by the Local Government and Environment Committee. The Committee is expected to report back on the Bill in November this year.

I am very pleased to note that this year Councils have collectively reduced their projected rates increased by a total of 1.5%, which by my calculations amounts to $50m in savings for ratepayers.

That's good, but we can do better.

The proposed amendments to the Local Government Act will require councils to provide in depth information about their costs, rates and activities that will make it easier for constituents to understand, assisting them in influencing their councils' decisions and direction.

These amendments will help cut back on wasteful spending, pet projects and ill informed decisions that so often leave councils with debt burdens for little gain, and ultimately, pass the cost on to the ratepayer in the form of increased rates.

These transparency and accountability mechanisms will aid ratepayers and help to ensure that council decisions reflect their preferences.

Long-term council community plans will be simpler and more strategic in focus, financial disclosures will be in plain English, and councils will have more flexibility in choosing effective and efficient delivery methods for water services.

Council reporting will be consistent so that residents and ratepayers will be able to make comparisons between different councils.

From 2013, every council will produce a pre-election financial report to allow voters to make a more informed choice about candidates and which projects they are likely to support, and spend ratepayer money on.

I also believe councils' consultation processes are unnecessarily onerous and complex.

Most LTCCPs are bulky documents running to hundred of pages and often more than one volume. This makes it difficult for residents to identify the things that really matter to their communities, and can also deter them from taking part in decision-making processes.

It is possible to remove a lot of the more descriptive, highly technical and non-strategic material from LTCCPs to produce a single document people can more easily understand, this will be renamed the "long-term plan" and will have a more strategic focus. This will eliminate the costs and inefficiencies of running two separate long-term planning processes.

The return to a focus on core council services will mean that processes are simplified and streamlined. By core services, I mean, those things that most people understand and expect their councils to provide, such as waste collection and public transport.

Greater disclosure concerning Infrastructure information is also key. As core services, these items make up around 70% of capex budgets nationally.

The Bill will ensure that all infrastructure services data will be disclosed separately, ensuring greater transparency and improve the level of service provided. They will also be held to stringent performance measures.

Councils will now need to weigh the expected returns against the inherent risks involved, protecting the ratepayers from council involvement in financially risky activities.

It is also important for me to clarify the changes to water and wastewater contracts, an especially costly and problematic function for smaller councils.

Local Authorities are responsible for supplying drinking water to about 87% of our population, and for managing a water supply infrastructure estimated at around $11 billion in 2009. Collectively they budget $605 million on opex and $390 million on capex to maintain and manage these water supplies.

The auditor-general's report into Local Governments Water Services Planning found that one in four local authorities needed to do more to forecast and plan for future demand, better manage existing demand, and to upgrade water infrastructure.
Unfortunately, the LGA2002 is restrictive for councils when attempting to structure their water services in a way that best meets the needs and preferences of ratepayers and residents.
The amendments will allow greater use of public-private partnerships, or PPPs, in the construction and operation of water and wastewater treatment plants.

As you know, many councils already contract with the private sector to manage council assets such as park maintenance, swimming pool operation and roading maintenance.

Currently councils are forced to undertake an exhaustive consultative procedure when looking to utilise private sector partnerships - all the government is doing is proposing to remove these onerous and costly requirements.

In my view, councils are capable of recognising when private sector partnerships would be beneficial, and can engage with other organisations when necessary.

Another proposed legislative change is to extend the 15 year limit on water services contracts and joint arrangements with the private sector to a potential 35 years. This change will allow both public and private partners to realise long term benefits from more efficient planning for their investments.

Any suggestion that this is a privatisation of these assets is simply false.

Under the Local Government Act 2002, councils are not permitted to privatise water related assets. This legal provision will remain after this bill passes.
Councils will retain control of these agreements, and will retain the right to control water pricing and policy.

No council will be under any obligation to change any of their current arrangements with regards to water, or enter into any private arrangement when and if this bill becomes law.

As I mentioned earlier, the lack of collaboration between councils doesn't just cause problems amongst smaller councils, but was the ultimate undoing of the Auckland region's ineffectual governance.
The establishment of the new Auckland Council, replacing the bickering and inefficient management under the previous eight councils, was necessary because of long-standing and seemingly intractable problems with Auckland's local governance.
I am often asked if the new Auckland Council structure will be replicated elsewhere.
Let me be clear, the Auckland governance reforms are the Government's response to a unique set of circumstances that led to a Royal Commission of Inquiry and a clear recommendation for change from the Commission.
I don't see problems of a similar scale anywhere else in New Zealand, and still prefer individual councils working together effectively.

Nevertheless, it has been pleasing to see councils in other regions taking a critical look at the effectiveness of their own governance arrangements in response to the changes in Auckland.

Improving the overall effectiveness of our framework of local government has always been a priority of mine. In my view, there is a need to look critically at the framework and to consider if it needs to be improved further.

I want to look at whether we need to clarify the role of local government and the relationship between central and local government.

In my view local government should not be seen as subservient to central government. In the past, successive governments have imposed a range of tasks and functions on local government, without a proper assessment of the impact on councils' capacity or of the financial burden new regulatory functions might place on ratepayers' pockets.

This is especially important for the smaller councils who may not be able to cope with sudden changes forced upon them from above.
Central government can help to achieve this by ensuring that:
- any barriers to collaboration between councils are removed;
- the right framework is in place to achieve optimal efficiency of local government functions across our cities, districts and regions;
- the framework best facilitates local solutions to optimal local governance; and
- the balance of functions between central and local government is right.

In the past, reviews have dealt with narrower issues such as local government funding, rather than these broader, more fundamental questions. It is a huge task, and it is important to allow time to carefully scope this work. This will include determining the most effective way of involving the sector and other key stakeholders in this project.
In essence, what I want to consider is how central government can facilitate local, community-led solutions to achieve better governance, and therefore better results for residents and ratepayers, so watch this space.
Thank you all for having me here this morning, I look forward to your questions now.