Gordon Campbell on the local government reforms   20 Mar 2012

Gordon Campbell

Clearly, centre-right governments dislike Big Government only when it isn’t their brand of government. When it is, many of the democratic brakes get removed, quick smart. At heart, the reforms to local government unveiled yesterday see central government dictating to local communities how much, and for what, their rates money can be raised and spent. Until now, I’d always assumed that voters could use the ballot box to respond, if they thought their local councils were not using their money wisely, or were raising their rates unduly.

Not for much longer. Local Government Minister Nick Smith knows better than we do, and is going to use the law to force local communities to share his vision. The local government reforms due to become law by September will work this way:

 

The Local Government Act 2002 will be amended to replace references to the "social, economic, environmental and cultural well-being of communities" with a new purpose for councils of "providing good quality local infrastructure, public services and regulatory functions at the least possible cost to households and business".

This would see councils steered away from spending on social and cultural activities in favour of "core" activities such as key infrastructure, regulations and public services. Dr Smith said council involvement in events such as arts festivals and firework displays could go ahead because they were public services. But councils should not try to replicate services provided by central government or that could be supplied by the private sector, he said.

The aim was to limit expenditure growth to "no faster than inflation and population growth, except in extraordinary events". Benchmarks would be set for income, expenditure and debt levels and councillors would be able to set employment and remuneration policy, including limits on the number of staff.

This command by central government for local councils to stop raising revenue and providing for the social and cultural wellbeing of their communities seems particularly brazen given that – as Local Government New Zealand CEO Lawrence Yule pointed out to RNZ – local councils have only gotten into providing for social needs because central government has largely walked away from its responsibilities in some of those areas (for example, in the provision of an adequate level of low-cost housing). Over the coming months, will central government be prepared to make a commitment to meet the social needs that it is planning to force local government to abandon?

On other fronts… the occasional entrepreneurial foray into social and cultural events that come unstuck – such as the David Beckham promotion, years ago – are more than matched by the many current success stories, such as the involvement say, by the local council in putting on the annual Womad festival in New Plymouth.

Supposedly, one of the goals of our tourism industry is to promote a New Zealand with more to offer than our natural wonders, and to portray the social and cultural richness well worth exploring in our cities and regions. (That was one of the key messages of the Rugby World Cup tourism promotion only last year.) Now, the Key government seems to be doing a 180 degree turn on tourism. Because if it will soon no longer be legal for local councils to help to support this kind of socio-cultural activity in our towns and regions, who will support it? No-one. Again, aren’t these the sort of decisions that local communities should be being left to make for themselves?

Unfortunately, the reforms are all about ideology, not efficiency or social need. The buzzwords give the real game away. Councils will be restricted to the provision of “core” services, to be defined by central government. Those core services, including regulatory functions will be required to be delivered “at the least possible cost to households and business…”. Leave aside for a moment just what level of regulatory protections we’ll have when they’ll need to be carried out at the least possible cost to business. Those “least possible cost” provision are codewords for councils being made to pursue the short term cost savings of job cuts, contracting out and outsourcing. In the process, the councils’ in-house expertise and experience will be lost by a contracting out process that will be socially destructive and which will – in some regions – leave the councils open to price gouging by a limited pool of local contractors.

The big giveaway in the buzzwords is the phrase about limiting expenditure growth to that caused by ‘inflation and population growth’ – other than in exceptional circumstances, such as natural disasters. This mechanism has been imported wholesale from Colorado’s TABOR tax measure, which former Act Party leader, Rodney Hide has long admired.

Back in 2008, I pointed out how Hide had made explicit mention of TABOR as the inspiration for his initial private members bill on local government reform. At the time, Hide didn’t mention that TABOR had been so destructive to Colorado’s provision of social services and maintenance of its core infrastructure that voters had just given themselves a reprieve from it for 5 years, and only re-introduced it since, in amended form. Here’s how I explained it in 2008:

 

In sum, New Zealand is about to adopt as an instrument of restraint on government spending, a measure known to have already caused havoc, division and shortfalls in public service provision in its state of origin. The detailed evidence of TABOR’s flaws is contained in this extensive Bell Policy Center Report.

So how do the TABOR mechanisms actually work? As in Colorado, the measures Hide has been proposing would limit the growth rate of the revenues that government can collect and spend, and allow them to be adjusted upwards only to compensate for inflation and population growth, and nothing else. Not wage increases, or a desire to improve services. If revenues exceed the prior year’s allocation, this is returned to taxpayers as a rebate.

Crucially, the measure has a rachet down effect on public services. During boom times, central and local governments are prevented from using the higher revenues to expand or to improve public services, or to save for a rainy day. Moreover, because revenues will fall during a recession, the year-to-year measurement will mean that the new base for determining spending growth will become the low revenue point created by the recession. Hence, the TABOR approach renders permanent any cuts to public services that are imposed during bad years.

An exemption from the TABOR process can only be gained through the government holding a referendum, which has to be held in the same year as the mooted increases would take effect.In Colorado, some local governments found TABOR’s restrictions too constraining, and hundreds of cities, counties, school districts and special districts successfully appealed to voters over the years for a partial reprieve from some of the law’s provisions.

Two years ago, the UK Independent newspaper carried this report about how destructive this brand of local government reform has been in its state of origin, Colorado.

It is hardly surprising that the Act Party – the $2 Shop of US Political Wingnuts – would have imported wholesale a method of reducing the size of local government. Nor will it bother them unduly that Doug Bruce, the inventor and tireless promoter of the TABOR rates reduction mechanism, has just been convicted of tax evasion in the Colorado courts, and jailed.

But what does it say about New Zealand that we are about to copy a local body reform idea so damaging in its place of origin that its citizens sought and won a reprieve from it? And why are we copying an idea for transparency and efficiency in rates revenue collection that was devised by a convicted tax cheat?

The most sensible comment on the local body reforms so far – where are you, David Shearer? – has been by Green Party newcomer Eugenie Sage. As Sage pointed out, the proposed reforms are an ideological solution to a declining and self correcting problem, if problem it be at all

 

Council spending on so called "non-core services" — such as culture, recreation and sport — declined by $ 185 million between 2008 and 2010 to 13.2 per cent of authority spending. From 2007-2010 rates were a stable portion of household expenditure; holding steady at 2.25%.

The recent Productivity Commission’s draft report on housing affordability notes that rates have been declining in relation to property values, indicating that in terms of household wealth, rates are becoming less significant. [Also] Local government has been more efficient than central government at keeping labour cost rises under control.

In essence, councils incur debt at times for utterly sensible reasons, such as the need to spread the cost of infrastructure spending across the several generations that stand to benefit from them. That form of generational fairness makes good social, cultural, economic and environmental sense. Would Wellington for instance, under the reforms now being proposed, have been able to finance the sewage treatment scheme that it now benefits from? Probably not.

How will those well-used libraries in communities all around the country fare under this straitjacket on the provision of their core service, at the lowest possible cost? Quite badly, one would expect. Because the proposed reforms are a recipe for running down community services, by people who are ideologically opposed to the very idea of community.

 

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