Productivity Commission to investigate Local Government funding

The government wants a better understanding of how local bodies are funding their increasing cost base and infrastructure needs without simply relying on higher rates, and has asked the Productivity Commission to investigate.

Local Government Minister Nanaia Mauhta today announced the commission will hold an inquiry into local government funding starting in August, with a view to presenting a final report in the middle of next year, she said in a statement. The commission investigated local government regulation in 2013, finding there was a justification for central government funding to meet nationally standardised goals, and the government of the day agreed there was value in better collaboration for relevant regulations.

“Local government is facing increasing costs for things like three waters, roading, housing, and tourism infrastructure as well as adapting to climate change. And some of the councils facing the biggest cost increases also have shrinking rating bases,” Mahuta said. “Rates are rising faster than incomes so simply raising rates is not the solution.”

The Labour-led government has also begun the repeal of limitations the previous administration placed on local governments’ ability to fund ‘well-being’ services and facilities it regarded as non-essential.

Statistics New Zealand figures show local authorities’ annual income from rates climbed 48 percent to $5.32 billion over the eight years between June 2008 year and June 2016, equating to an average annual increase of 6 percent. Total operating income rose 43 percent to $8.87 billion. That matches the 48 percent increase in total operating costs to $9.28 billion over that period, although lagged behind the 52 percent increase in depreciation and amortisation at $1.94 billion, which captures capital spending on infrastructure.

The value of councils’ infrastructure assets rose 32 percent to $85.39 billion and land and buildings rose the same amount, to $23 billion. Local authorities’ term debt soared 278 percent to $11.76 billion, with current debt jumping 119 percent to $2.13 billion. Annual interest costs more than doubled to $693.4 million.

Local Government NZ, the umbrella organisation for the country’s councils, was optimistic the new Labour-led administration had a stronger grasp on local authorities’ funding needs, having banged the drum for a wider set of tools for several years.

Mahuta today said the terms of reference for the inquiry are still being finalised and will be released once they’re agreed with the commission.