Better Local Government?

In late 2012, the first Local Government Act 2002 Amendment Act was passed with significant implications for local authorities throughout New Zealand. This was the first major step towards implementing the Government’s 8-point reform program for “Better Local Government”.

This article provides an overview of the key changes, the implications for local authorities, and how local authorities should respond to the changes.

A new purpose for local government

The most fundamental change is that the purpose of local government has been rewritten. Driven by a concern that some local authorities were straying too far from their core functions, the “four-well beings” that previously provided the foundation for all council actions and decisions have been replaced with a more focussed purpose.

Local authorities must now “meet the current and future needs of communities for good-quality local infrastructure, local public services, and performances of regulatory functions in a way that is most cost effective for households and businesses”. The term “good quality” is defined to mean “efficient, effective, and appropriate to present and anticipated future circumstances”.

Although this change is intended to limit council’s activities, it is not clear how far this limitation will go. This will depend on how the new wording is interpreted, with uncertainty surrounding what is meant by “local public services” and how to determine whether something is “cost effective”.  The Courts may be required to interpret these phrases to provide certainty for local authorities.

How should local authorities respond?

In response to this change, all local authorities should review whether their activities fit within the new purpose of local government. They should also consider how this change may impact on investment arms or committees of the Council, the activities of which may stray beyond the new purpose. 

Failure to do so could see a disgruntled rate payer could seek judicial review of a decision or action of a local authority on the basis that it steps outside the purpose of local government. This could be particularly problematic if a local authority had already entered into contractual arrangements or commitments for the delivery of a particular project.   

As a practical step to help mitigate this risk, local authorities should update their templates for reports and decision making to ensure that they reflect the new purpose and clearly demonstrate that the correct considerations have been taken into account.

Encouraging reorganisation

Another important change is that the process for reorganising local authorities has been amended to make reorganisations easier to achieve. The flow chart on page 3 outlines the new process.

Any person can request a reorganisation by  application to the Local Government Commission. Before the Commission can consider an application, it must be satisfied that there is “demonstrable community support” (but not majority support) for the proposal in each affected district. If the application is accepted and publicly notified, there is the opportunity for alternative proposals to be put forward within 20 working days.

Assuming that an application makes it all the way through the process to the issue of a final proposal, a poll may be requested to determine whether it should go ahead. However, this poll need only demonstrate that there is 50% support across the entire affected area, not within each district. This reduces the value of a poll for smaller local authorities and increases the risk that they may be overtaken by majority vote in larger districts. 

How should local authorities respond?

Where there is a reasonable prospect of reorganisation occurring, local authorities need to be proactive to ensure that the interests of their residents are protected, particularly if it has a lower population base than neighbouring local authorities with an agenda for reorganisation.

Possible steps may include correspondence with ratepayers and residents about their interest in reorganisation, including petitions, surveys and public meetings. This could then be provided to the Commission if required as evidence that there is no community support for change, and prevent an amalgamation proposal from getting off the ground. In addition, local authorities should give some thought now to an alternative proposal so that they are well prepared to put forward a better option should a reorganisation application be notified.

Increased financial scrutiny and accountability

A key theme of the changes is to increase the level of scrutiny that is applied to local government spending and debt. Under the Act, the Minister has the power to create regulations that establish a range of benchmarks and parameters that local authorities are required to report against. The purpose of these regulations is to assess whether a local authority is prudently managing its financial dealings and enable  comparisons to be made between local authorities. Any regulations must be developed in consultation with LGNZ.

A potential consequence if a local authority fails to measure up is direct intervention by the Minister. The powers of the Minister to intervene have been expanded and now include the ability to appoint a Crown Review Team, Observer or Manager, appoint a Commission, or call a general election. These powers may be exercised where the Minister believes that a “significant problem” may exist and are not directly tied to the proposed benchmarks. The Minister is required to prepare guidelines by 31 March 2013, in consultation with LGNZ, about  the matters that are likely to be considered when deciding whether to intervene.

How should local authorities respond?

At this stage, the detail of the benchmarks and intervention guidelines are not yet known. However, the requirement for the Minister to consult with LGNZ provides an opportunity for local authorities to influence the final content of these documents and ensure that the resulting requirements are appropriate and workable.

Despite this consultation requirement, it seems likely that the changes will result in more onerous reporting requirements on local authorities and a tighter rein on spending. Local authorities need to be prepared to adjust to these changes by ensuring that appropriate staff and systems are in place to provide the information that is required. 

What happens next?

These significant changes represent only the first phase of the Government’s local government reform program, which will continue into 2013. Additional changes will be introduced in relation to the provision of infrastructure, regulatory roles, development contributions, and a range of other matters.

Local authorities should also keep an eye on the various changes proposed to the Resource Management Act, which are likely to further impact their functions and responsibilities. 


Disclaimer: This is a brief summary for information purposes only and is not legal advice.


Posted on Friday 25th January, 2013 at 02:00 pm