The cost to councils of Government’s bright ideas

Neil Holdom is the Mayor of New Plymouth.

OPINION: Did the Beehive just write a multi-million dollar cheque that it expects local and regional councils to cover without bothering to consult their communities?

On May 1, Cyclone Recovery Minister Grant Robertson announced a plan to determine the future of properties hit by Cyclone Gabrielle and the Auckland floods.

The Minister indicated people living in the most seriously impacted areas would be offered some sort of buy-out, similar to what occurred in Christchurch’s red zone, and others would be protected through repairs and construction of larger stop banks.

At the time, the Minister stressed that impacted communities would be consulted before any final decisions were made.

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Like so much of the recent information flowing from Wellington, Minister Robertson’s announcement was light on detail but what it did tell us was the following:

Government will be setting the rules. Government is working to a deadline. Government will determine the central vs local government split. And herein lies the rub.

Central Government currently accounts for around 91% of taxation in New Zealand. One of the most centralised systems of control and taxation in the developed world.

Post the proposed three waters reform, Government will account for around 95% of all taxation, leaving a reduced local government surviving on the remaining 5%.

What the Minister did not announce was the detailed position Wellington has adopted in responding to the flooding and cyclone damage, but what we understand from those involved is as follows:

1. Government’s current plan is to finalise its policy position by the end of June with or without the support of the councils involved.
2. The new policy will set the blueprint for all future major weather or seismic events in New Zealand including the funding split.
3. Central Government will set the ratios of that funding split.
4. Central Government has insisted local and regional councils will have to determine the structure and process for implementing its policy and has not provided funding for the staff and advisers required to undertake this work at a time when those same councils are under huge pressure with the recovery.
5. Local councils will be expected to determine if the policy is limited to residential properties or expanded to include lifestyle blocks, commercial, industrial or farmland.
6. Government has appointed a Cyclone Recovery Taskforce to undertake negotiations with local and regional councils.
7. Prior to commencing these negotiations Central Government publicly committed to purchasing properties and undertaking flood protection works that will likely cost in the high hundreds of millions if not billions.

So let’s just reflect on that for a minute. The Government, which pulls more than 90% of taxation, has already promised to spend upwards of a billion dollars, including council money, without any indication of who is going to pay how much and over what period.

Unlike the Government, which has the ability to print money when times get tough, councils have two options to fund any new initiatives. Increase rates or borrow, which also increases rates.

However, given the extent of damage to existing council infrastructure and current borrowings, the councils impacted by Government’s announcement simply don’t have the money or the borrowing capacity to cash the cheque Minister Robertson has essentially already written with his announcement.

A logical starting point for these negotiations would be the post-water reform relative taxation levels, ie 95% central government funding vs 5% local government funding.

However, those near to the process, which has been described as an omni shambles, are deeply concerned government could be looking to step back from its responsibilities and lumber local and regional councils with up to 40% of the costs of its policy.

The cyclone and flood recovery is shaping up to be another classic case of Wellington overreach into the affairs of local government.

Local Government is used to this behaviour.

Traditionally it manifests as unfunded mandates. Where Wellington has a bright idea, creates a raft of new regulations and then legislates responsibility for administering its policy to local government without any cash to fund the people and resources involved.

Then branding the centrally determined edict as ‘locally led’.

But in its cyclone and flood response, Minister Robertson has gone a step further. He is essentially expending local government funds directly via a policy developed in Wellington.

Councils, by law, have to undertake months-long processes which are audited and often involve extensive public consultation and hearings in order to increase rates to fund any new activity.

It would appear in the rush to ‘solve’ the cyclone and flood response the Minister and his taskforce plan to blow through any of the legislated processes designed to ensure local government funds are expended prudently and in line with the expectations of local communities.

In a sentence – the Beehive plans to set the scope and corresponding size of the cheque to be written, determine the cost share split and pass that into law and then transfer the job of structuring, delivering and part-funding the response to local and regional councils within the next month or two whether they like it or not.

Over the next couple of weeks Minister Robertson’s Cyclone Recovery Taskforce and Treasury will be sitting across the table from impacted local and regional councils and their legal advisers, deciding where the funding lines will be drawn.

And then at some point in July we can expect the Minister will announce his new policy and with it expend millions of dollars of council funds that will ultimately come from the pockets of ratepayers.

And here is the sting in the tail.

The policy will form Government’s blueprint for all future events of natural significance and essentially bind every council in New Zealand with zero consultation.

In his early announcement the Minister stressed that decisions would not be made without first consulting impacted communities.

Interestingly enough, given the increasing frequency of these events it could easily be argued that this policy will impact every community in Aotearoa over the next two to three decades, but strangely, Government hasn’t invited councils not directly impacted by the cyclone or flooding to get involved.

The real concern is, in its haste to solve this major problem before the general election, our Government will ignore the very valid concerns of local and regional councils relating to their ability to pay, and write a massive cheque that will ultimately bounce.

Neil Holdom is the Mayor of New Plymouth.