The long read: How to reform local government

An AI-generated image of a giant construction blueprint being hoisted up by a crane.

With Local Water Done Well rolling out, Regional Deals on the horizon, and yet another attempt at replacing the Resource Management Act in the works, sooner rather than later, the Coalition is going to have to grapple with the state of our local government system. Given they comprehensively rejected the recommendations from the Future for Local Government review, any process to reform the sector is going to have to go back to square one. So what might that involve?

First, it’s useful to look at what the likely no go areas for reform for the Coalition are likely to be. From my reading of the political situation, it seems that issues such as lowering the voting age and forcing councils to adopt the one voting system (either First Past the Post or Single Transferable Vote) are off the table. Likewise, a four year term for local government only makes sense if it’s done in conjunction with a similar change to central government, and there’s a lot of water to go under the bridge - including a referendum - so we’ll park that to one side.

I think we can also safely assume that, broadly speaking, there is unlikely to be any significant change to the current devolution of responsibilities from central to local government. We can reasonably expect councils to retain their current roles though in a context of whatever the outcomes are of Local Water Done Well and the new resource management framework. At a high level, these responsibilities currently include (but are not necessarily limited to) local infrastructure and services (transport, water, parks, community facilities, waste management etc), planning and regulation (city/district and environmental placemaking, freshwater management, resource management, associated regulatory roles, bylaws), civil defence, and community development (economic, social, and cultural).

The question in a reform scenario is likely to be around what is the appropriate level of subsidiarity for each of these responsibilities - e.g. what’s best delivered at a regional, city/district, or local community level, and at what level should the decision making powers around these deliverables sit.

I also can’t see there being any meaningful revenue sharing arrangement put in place between central and local government (such as from GST or income taxes). With the austere state of central government’s books, it seems unlikely that they’ll be enthusiastic about the idea of automatically reallocating a decent chunk of their revenue. For example, the Future for Local Government review estimated that around $1 billion in GST is collected on top of rates, which would be relatively straight forward administratively to allow councils to hold onto. While you can’t discount some small arrangements put in place around housing supply and sharing GST revenue from those, these measures are unlikely to make a meaningful dent in the fiscal challenges facing the sector as a whole. We also need to be cognisant of reality that central government politicians have a vested interest in being able to take credit for decisions to invest in local projects, even if the nature of such discretionary funding decisions and the need for councils to compete for them adds additional costs for both central and local government, and open the door to pork barrelling.

There are likely to be some new revenue tools made available to areas covered by Regional Deals, though these seem destined to be linked to infrastructure projects that facilitate growth. To what extent tools such as value capture taxes could be extended to the sector as a whole would need to be worked through, and it may well be that central government needs to look at swallowing its pride on issues like capital gain taxes where a decision to implement these locally could be something to allow a council to do.

This leaves us with three main areas of focus for any review into the sector: structure (e.g. boundaries, layers, governance arrangements), finances (e.g. revenue, debt etc), and transparency and accountability (yes I know that’s two terms, but they’re intrinsically linked).

To progress any of this, the Coalition is going to need a fairly weighty vehicle to carry out any review. I know I’m like a broken record on this, but a Royal Commission still seems like the most sensible option for trying to investigate and make recommendations about the types of sweeping changes that are needing to be made and need the best chance possible to survive changing political occupants in the Beehive. Unlike ministerial inquiries, that are relatively easy for a new government to ignore, Royal Commissions carry a perception of political independence and heft about the significance of the issue needing to be addressed as well as the validity of their findings. This makes it hard for a government to not act on their recommendations.

Even if they don’t necessarily follow the exact recommendations to the letter, it seems like it’s much harder for a new government to simply discard the work of a Royal Commission than it is a lower level of public inquiry. That’s not to say that it can’t happen, nor that a change of government won’t lead to changes in the Royal Commission’s work (as we’ve seen with the pandemic Royal Commission), but Royal Commissions generally appear to be much harder for a government to dismiss out of hand.

With regards to the terms of reference of such a Royal Commission, I’d fall back not on the Future for Local Government’s frame of reference, but that of the earlier 2007 Royal Commision on Auckland Governance. Once you get past the archaic formal language used in the terms of reference for a Royal Commission, the idea being that you want the Royal Commission to come up with specific and definitive recommendations for the structure, financing, and transparency and accountability arrangements for local government that can be immediately implemented should lead to a more useful report at the end of it. This is opposed to what the Future for Local Government panel came up with, which was to often recommend further work on possible changes but no real blueprint for what the future ought to definitively look like.

Basically, the Royal Commission should be empowered to draw up an entire new local government system, including boundaries, structures, governance arrangements, financing and funding tools, as well as transparency and accountability mechanisms. They need to be able to produce something akin to what was published in 2009 for Auckland - that is an actual blueprint for overhauling the sector that could be implemented.

I think this was a core problem with the Future for Local Government’s final report. It just didn’t deliver an actual blueprint for change. Instead it was full of things that would have needed further investigation and inquiry, and ultimately had it been progressed would’ve been a slow grind of small piecemeal changes that would eventually stall under the weight of its own inertia. That approach can buy you time, but it’s just as easily going to end in a quagmire and quietly fade away.

Of course, this means that such a Royal Commission on Local Government is going to take time and significant resourcing to do its job. As a point of comparison, the Future for Local Government review was announced in late April 2021 and it produced its final report in June 2023. During those 26 months the review panel’s final report ended up being 135 pages long and essentially tackled the matter at hand at only a high-level.

Contrast that with the work of the Royal Commission on Auckland Governance, which was announced at the end of July 2007, and its final report was published at the end of March 2009. In 20 months the Royal Commission on Auckland Governance managed to churn out an 815 page report that produced a near fully fleshed out blueprint for what local government should look like in Auckland going forward - including governance arrangements, boundaries, powers of the mayor and so fourth - and dived into how to manage the transition from the seven local and one regional authority into the single region-wide unitary authority. It was an incredibly detailed piece of work over what was a relatively short period of time.

When you compare the work of the two, the Future for Local Government panel’s work seems lacking. Some of this comes down to their terms of reference which themselves were not directive enough, and there’s a question of scope given the focus between Auckland for the Royal Commission and the country as a whole for the review. However, I think that increased scope is balanced out by the improvements in access to information and the ability to engage with people remotely between 2008 and 2022.

I think a lot comes down to the panelists on the Future for Local Government review who basically saw themselves as writing a discussion paper rather than proposing anything too specific. It was a safe option which resulted in a missed opportunity to actually get a proper discussion going on alternative arrangements, instead kicking the can down the road further until time was called when the Coalition chucked it all in the sin bin.

Which brings us to what a Royal Commission on Local Government would need to be able to report back on and provide recommendations around.

It needs to give clear recommendations and reasoning on things like whether we have a single or multi-tier system of local government? If it’s multi-tier, then how many tiers do you have, do they have a hierarchy or sit alongside each other, and what are the delineation of responsibilities between them to ensure the appropriate subsidiarity of delivery? If it’s single-tier, how do you ensure large local government entities with a wide array of responsibilities remain relevant and accessible to the communities they serve? What are the boundaries of all the local government entities under either single or multi-tier models? What powers should their governing bodies have? Should councils have executive mayors such as Auckland, or more the first-amongst peer approach we have everywhere else? What should the initial representation arrangements be? How should these councils engage with their communities on decisions and what should the broad thresholds be for things like formal consultative processes? What additional funding tools should be implemented to reduce the reliance on rates? What are appropriate debt tools and limits for these entities? Should local government have its own stand-alone equivalents of the Ombudsman and Auditor and Controller General providing system stewardship? If so, what should the powers of these agencies be? What specific changes are needed to relevant local government legislation to ensure these are fit-for-purpose and support the efficient, effective, transparent, and accountable operation of local government? To what extent should local government independently be able to make changes to its own structure, boundary, and governance arrangements and what changes would be needed to be made to the Local Government Commission to support that?

Much like the Royal Commission on Auckland Governance, or even the 1989 reforms, you want what’s produced at the end of this process to be something that the government of the day could actually implement.

Of course, things are more complicated now than they were 35 years ago. However, there’s no practical reason why the current National-led Coalition couldn’t announce its own Royal Commission in early 2025, give it a two year window to conduct its work, and have it report back to whomever the government is in early 2027. That would then allow the government of the day to quickly decide whether to implement the recommendations in time for the 2028 local government elections. That timeframe would also allow the Royal Commission to take into account for any changes from the Local Water Done Well reform as councils decide how they’re going to manage their water infrastructure and services, as well as understand what the next attempt at replacing the Resource Management Act would mean for local government’s planning, resource management, and regulatory roles.

It’s also worth noting that implementing any reforms is a gradual process beyond the immediate governance level changes that would occur at the 2028 local government elections. The underlying organisational structures and systems of any merged councils would tick along until they get restructured in the background, a process that is still continuing at a low-level in Auckland to this day as they are still rationalising council facilities that were inherited from their constituent councils 14 years ago.

Let’s not forget that there were little more than 18 months between the Royal Commission delivering its final report and the amalgamated Auckland Council holding its first election in October 2010. If we look further back, the the review that led to the 1989 reforms was only commenced in December 1987, and that ended up with 850 local government entities merged into just 86 within little more than two years.

This also means that an 18 month window between accepting recommendations and any reformed entities coming into force at the 2028 local government elections is completely doable. If they can run the entire review and reform process to take 850 entities and turn them into just 86 in the late 1980s over little more than two years, then surely we can manage this reform over the course of three and a half years.

With all of this being said, I remain painfully aware of the political realities at play. While I firmly believe that this approach is the best way to get the type of fundamental change needed, and that the current iterative approach is leading to a patchwork of band aid solutions that won’t prevent further deterioration in the sector, I know that adopting the above approach would require National to swallow their pride.

It’s politically probably a bridge too far for them at the moment, especially with it looking increasingly like their cancellation of the iRex Interislander ferry project was a knee jerk reaction. With the Coalition rumoured to be looking at reversing course before Christmas on that embarrassing issue, it seems unlikely that they’ll want to lose face on anything else early in the new year. Likewise, the closer they get to the 2026 General Election, the more that I imagine it will become difficult for the constituent parties of the Coalition to agree on kicking off any major review that could give rise to political difficulties between them.

So yet again local government looks set to be be left to limp on as questions over its future sustainability loom ever larger.