The glaring error in DIA's Wellington intervention advice
An AI-generated image of a pile of documents marked with a large red F.
One common theme since before even my single triennium on Kāpiti Coast District Council was that central government simply doesn’t understand, and often as a result doesn’t trust, local government. Despite being the ones who create and legislate the frameworks and regulations within which local government has to operate, central government - both at the political and operational side - seem to lack a basic understanding of how local government works.
This was painfully on display with the publishing of the Department of Internal Affairs’ (DIA) advice to Local Government Minister Simeon Brown about his options for intervening in Wellington City Council. As Professor Dean Knight of Victoria University of Wellington put it recently: “the basis for intervention is very thin and largely boils down to quibbles about policy choices.”
The Post ran a great story shortly after the advice was released where some of Wellington’s councillors were bemused by what they had seen in the document. As they pointed out in the story, and I’ve pointed out many times before, the behavioural concerns detailed are hardly unique to Wellington City Council, and I’ve witnessed comparative behaviour first-hand and at other councils.
It’s just that Wellington City Council has major media outlets in the room watching them to report on these going ons. Most councils don’t. If anything, I suspect councillors behave better than many of our Members of Parliament and Ministers of the Crown do.
What stood out for me though was a howler of an error that should have been blatantly obvious to whomever was responsible for authoring and approving the advice.
This error was DIA’s criticism of Wellington City Council not using “Local Water Done Well financing mechanisms to pay for water infrastructure.” DIA argues that had Wellington City Council used these mechanisms in their long-term plan “to leverage water debt to 500% of revenue” that it would create the debt headroom needed to meet the council’s under-insurance challenges.
At first glance that might sound reasonable to an uninformed observer. But there’s some massive problems with DIA’s position.
The Local Water Done Well financial mechanisms that DIA is saying Wellington City Council should have been using in their long-term plan aren’t available yet. Not only that, but they weren’t available at the time when the council drafted, consulted on, deliberated, and ultimately adopted their long-term plan.
While legislation requiring territorial authorities to prepare their water services delivery plans was working its way through Parliament at the time the long-term plan was going through its statutory processes, the legislation didn’t pass until late August, nearly two months after Wellington City Council’s legislative deadline for adopting its long-term plan.
So DIA was criticising Wellington City Council for not using debt tools that weren’t even available for it yet as the legislation that could eventually lead to such tools being available having not been passed by Parliament.
Of course, it gets worse.
In their thinking that Wellington City Council should have used the Local Water Done Well debt tools in their long-term plan, DIA is effectively arguing that the council should have made a pre-determined decision about what the contents of their water services delivery plan were going to. This is odd for a number of reasons.
The first is that Wellington City Council was only required to start working on a water services delivery plan once the Local Government (Water Services Preliminary Arrangements) Act had been passed by Parliament, which as has been mentioned took place two months after Wellington City Council was required by the Local Government Act to have adopted their long-term plan. So Wellington City Council could hardly include debt assumptions about a water services delivery plan that they wouldn’t have to have in place until later in 2025. As it was, councils in the region had been working on the issue ahead of the clock starting ticking, but they couldn’t do that until they knew what the outcome of the select committee process was on that bill.
The second issue is that for an issue as significant as to whether Wellington City Council should try and operate its water services itself, set up its own stand alone water services entity, or be a part of a joint regional entity, is all going to be subject to a formal consultation process. That’s all water still to go under the bridge, and unless DIA thinks that Wellington City Council is in possession of an actual time machine (and not the TV prop that was recently exhibited at Tākina), then it’s madness to think they could pre-determine this in a long-term plan written before they were required to even develop their water services delivery plan.
And it gets worse.
Let’s assume that for argument’s sake that Wellington City Council opts for a separate water services entity under Local Water Done Well (whether the entity goes it alone or is a semi-regional joint entity doesn’t particularly matter for this point). In that scenario, it would then be up to the council-controlled water entity to decide how much of that 500% debt to revenue cap it now has access to that it wants to use. Wellington City Council could set expectations that the new water entity should borrow to the hilt to fund water infrastructure, but that’s probably not a particular prudent financial strategy.
Simply put: regardless of DIA’s criticism, Wellington City Council couldn’t include using the Local Water Done Well debt mechanisms in their long-term plan because they didn’t exist at the time, they won’t exist in actuality for another year or two, and before they even get to a point where a water entity might be able to decide to access them, they need to develop a water services delivery plan and formally consult with their community on it before making any decisions.
It’s truly baffling that anyone in DIA didn’t fact check their own advice given how much of a howling error this is.
Speaking of prudent financial strategies, DIA singles out Wellington City Council having a self-imposed debt to revenue cap of 225% rather than borrowing up to the full 280% debt to revenue cap allowed through the Local Government Funding Agency. It’s not a wild policy position for Wellington City Council to want to try and keep some headroom in their borrowing capacity.
It case DIA hadn’t noticed, Wellington City sits on one of the country’s most seismically active zones. Given the hidden costs we’ve watched pouring out in the aftermath of the Seddon and Kaikoura earthquakes, it’s a pretty reasonable position for the council to have to leave themselves a healthy amount of headroom.
Unlike the issue of the Local Water Done Well debt mechanisms being unavailable when the long-term plan went through its first process, at least the debate about the level of debt Wellington City Council is willing to take on is, as Professor Knight put it, one of those “quibbles about policy choices.” Though in this case DIA’s inference that Wellington should borrow way more is probably not a particularly financially sustainable argument to make.
What gets me though is that DIA’s huge stuff up in their advice is nothing new. It joins a long list of central government agencies issuing bizarre advice about local government. Who can forget the likes of Treasury and the now defunct Productivity Commission telling councils that their revenue and finance tools were fit for purpose and they just needed to use them better? I’d certainly like to see the people responsible for those reports putting their hands up for councils on a platform of simultaneously hiking fees, rates, and debt. Good luck to them.
Local government sector leaders need to start publicly calling out these demonstrable issues, especially when they come from DIA’s Local Government branch which is in theory meant to provide some element of system stewardship for sector. Certainly, the distinct lack of direct local government experience from those advising on local government policy to central government should be raising eyebrows at a minimum.
