Councils fight a funding squeeze

As rates rise around the region and across New Zealand, and a recent report shines a spotlight on local authority funding, Wairarapa’s three mayors have spoken out about some of the pressures that councils are facing.

The final report of the Review into the Future for Local Government panel has described parts of the current model as “not sustainable” and in need of a fundamental reset.

In the report – published last month – the independent panel is critical of many aspects of the environment that local government currently operates in, and concludes that – among other things – a substantial cash injection from central government is needed for local authorities to do what is expected of them.

“Many people have suggested to the panel that the system is ‘broken’ and that we have reached ‘peak rates’,” the report said.

The report also quoted Federated Farmers as observing that “while trust is expressed by central government in the responsibilities delegated to local, the lack of support financially and logistically suggests local government has facilitated the transfer of many functions and costs from taxpayer to ratepayer”.

All three of the region’s mayors agree local authorities are currently underfunded.

This year, average rates went up 19.8 per cent in South Wairarapa, 6.2 per cent in Masterton, and 5.9 per cent in Carterton – and it is likely they will rise again next year.

The panel has recommended a raft of wide-ranging reforms, including embedding intergenerational wellbeing and local democracy at the heart of local government, introducing a statutory requirement for councils to develop partnership frameworks with hapū/iwi and Māori, a reorganisation of local government to meet future challenges, and substantially increasing funding.

“The current local government funding and finance system is already under pressure and is not sustainable,” the report said.

“While taxation as a percentage of GDP has risen over time, local government’s share has stayed at around 2 per cent of GDP – even as it has increasing responsibility for delivering the public good.”

While of the view that rates should remain councils’ primary funding mechanism, the panel said this should be “accompanied by significant central government funding”.

The panel has recommended that central government pay rates on its own property, and transfer an amount to local authorities that’s equal to the GST charged on rates – about NZ$1 billion a year in total.

“A significant fund is also needed to support climate change adaptation activities,” the report said.

The report has also recommended that Cabinet should consider the funding impact of proposed policy decisions on local government.

Speaking individually to the Times-Age, Masterton mayor Gary Caffell, South Wairarapa mayor Martin Connelly, and Carterton mayor Ron Mark each ticked off the myriad challenges they face funding and managing the competing demands of degrading infrastructure, increasing severe weather events, and increased regulatory demands – all in an inflationary environment in which rising costs are the norm, while ratepayers expect service levels for amenities like libraries and playgrounds to be maintained.

Mark – who is also a former Minister of Defence – said the problems are not new, but local government has become weaker over the years.

“We were making this very point back then: that the mechanisms we are empowered with under the Local Government Act to raise revenue are archaic, out of date, not fit for purpose – and that eventually they would break and fail,” Mark said.

“We are definitely at a point where a government has to listen.

“Governments are good at taking GST out of our districts, but very reluctant to put it back in,” he said.

“They are very happy to tax people but very loathe to use that money to support local government. They are very good at criticising local government for failing but don’t demonstrate in a consistent manner an understanding of the pressures [central] government itself contributes to the cost increases in council.”

Mark said many new acts of parliament put extra responsibilities on local government.

“That brings with it a cost to ratepayers. There is a pressure on councils to levy ratepayers more and more money.”

He pointed to current reform programmes like Three Waters and the Resource Management Act as examples.

“In every case, staff are sent running from business-as-usual to go and do the research to find out what this means and how it impacts us.

“We are burning more ratepayers’ money, over and over and over,” Mark said.

Caffell and Connelly agree more funding is needed for local authorities to perform what is asked of them.

“In the short term, there’s no easy fix,” Caffell said.

“We certainly couldn’t get into the business of predicting we will have lower rate increases in the next two or three years,” he said, noting that roading, water, and central government reforms need considerable investment.

“The short-term answer isn’t going to be very palatable for people. Councils don’t have a treasure chest of money, and so rate increases are inevitable,” Caffell said.

Connelly said the impact of climate change on areas of spending is growing in significance.

“Roading issues have been brought into much sharper focus by the acknowledgement that climate change is well upon us. The cyclones and various flooding events make it clear to everybody that places like Hinakura Rd and others are probably going to be increasingly expensive to maintain,” Connelly said.

“There is a limit to our budget, and there are limits to what we can afford by way of rehabilitating many marginal areas of our countryside.

“For places like Masterton and South Wairarapa, which are so huge and so sparsely populated, these become quite critical issues.”

Connelly said the long-term planning process will be an opportunity to engage with the community on these issues.

Caffell said the report has helped raise awareness of the problems local government is grappling with.

“One of the challenges we face is climate change resilience,” he said.

“We are being asked to be more resilient in our roading networks and in our water supply, but it’s huge money you’re talking about. Unless – particularly in the climate change area – central government is willing to do its bit and help us out, these problems we are having with water and roading are just going to escalate.”

Caffell welcomed the report of the panel, saying it reinforces the views of many of those working in local government.

“We’ve got a panel of people who have looked at it [the issues] and are saying exactly what we’ve been saying. Hopefully, central government is going to listen to that.”

– NZLDR

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