Independent review proposes new tools to finance local roads, parks and services

June 20, 2023 Stan

Local Government

A long-awaited review into the future for NZ’s cash-strapped local government will recommend new ways to fund community needs

City and district leaders expect the financing of local infrastructure and services to become an election issue, after a Government-commissioned review reports back on Wednesday morning.

Mayors hope (and in some cases expect) the Future for Local Government review to endorse new solutions like:
* providing councils a share of locally-raised GST;
* the Crown paying council rates on schools, hospitals and conservation estate;
* a ratepayer financing scheme where residents could take out low-cost loans to pay for needs like insulation and solar panels on new homes;
* rates postponement;
* a $1 billion pot to help councils meet the costs of climate change adaptation.

Already, the Government is embracing moves towards road congestion charges and a hotel bed tax, after the Supreme Court cleared a longstanding hurdle to the local levy.

The pressure for councils to get a share of GST is coming from cities, provincial capitals and small rural districts.

“The current funding model is broken and successive governments of all shades have recognised the problem and each subsequently has made it worse,” says Neil Holdom, Mayor of New Plymouth. “Central government gets 91 percent of tax revenue, while councils get the remaining 9 percent, but we provide 40 percent of our public infrastructure.”

He says returning a share of local GDP to councils, through measures like GST, would encourage councils to grow their local economies as happens in Europe and elsewhere overseas. “If Government doesn’t address funding and financing issue first, the rest of the review will be irrelevant as the current model is unsustainable.”

Napier and Waimate’s mayors agree that councils should get a “true share” of GST.

“I would like to see local government retain the GST on revenue collected,” says Kirsten Wise, the Napier Mayor. “The whole local government funding/financing model requires a complete overhaul. I would hope to see this become an election issue.

“I definitely think funding and the future of local government should be an election issue,” Waimate’s Craig Rowley says.

“Extreme weather events have placed further strain on already-struggling communities.”
– Kieran McAnulty, Local Government Minister

Local Government Minister Kieran McAnulty last month told Newsroom that Internal Affairs officials are doing preliminary work on some of the matters raised by the review panel and councils.

The draft recommendations of the review, commissioned by his predecessor Nanaia Mahuta in 2021, recommend retaining rating as the primary funding mechanism for local government but simplifying and streamlining the rating process. “Since then, extreme weather events have placed further strain on already-struggling communities,” he acknowledged.

Newsroom asked McAnulty whether the Government would agree to pay rates or, alternatively, share locally-raised GST with councils. “We are entering into this process with an open mind,” he says. “Once I receive the outcome of the independent review, I will discuss those options with local councils and how we move forward.”

But he’s not expecting to announce any decisions before the election – which mayors say will make it an election issue.

As well as a slice of GST being allocated locally or regionally, Hutt City Mayor Campbell Barry argues for a dedicated climate response fund built up to support local government, and that government departments should pay rates on their assets.

“Changes to the way local government is funded need to be comprehensive, and need to be looked at alongside the role and purpose of local government,” he says.

That’s echoed by Buller Mayor Jamie Cleine, who hopes councils will be empowered to levy rates on government property including the conservation estate.

In Buller District, 87 percent of the land is conservation estate – and successive governments have exempted themselves from paying rates on the mountainous country. The sprawling 8574 sq km district boasts two national parks, one forest park, and two heritage areas. There are fewer than 10,000 locals in the West Coast district, living in communities dotted between Kahurangi National Park and Paparoa National Park, but they must pick up the tab for services for all the tourists.

Councils are also working on solutions to finance residents, like Local Government NZ’s proposed ratepayer financing scheme, conceived in consultation with financial advisor Cameron Partners.

The Future for Local Government draft report says that in order to deliver on community wellbeing outcomes, local government needs to work with other people to support place-based investment and should always be exploring ways to deliver and fund services for its citizens, or on their behalf.

The report endorses the ratepayer financing scheme. “This type of scheme enables homeowners to take out low-cost loans to pay for improvements to their homes, like insulation and efficient home heating, which also positively impact occupants’ wellbeing,” it says.

“These schemes are one example where the local government sector can leverage its resources and financial strength to help citizens, especially those who may not otherwise have access to affordable financing arrangements.”

This scheme would be operated through a collectively-owned lender like the existing Logal Government Funding Agency, but instead of lending to councils, it would lend to residents. This “off-balance sheet mechanism” would provide ratepayers favourable financing terms to help mitigate cost-of-living issues.

Wairoa Mayor Craig Little, whose small community is also trying to rebuild from Cyclone Gabrielle, says local councils should receive additional external funding to reflect their needs, taking account of each community’s GDP as well as their deprivation level.