Big questions for local councils
Do you expect your council to light your streets and fix the potholes? Do you think it should provide clean drinking water and sewerage services? As media reported earlier this year, some town and district councils in our regions are already struggling to do this, and a recent report from the Auditor-General suggests the problem is going to get worse.
The Auditor-General found that councils are consistently underspending their capital expenditure budgets. In other words, they’re making plans to spend money renewing and improving assets like water supply, sewerage, and stormwater drainage, but they’re not following through on the plans and actually spending the money. The report tells us that, “Since 2012/13, local authorities have spent, on average, a maximum of 77% of their capital expenditure budget in any one year.” In fact, most councils aren’t even spending enough to maintain the current assets, which are depreciating faster than renewal spending.
“In fact, most councils aren’t even spending enough to maintain the current assets”
It seems obvious that councils should invest more in essential assets. The report doesn’t tell us why they’re not doing this. The problem could be over-budgeting rather than underspending, but that seems unlikely—while there could be good reasons not to spend the budget in one year, council underspending has been happening for years now. The Auditor-General warns, “If nothing changes, the cost of improving the quality of the assets might fall on future generations.” But in many parts of New Zealand, there may not be enough people to pay that cost in the coming years.
Local government bodies in our regions are in a tough position, with two-thirds of the country facing ageing, declining, or stagnating populations over the next 30 years, and therefore a diminishing rating base that gives councils less ability to invest in assets for the future. Of course, councils need to invest in assets to maintain viable communities that people actually want to live in, but the underinvestment in assets is likely to be a symptom of this deeper problem.
So what can these councils and communities do? Faced with declining rating income they can’t simply take on debt to build assets that may not even be what the future community needs. Raising rates is an option, but one that’s unlikely to be popular.
“Raising rates is an option, but one that’s unlikely to be popular.”
However, rates only make up around 50 percent of local authority income. The Auditor-General tells us that some councils have been missing out on available grants for infrastructure spending just because they’re not doing this work. Councils could also think creatively about other ways to boost their income, for example, through partnerships with iwi and private enterprise, or by introducing charges for tourists using their facilities.
If councils can’t raise money to invest in assets, then communities should consider whether to switch from a growth mindset to one that embraces smart decline. For example, if you can’t invest adequately in water supply, will you accept a switch from town supply water to rainwater tanks?
These will be hard conversations, and no-one likes those. But if you live in regional New Zealand, now would be a good time to start one.