Local Government and
General Competence
3 October 2009 | by Kenneth Palmer
Can Local Governments do anything they like?
The Minister of Local Government, the Honourable Rodney Hide, has announced that a review of the powers of local authorities is being undertaken and a review of the levels of property rating will be part of this study.
The Minister has expressed a concern that most rates increases have exceeded annual inflation, and intemperate expenditure or involvement in entrepreneurial activities may have resulted in an unnecessary financial burden on ratepayers.
In addressing these matters the article considers the background to the conferment of the power of general competence under the Local Government Act 2002.
This consideration will raise the question whether or not any likely changes will be progressive or regressive as a matter of constitutional power sharing.
Background History
Under the Local Government Act 1974, local authorities had such powers that were specifically stated in the various statutes, including powers which were incidental to fulfilling the major functions.
A close scrutiny of the legislation indicates that local authorities were well endowed with powers to carry out major functions, and had discretions to become involved in promoting community welfare in its many different forms.
In particular, local authorities were encouraged through advantageous government loans to establish pensioner housing and housing for other inhabitants.
From time to time, an exceptional case arose where the powers of a local authority to undertake commercial activities which could compete with the private sector were challenged.
For example in 1964, a court held that the Napier City Council was not empowered to establish motels in the Kennedy Park reserve, but could only establish a conventional camping ground with huts for sleep-out accommodation.
That particular decision was nullified by local legislation which enabled the motel operation to continue. In Parliament, the wisdom of allowing local authorities to compete with private operators remained controversial between the respective political parties.
The major structural reforms and amalgamations of local authorities which occurred in 1988, being initiated by the Labour Government, left intact a sequential question as to the reform of powers of local authorities.
At the time, however, the concept of conferring a power of general competence on local authorities was put forward as an electoral platform by the Labour Party.
The Deputy Prime Minister, the Honourable Geoffrey Palmer stated that the Local Government Act could be greatly simplified if it was based on the principle that local government could do all things that a natural person could do, unless specifically restricted.
This approach would reverse the conventional legal situation.
The Minister of Local Government, the Honourable Michael Bassett was more cautious, and the expansion of local government powers did not progress before another change of government.
The next step towards liberalisation was undertaken by the National Government in 1996, being a time of expanding economic management.
Prior to this date, the Local Authority Loans Act allowed for an electors’ poll to be undertaken, where a local authority was obliged to borrow money to finance a public work.
One example of the poll occurred earlier in Northcote Borough, where the council sought to borrow money to erect a public library.
The loan poll voted down the proposal. A comment was made that the ratepayers comprised mainly males, who were not so interested in literature, and the women of the district suffered as a consequence.
The 1996 reforms to the Local Government Act abolished the loans poll, and substituted guidelines on better financial strategies and economic management. In the Woolworths case a differential rating system in Wellington, which imposed added costs on commercial occupiers, was challenged.
The Court of Appeal refused to intervene holding that financial management was a matter for decision by local authorities with democratic accountability. The guidelines included an emphasis on user pays and on cost-benefit analysis.
From that date, the electors’ polls have not been available to contest any borrowing or increases in rates which may be necessary to finance the borrowing.
With the return of the Labour Government, the second phase of local government reform, under the Local Government Act 2002, was able to be implemented.
The LG Bill provided for a power of general competence, and submissions raised the question whether or not the Bill should also prescribe a list of mandatory activities which would traditionally be carried out by local authorities without question, and a list of secondary activities which could be subject to greater scrutiny.
The Local Government NZ Association strongly supported the liberalisation of powers. The mantra was essentially one of a rite of passage to adulthood.
Local authorities could be trusted to act wisely and prudently, and the financial management guidelines, which were being revised in the Bill, would ensure these outcomes.
During this period of economic prosperity, the focus or concern over rates increases was not to the forefront.
A “third way” approach to public administration, through models of reflexive law, which imposed a type of benign proceduralism to guide appropriate outcomes prevailed.
This approach to local governance, to promote social and economic wellbeing, evolved in an incremental way the shifting onto local authorities of significant administrative responsibilities (and costs).
The resulting outcome was that the Local Government Act 2002 (LGA) conferred on local authorities a clear power of general competence, with detailed procedural directives to take into account community views in the decision-making process.
The new obligations included the creation of a long-term council community plan, annual plans and reports, triennial reports, and other duties which translated into significant costs to ratepayers.
It appeared that Parliament was prepared to accept the independence of local authorities, and to treat them as full adults in principle, but to also constrain the decision-making process which indicated continuing reservations.
The Auditor-General was, by default, the only practical watchdog who could check on local authority excesses in the use of the powers.
Another element affecting local authorities have been the decisions of councils to transfer of many functions to council-controlled organizations (CCOs).
The LGA lightly constrains the financial support that the councils can give to CCOs. However, many of the operational functions of local authorities are managed through these bodies or are contracted out to private enterprise.
As a consequence, former opportunities for cross-subsidisation from profits with a benefit to traditional ratepayers are no longer available.
The corporate organisation may not wish to pay a full dividend to the parent local authority, and may wish to expand the enterprise.
Further, the traditional restraint of operations to the local authority area is not applicable to the activities of a CCO.
Various CCOs have assumed the mantle and characteristics of independent companies, and enjoy an assured financial base.
Other factors affecting rate increases have been the exponential increase in administrative responsibilities, requirements to improve the quality of water supplies and sewage management, increased obligations regarding waste minimisation, and financial liability for leaky homes.
The latter liability is one which originates with imprudent decisions of the former Building Industry Authority, binding on local authorities, to allow untreated timber and inadequate cladding systems for building. It is timely that central government should reconsider sharing responsibility for this liability.
Criticisms over Expenditure
Criticisms have been made of certain commitments or expenditure by local authorities which appear to be unrelated to core functions. The core functions obviously relate to road provision, water supply, sewage disposal, and refuse management, and local reserves maintenance.
Certain councils have been criticised for speculative purchases of property, making risky investments or being involved in non-core trading activities.
These outcomes are likely to be lawful under the general power, and it should be assumed that the Auditor-General has not disapproved of the activities. The power of the Auditor-General to require councillors to be personally liable for inappropriate expenditure remains, and this type of liability rarely occurs.
The outcome indicates that local authorities are not misusing the powers.
The Local Government Act directs a local authority to promote the social, economic, environmental, and cultural wellbeing of communities, in the present and for the future.
The wide mandate supports many of the non-core activities of local authorities. For example, the possibility of providing policies and plans for affordable housing was conferred in 2008.
With the present criticism of local authorities it is unlikely that affordable housing will be given any financial support. Affordable housing will be seen to remain the responsibility of central government.
Polls Experience
The law provides for a local authority to initiate a non-binding referendum. The Minister for Local Government has hinted that this type of power could be adopted to require non-core activities to be authorised by the citizens.
The imposition of a referendum obligation could be seen to be a return to the pre-1966 position, where the ratepayers poll was available.
The negative aspect of a poll right is the likelihood that any proposed public development increasing the level of rating will not be approved, regardless of the merits of the proposal. The interests of the wider community and non-represented groups could be marginalised.
Where polls have been used in overseas states or communities, such as California, the results have not been advantageous for the public interest in the longer term.
Conclusion
The article has endeavoured to elucidate relevant background to the present debate on the powers of local authorities, and the issue of rating levels.
If central government imposes greater restraints on local authorities, such as restricting rate increases to the annual cost of living or inflation indexes, the vitality of local government could be greatly diminished.
Local government could be seen to be an extension of central government, with a limited function to provide essential services in the most efficient manner.
Significant community developments and promotions could become a thing of the past.