PoliticsApril 15, 2024

Councils funding is a disaster. Are city deals the answer?


Local councils think city and regional deals could solve New Zealand’s broken infrastructure funding. But how would it work?

The vibes in New Zealand’s councils are bad. Local Government New Zealand’s combined sector conference at Shed 6 in Wellington felt like a moment in time, when everyone in the room recognised the scale of the problem in front of them. “It feels like we’re at a time where change is critical, now,” LGNZ president and Selwyn District mayor Sam Broughton told the assembly of fellow mayors and councillors. 

Almost every council in the country is facing water and transport networks that are hopelessly underfunded and creaking at the seams, and looking at historically high rates rises – 19.9% in Hamilton, 16.4% in Wellington, 17.2% in Whangārei, 23.7% in Napier. 

Although those increases sound catastrophic, Broughton is eager to put them in context. When you look at an average household’s total tax and rates bill, around 93% goes to central government and only 7% to local government. For the average household, that’s about $2,900 a year in rates, and $37,000 in tax.

New Zealand is among the most centralised countries in the OECD in terms of how much of our tax money goes to central government compared to local authorities. But rates increases hit people’s back pockets with a more acute pinch. Taxes are taken from income before it ever reaches your bank account, while rates typically come as a lump sum payment and have to be paid directly. 

Local Government NZ president Sam Broughton (Photo: Supplied)

Mayors have been shouting into the wind for years that rates funding isn’t enough. Councils suffer from what’s known as “unfunded mandates”: central government requires them to perform a number of services, without providing the funding required to pay for it. 

Councils do have other tools at their disposal. For example, there are parking meters and fines, but the maximum fees are set out in legislation and haven’t been updated in 25 years. The Auckland Regional Fuel Tax was another source, but now that’s gone too. “Communities point the finger at councils for lifting rates, but we should point the finger at central government,” Broughton said in an interview after the conference.

So where does that leave councils who are struggling to pay their bills?

The solution councils have glommed onto most prominently is city and regional deals, which have been rolled out successfully in many parts of the UK and Australia. City deals are a broad term, but they typically involve a long term contract between central government and councils, empowering councils to take on major infrastructure or other projects in exchange for a greater share of the tax take. 

Andy Burnham, the mayor of Greater Manchester and a former cabinet minister in the Blair government, zoomed into the conference for a conversation with Broughton. Greater Manchester struck the first city deal in the UK back in 2009, creating a revolving infrastructure fund for local infrastructure and allowing the city’s 10 councils to “earn back” a share of the tax generated from economic growth in the city. 

“We were in awe of the fast-moving US and Asian cities,” Burnam said. But progress in the UK was slowed by the constant need to secure funding and approval from the central government. “Everyone has to go on bended knee to the powers that be in the centre.” Burnham wants more countries to shift power balance away from central government towards local authorities – “place-based politics”, as he calls it. “The 21st century economy will be built bottom-up, not top-down,” he said.

Greater Manchester mayor Andy Burnham. (Photo: Christopher Furlong/Getty Images)

Aside from the obvious funding issues, Broughton is also concerned about councils’ ability to make long-term investments without assurances from central government. “Local government plans for 30 years. Central government doesn’t do that.”

Both the Auckland and Wellington light rail projects were beset with plenty of speed and planning failure, but in reality, neither project would have survived a change of government. If trams can only ever be built under a Labour government, there’s no guarantee any project will survive an election. It’s easy to see the same thing happening with the second Mount Victoria tunnel in Wellington; National wants it to go ahead, but there’s every chance it could be dropped again under another change of government. 

There are two hurdles that need to be overcome before city and regional deals can be viable in New Zealand. One requires a sacrifice from local government, the other from central government. 

On the local side, councils are going to need to amalgamate or form some kind of larger regional alliances. “Some councils actively want amalgamation, others definitely do not. But we need to get to a certain size and scale. We can’t expect central government to have individual conversations with 70 councils, it doesn’t make sense,” Broughton said. 

In Manchester, securing a city deal required 10 borough councils to create the Greater Manchester Combined Authority. Each of the councils continued to exist, but added a directly elected mayor of the wider region. This kind of format is probably more palatable for most New Zealand councils than direct amalgamation – though it was pretty heartily rejected in Wellington a decade ago. 

The bigger challenge is at the central government level. Parliamentary supremacy, a single house, and no state government means our executive branch is incredibly powerful. And once you have power, it’s incredibly hard to give it up. Major parties have become used to using infrastructure investment as election bribes. Ministers act like feudal lord, granting gifts of bridges and tunnels to gracious peasants, and mayors often end up like glorified lobbyists for their regions. 

Act, National, and New Zealand First have all signalled their interest in city deals. That isn’t necessarily a surprise; right-wing parties are typically more in favour of devolution of power away from central government. But in reality, this coalition government hasn’t embraced local decision making. It took only weeks for the government to scrap Let’s Get Wellington Moving, despite support from both the city and regional council, cancel all funding for local cycling and walking projects, and even take steps to remove council’s ability to create their own Māori wards. Transport minister Simeon Brown campaigned on a promise to stop Wellington City Council’s plan to block cars from Courtenay Place and Lambton Quay, a local project that central government had no legal ability to block.

Truly effective city deals will need cross-party support that can last beyond a three year term. But more importantly, they will need central government to step back and let local communities and councils have more say in what happens in their city. The question is: are any of our current ministers brave enough to let go of their own power?

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