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At least $5 billion-worth of NZ council infrastructure is on the coast and could be vulnerable to sea level rise. Photo: Getty Images
Nikki Mandow is Newsroom's business editor and the 2021 Voyager Media Awards Business Journalist of the Year @NikkiMandow.
Local Government
Newsroom election survey: Local candidates want to spend more – and they are willing to investigate new ways to pay for it.
It wasn’t that many years ago when campaigning on a platform of increased spending and higher debt would have been a recipe for disaster for a prospective local body politician.
More infrastructure mostly meant higher rates bills and no one was going to vote for a council that wanted to put up rates. Loading up debt just compounded the evil.
Those ageing underground pipes, that unbuilt housing infrastructure for a growing population, those inadequate flood defences – she’d be right.
That attitude has changed, if a Newsroom survey of 600-plus candidates standing in the local election is anything to go by.
Of those who responded, 61 percent said they would vote to increase infrastructure investment, another 23 percent said it should stay the same, and only three percent said we should spend less on infrastructure. Three percent.
Perhaps the change of heart isn’t so surprising. Treasury’s 2022 Investment Statement put New Zealand’s total infrastructure gap at $210 billion. Central government committed $57 billion out to 2025.
Councils won’t face the whole of that shortfall, but it will be a significant amount. For example, just one issue – the amount of council infrastructure exposed to sea level rise – has been estimated at approximately $5 billion.
Which is presumably one reason more than half (56 percent) of local council candidate respondents to the Newsroom survey were supportive of councils taking on debt to fund necessary infrastructure projects. Only a quarter (24 percent) were against using debt.
The percentages were higher for candidates looking for election in the main centres. Two thirds (67 percent) of prospective mayors and councillors in cities and big towns supported increased infrastructure spending and 58 percent were in favour of debt. Cities tend to be where population growth is strongest and infrastructure deficits are highest.
The numbers were lower in rural councils (55 percent for infrastructure and 47 percent for debt). However, this could still be seen as an about-turn. In the past, rural ratepayers, supported by the farming lobby groups, have often pushed back against increased infrastructure spending. Why build a fancy new wastewater treatment plant when half the local population – or at least the wealthiest segment – weren’t even connected to mains pipes?
And debt, that was just a proxy for higher rates.
‘A stand-out result’
Jason Krupp has spent much of his career in public policy, particularly in local government, and is now a director and head of strategy at infrastructure risk mitigation consultancy company HKA’s New Zealand arm.
He sees the open support for infrastructure spending from potential mayors and councillors shown in the Newsroom survey results as “pretty remarkable”.
“Here are all these people saying ‘I want to increase your rates’; that’s a standout figure for me.”
– Jason Krupp, HKA New Zealand
“As a ratepayer, here are all these people saying;I want to increase your rates; that’s a standout figure for me.”
Part of the about-turn has been a realisation you can’t ignore infrastructure for ever, Krupp says. The housing infrastructure crisis and various water-related disasters – from the Havelock North contamination deaths, to sewage spouts in Wellington, to repeated flooding around the country – are proof of that.
Meanwhile, “there’s a growing awareness infrastructure is an enabler of growth”.
At a more individual level, the three waters reform proposals have made it clear to councils and their elected representatives they’ve lost any get-out-of jail-free card they might have had from central government around poor performance, Krupp says.
“There’s far greater systems-level scrutiny, and if you aren’t staying on top of your game, the Government will take it away from you.”
The move to even small councils being comfortable with taking on debt is a positive sign, he says.
One of the changes has come with the growth of the Local Government Funding Agency. Set up in late 2011 with 18 foundation councils on board, it now provides lending services for 75 of the 78 councils and has broadened its product mix to a variety of loan and debt facilities.
It issued $3.9 billion of bonds in the latest financial year, and lending to members totalled $3.2 billion.
The Local Government Funding Agency also works with smaller councils around how to use debt to fund infrastructure projects.
In 2021, the S&P Global Ratings agency raised the agency’s credit rating from AA+ to AAA, the highest available and the same as the New Zealand Government.
Krupp says while the survey shows positive signs councils are less conservative than they were when it comes to debt and infrastructure investment, there’s also room for a more innovative approach.
“Generally we are looking at a set of 21st century problems – climate change, aging infrastructure and the need to cut carbon emissions. But in general we are still using 20th century funding tools.”
He’d like to see some of the more sophisticated tools used by local governments in the US and Europe – things like off-balance-sheet borrowing, tax increment financing (which uses taxes on future gains in real estate values to pay for new infrastructure improvements), and more ‘special purpose vehicles’ like the one set up to finance infrastructure for the Milldale housing development north of Auckland.
“Councillors have been more courageous, saying we have to get infrastructure built, and they’ve acted.”
– Mark Butcher, Local Government Funding Agency
Special purpose vehicles were made possible by the Infrastructure Funding and Financing Act 2020, so are still “at the emerging frontier” of infrastructure funding, Krupp says.
Benefits include councils being able to levy special rates on specific locals to finance particular projects – a seawall funded by properties it would protect using a small additional payment on owners’ rates bill over 25-30 years, for example.
“The incentive is these tools localise decision making”, Krupp says, and potentially “leapfrog what can be a long, bureaucratic and arduous process” when the merits of one project have to stack up against those of other local priorities.
Partnership with Government
In the meantime, the Newsroom survey suggests councils are largely looking to the Government to make up for the huge shortfalls in local infrastructure funding.
Central government partnerships was the preferred revenue stream to supplement rates for the candidates in the Newsroom survey, with 439 of the almost 600 respondents mentioning that as an option. More than 300 would like to see public-private partnerships for infrastructure and almost 200 supported council facility user charges.
Fewer supported congestion charges, local fuel taxes, or the controversial bed tax. Known also as the accommodation providers targeted rate, the Auckland Council’s bid to introduce a bed tax to help fund tourism infrastructure, has been fought by hotels all the way to the Supreme Court.
Mark Butcher, chief executive of the Local Government Funding Agency, says the Newsroom survey confirms what the organisation has suspected over the last five to seven years.
“Councillors have been more courageous, saying we have to get infrastructure built, and they’ve acted.”
In the past there were issues with some councils being unfairly compared with their neighbours when it came to increasing rates or taking on more debt, Butcher says. That’s changing.
At the same time, the challenges facing councils are increasing, particularly around climate change, he says. A recent study found only 17 councils have so far declared a climate change emergency. As more do so, they will be forced to focus their attention on the impact climate change will have on their current infrastructure and future investment.
“It’s only going to get bigger.”
Butcher says alternative funding mechanisms like special purpose vehicles were a possibility in the future, but faced a hurdle around scale.
“They are quite expensive relative to more traditional forms of funding; you need scale because of the large legal and administrative costs. We’d need to be sure special purpose vehicles were truly getting assets built quicker and cheaper rather than just being a substitute for user charges or rates.
“My preference is for central and local government to continue to collaborate a lot more, plus bringing in more user charging – congestion charging, fuel taxes, road user levies and volumetric water charging.
The Review of the Future for Local Government report, commissioned by Local Government Minister Nanaia Mahuta and due to be released after the election, is expected to recommend new revenue streams be available to local government, as well as greater central government finance.
In its May 2022 submission to the Future for Local Government review, Local Government NZ left some of its harshest criticism of the present system of local government to the section on how to pay for local government.
“Funding and financing is a crucial issue that prevents local government from realising its vision,” the submission said. “The 18 reviews into the funding and financing of local government in the past few decades all agreed that property taxes are not a sustainable funding source for local government.”
“Rates lack buoyancy – that is, they do not grow as the economy grows,” Local Government NZ says. “Members are often reluctant to increase them as necessary to invest in infrastructure or services – an issue central government does not face.
“Property taxes also have only partial correspondence with people’s ability to pay, leaving councillors with difficult decisions when setting budgets as they have limited tools with which to offset the impact on low-income households.”
Local Government NZ also recommended revenue sharing with central government, and allowing councils to choose to introduce other funding measures including bed taxes, higher penalties for parking offences, congestion charging, and value uplift charges – the idea that someone who stands to get a windfall profit from some infrastructure being built would be expected to contribute towards the cost of that infrastructure.
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