Round one of the government's reform agenda for local government was completed before Christmas with the rewrite of the Local Government Act 2002.

This year will see a second piece of legislation and the completion of a number of other reviews and inquiries.

We report on the amendments to the Act and foreshadow the next set of legislative changes.

What you need to know about the Amendment Act

As noted in our earlier commentary, the principal objectives of the government's eight point reform programme are to promote consensual amalgamation among and to impose stronger fiscal and operational disciplines on the country's 78 local authorities.

The Act seeks to achieve this by:

Redefining the purpose of local government

The new purpose is "to meet the current and future needs of communities for good quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and businesses".

"Good quality" is defined as efficient, effective and appropriate to current and anticipated future circumstances. These are useful goals but will require an element of subjective judgement so will be open to legal challenge. There will also, at least initially, be uncertainty around what "local public services" are and what "cost-effective" means.

Ultimately these and other interpretative questions will need to be resolved by the Courts.

Gone is the duty introduced in 2002 to promote social, economic, environmental, and cultural well-being (known as the "four well-beings") – a change which was strongly opposed by Local Government New Zealand and the majority of submitters on the Bill.

Council reorganisation

These amendments reflect the government's desire to facilitate inter-council amalgamations.

The Local Government Commission is given wider powers to consider multiple proposals for reorganisation and to determine the preferred option to be presented to the public for consultation. The Commission must notify the final proposal, once satisfied that it has demonstrable community support in each affected council district.

A poll on the final proposal is no longer mandatory and is necessary only where 10% of electors in any affected district demand one. A proposal will be successful if 50% of the voters over the entire affected area vote in favour, previously 50% of each existing district needed to vote in favour.

In reality this means that larger councils have significantly more influence over smaller councils.

Fiscal responsibility

The Minister can now recommend regulations prescribing parameters or benchmarks for assessing whether a council is prudently managing its revenues, expenses, assets, liabilities, investments and general financial dealings.

Strengthening governance

A handful of poor financial decisions made by councils over the last few years have persuaded the Government that it needs greater powers of intervention. The Minister of Local Government can now intervene to remove a council if he or she is satisfied that there is a "significant problem" of governance. This might include a failure to demonstrate prudent management of revenues, expenses, assets, liabilities, investments and general financial dealings.

Intervention can include the appointment of a Crown Review Team, Crown Observer, Crown Manager, or a Commission.

Round two reforms

The Local Government Efficiency Taskforce (Taskforce) was appointed to provide independent advice on how to improve the efficiency of local government consultation, planning and financial reporting requirements and practices.

The Taskforce report was released by Minister David Carter on 12 December 2012. It contains 32 recommendations. These include:

  • providing councils with a mandate to determine whether (or not) to engage with the local community and the most appropriate way to do so
  • replacing decision making rules with a set of principles
  • retaining engagement provisions with Maori
  • requiring councils to have an engagement and significance policy in the long term plans
  • ensuring there are no barriers to the innovative use of technology
  • making long term plans more strategic and less detail focused
  • replacing annual plans with annual budgets
  • reviewing the relationship between the Local Government Act, Resource Management Act and Land Transport Management Act to improve integration of planning functions and to reduce the overall number of plans.

It will be interesting to see how many of the Taskforce's suggestions are picked up by the Government. In several areas, the Taskforce is recommending that councils be given more discretion. This seems at odds with the Government's reforms so far, a major theme of which has been to centralise decision-making.

We also wait to see the results of the Productivity Commission's inquiry into central and local government regulatory roles, the Local Government Infrastructure Efficiency Advisory Group's report on reducing the cost of quality local government infrastructure, and the Government's review of development contribution policy.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.