The Ups and Downs of Local Government Reform
A Speech to the Water New Zealand Conference
Rotorua: 23 September 2009
When Murray Gibb invited me to speak at your conference I realised just how little I knew about the specifics of water delivery in New Zealand. Having taken a life-long interest in local government, its structures, and the best ways of ensuring fairness in the delivery of local services, my ignorance as to water issues is unforgivable. Murray quickly assured me that there would be plenty of people here who had specific knowledge, and views, about water. That wasn't what he wanted from me. What he would welcome, he said, were some insights into local government reform over the years, where water services have been largely neglected. I am happy to oblige, and even more pleased to have been given the opportunity to talk to a few experts, and to read a little about water delivery.
First a bit about how local government developed in this country. The first local authorities came early in the history of settlement. They were in towns. There was a need for infrastructure like roads and bridges, street lighting, then sanitation. Until well past 1900 most people got water from springs or from bore holes, many of which were polluted. Dysentery was a constant health problem in early times. After the abolition of the eight or nine provinces in 1876, a different second tier of administration below central government replaced them. Cities, boroughs and counties came into being. In addition to these, special purpose authorities emerged whenever there was a perceived need. Only a decade later, 60 boroughs existed with mayors and councillors; 63 counties too; and a number of highway boards, harbour boards and river boards. They could all set their own rates, and by the mid 1880s, one or two of them had special water rates that they levied as well. Men who owned considerable property could cast more than one vote. It was relatively easy for people living in a new district to petition to establish a new local authority. Each of them could then promulgate its own by-laws. By 1900 there were 101 boroughs; 86 counties; 227 road districts and 35 town districts. There were 29 river boards, 1 drainage district, 2 water supply districts, 17 land drainage districts and 26 harbour boards. Prime Minister Dick Seddon expostulated: "I'll swear that every second man I meet is an elected member of a local authority!" His government argued for greater rationality to the over-lapping structures, but little happened.
While the economy ticked along as it did under the Liberals there never seemed to be a good time for Seddon or his successor, Sir Joseph Ward, to threaten other peoples' hold on elected office. They might complain publicly. Indeed, they often did. When the first comprehensive bill to restructure local government was introduced into Parliament in 1912 in the dying days of the Liberal Ministry, there was a hullabaloo. Now there were 457 local authorities in a country of a million people, including 7 water supply districts. Some painted any form of amalgamation as the end of civilisation as they knew it. The result? No change occurred. The new Prime Minister after July 1912, Bill Massey, knew that a majority of the elected people in local government were his supporters, and it was best to let sleeping dogs lie. There was occasional talk about reform, mostly from the opposition in the nineteen tens and twenties, but a serious need for amalgamation didn't come to the fore again until the Great Depression.
In the early 1930s efficiency and cost cutting were on everyone's lips. Farmers incomes collapsed by 40% over four years. They wanted to trim expenditure. Local authorities were on their hit list. A few councils went under, and some amalgamations took place. But it wasn't until Labour came to power in 1935 that the government talked seriously about amalgamation and introduced legislation establishing a Local Government Commission. I use the word "talked", because in the end, after 14 years in office, the Labour governments of Micky Savage and Peter Fraser hadn't achieved much. Some high-sounding reports were issued after lengthy hearings. They took place before a wigged and gowned chair of the Local Government Commission, who insisted on being called "Judge". But only a few amalgamations occurred. This was partly because the law provided for polls of ratepayers. The public was sceptical about whether there would be savings in rates if amalgamation took place, and polls on proposals for change were usually defeated. Change, they feared, might result in even higher costs. Better the devil you know, ran the argument. The English poet and satirist, Hillaire Belloc, summed it up in his famous Cautionary Tales: "And always keep a hold of Nurse for fear of finding something worse".
During Labour's years the number of local authorities actually grew. By the time Prime Minister Peter Fraser was defeated in 1949 there were 900 local authorities in a country with fewer than two million people. There were 125 counties; 134 boroughs; 28 town boards; 7 road boards; 16 river boards; 12 catchment boards; 43 land drainage boards; 4 urban drainage boards; 2 separate water supply boards; 179 fire boards; 1 local railway board; 47 harbour boards; 43 electric power boards; 37 hospital boards; 159 rabbit boards; 39 milk boards; 2 nassella tussock boards, a tramway board, a gas board, and 18 main highways boards, plus an elected joint transit housing committee! Phew! Dick Seddon would have been bewildered. Water supply and drainage were handled in a myriad of different ways throughout the country. I confess that I find this ironical. My historical profession has demonstrated that nothing did more to improve the standards of health and longevity around the world than the provision of clean water plus the efficient disposal of sewerage. Yet, the structures delivering those services varied throughout New Zealand, as did the charging mechanisms, if any existed at all. "User pays" was a term best left for the back of the bike sheds.
Once more, during the comfortable years of the 1950s and 1960s the country swanned along, pecking up its seed corn. There was no willingness to get tough with the obvious inefficiencies and bureaucratic duplications in local government. Ratepayers gradually realised they weren't getting the best possible services at the best possible prices, but they still feared change. National and Labour governments weren't prepared to force the issue. They kept fiddling with the rules relating to ratepayer polls in the hope that reform might emerge by some magical back door mechanism that didn't require politicians to intervene directly. National's Allan Highet, my predecessor as Minister of Local Government and Internal Affairs, initially tried to crack the whip. But he was over-ruled by Robert Muldoon and vocal back-benchers. Highet reduced the powers of the Local Government Commission in 1977; the commissioners dropped down to half time. One of them spent most of his office days knitting!
An inability to deal with wasteful expenditure in this segment of the public service mirrored what was happening to the overall governance of New Zealand. A plethora of controls and regulations caused waste within the economy. Excessive government spending sent inflation through the roof; growth that lifts all peoples' standards of living, like boats on an incoming tide, subsided. We called it stagflation. In 1984 there was a crisis on a grand scale when a run on the dollar forced a 20% devaluation upon the new government in July that year. That event opened the door to major reforms in most segments of the economy, and particularly within the public sector. There was a chance to deal with local government at last. For the better part of a decade after 1984 New Zealanders were obliged to concentrate on getting better value from their taxes. Turning state trading departments into SOEs and making them pay a dividend to the government that owned them eliminated huge areas of waste. It was soon possible to pay down crippling levels of government debt.
If you think about it, so great were the changes in the 1980s that it would have been odd if local government had been allowed to buck that trend towards greater efficiency. I was determined the opportunity wouldn't be lost, and I appointed Brian Elwood, a political opponent of the government's, to the task of running a slide rule over all local authorities. I asked him to define a set of principles to drive the change process, and I found the resources and back-up people for him to do his job. I promised him that I'd back his commission's recommendations and never undercut his efforts. AND I removed the polls on amalgamations. This was important: had I wavered, I could quickly have become a focus of lobbying efforts by those who didn't want to see any mayoral chains melted in the interests of the wider national good. In the end, the 800 or so existing local bodies remaining in New Zealand in 1984 were reduced to 73 territorials, plus 12 regionals (86 in total), for the October 1989 elections.
There were, of course, loud protests. Several bitter-enders took me to court arguing that proper procedures hadn't been followed. They lost. An interesting fact that might encourage you is that forcing local government reform in 1989 did not feature large in the reasons why the Labour Government was thrown from office in October 1990. Exit polling showed that it was only a minor part of the public's irritation with that government. By and large they had got the stitch with the pace of reform, and with the fact that ministers squabbled amongst themselves. Given the scale of the changes we made, this suggests that there was a reasonable degree of willingness to accept that the time to rationalise local government had arrived. That in itself is a factor in any reform. It is relevant to your efforts. The ground has to be laid if reform is to win acceptance.
From that change process I learned several lessons. First, there has to be a level of public acknowledgement that a problem exists; moreover, that it needs fixing. Hard times economically quicken the process of realization, because that's when New Zealanders are more likely to be cost sensitive. Secondly, the minister responsible for change has to choose the right person to do the liaison work amongst those likely to be affected. I was very lucky to have Elwood and his team. Thirdly, reform has to happen everywhere in the country at once, not piecemeal. Prior to the 1980s, several different Local Government Commissions had moved around the country suggesting changes within regions, always one region at a time. Invariably they faced the cry: "Why are you picking on us? We aren't the most inefficient. Look over there at that lot...." In the 1980s, as Tom Lehrer would have said, they all went together when they went. They didn't like it, but no region was being individually "picked upon". The process was part of a uniformly applied set of principles aimed at greater efficiency.
Successful reform requires a fourth ingredient as well: political gonads. Yes, everyone has to be consulted. I could paper this hall with the reports and submissions that were a part of the process of reform over earlier years, and even during my six years. Elwood listened, then tweaked his proposals. But if my government had shown a moment of hesitation about meeting the October 1989 deadline, if I'd shown any sign of willingness to buckle under pressure once the final shape of reform had been announced, then nothing would have been achieved. The whole reform process would have come down in a screaming heap - which, of course, a few bitter end opponents hoped it would.
There were sins of commission and of omission in those changes of the 1980s, and in the tinkerings that followed in 1992 at the hands of my successor, Warren Cooper. He reduced the role of regionalism, and tampered with its funding. His changes helped create the problems that led eventually to the inter-city rivalries and weak regional government in Auckland that the recent Royal Commission had to turn its attention to. Moreover, my reforms had no mechanism for locking into place the savings that resulted initially from amalgamations in 1989. When Helen Clark's government allowed central government bureaucracy to balloon out, most local authorities took it as a signal that bureaucratic expansion would be tolerated at the local level too. In boom times it is always easier to appoint new staff than to re-prioritise the functions of those you already have on your payroll. Additional requirements devolved from the centre to local government have also provided a cover for expanding local costs and rising rates in recent years. Much of the necessary discipline, the need to maintain an eye on cost effectiveness, ebbed away over the last decade. Once more this country was gobbling up its seed corn.
The principal sin of omission on my part was my failure to deal adequately with the powers of local authorities. Except for the rules covering local authority trading enterprises, they were not revised in the 1989 legislation. There wasn't time. No minister can rule, of course, from the political grave, and the rules were actually loosened in the 2002 Local Government Act. Costs have kept rising, and a duplication of service delivery has crept back into the local scene, costing ratepayers dearly.
My biggest regret is the one area we spectacularly failed to reform - the rules regarding the provision of clean water and the treatment of waste water. Water, as we are increasingly realizing, is a very valuable commodity. Sir Brian Elwood tells me that throughout the reform of local government in the late 1980s, the parallel process of work that eventually gave us the Resource Management Act was meant to continue and to produce a new regime for water. Sadly, it never happened. The current ownership and governance arrangements relating to water in Auckland are clearer than elsewhere, but not tidy. The recent Royal Commission came up with what looks like a more workable regional structure. Watercare Services will assume statutory responsibility for all water and wastewater services within the wider Auckland Council area. But specific details for the super city seem to change as rapidly as our underwear; what will finally emerge from the process can't be predicted. And no matter what occurs in Auckland, the question remains: what will happen to water service delivery for the rest of the country where there are 73 separate entities responsible for water provision, 16 water regulators and several government departments with an interest in water? I gather that there is no proper charging mechanism for water in most places. Ironically, Watercare in Auckland is obliged by legislation to prevent waste, while most of the rest of the country except for Tauranga and Nelson doesn't even seem to have water meters! Nor is there any sign of a national policy for future investment in the industry, or any mechanism to monitor the effects of major economic changes like the steady shift to dairy farming and its considerable effect on water demand and pollution. Local issues involving Maori and Treaty rights appear to be dealt with on an ad hoc basis, rather than according to any national set of negotiated principles. I suspect there are many other problems too.
I've read the Turnbull Group's proposals for water reform and can only describe them as ambitious. They appear to favour a rather centralized system. Whether any minister would want to be so emphatically held responsible for a local resource like water, I'm not sure. Were it still me, I'd be reluctant to accept that degree of responsibility because of the distance that separates all ministers, per force, from day-to-day, on-the-ground activities. I suspect the Turnbull Report would mean too much power in the hands of the bureaucrats on whom the minister responsible would have to rely. The Turnbull report doesn't say this in so many words, but it seems posited on the assumption that eventually the country should move to a system of 14 to 16 unitary councils along the lines of the proposed new Auckland Council. This would remove a layer from the current system of local governance, and it would have to be better than the status quo. But whether the Turnbull Group's high-sounding goal of less litigation and more collaboration could be achieved by its proposed restructuring, I'm not sure. Count me sceptical: water is such a valuable commodity that I suspect there will always be a litigious aspect to its management. I would urge you, however, to keep discussing a more efficient system of water management for the country. Maybe you need a Local Government Commission equivalent with wide powers to report to the relevant ministers with plans of action? And if you had that, you'd need one minister in charge of shepherding the legislation through Parliament.
Finally a word of caution: no system of local government has ever lasted long before it needed updating. Mine is only 20 years old next month, but already showing signs of age. That's life. Patterns of urban and rural change shift incredibly rapidly. So does technology, and its not just in your area of water management. For instance, the capacity of people to keep in touch with those they elect has changed massively in the last few years with the arrival of the internet which we didn't know about in 1989. Had I known about it at the time, I might not have been so enthusiastic about community boards. As responsible citizens we all need to keep abreast of these things, and work out how they can assist us to get value for money at the local level at this particular moment of development.
You have a great many things to discuss at your conference, and I wish you well.