Local Government Act 2002 Amendment Bill (No 2)

Local Government Act 2002 Amendment Bill (No 2)

Government Bill

144—2

As reported from the Local Government and Environment Committee

Commentary

Recommendation

The Local Government and Environment Committee has examined the Local Government Act 2002 Amendment Bill (No 2) and recommends by majority that it be passed with the amendments shown.

Introduction

The Local Government Act 2002 Amendment Bill (No 2) primarily proposes changes to the Local Government Act 2002 (the principal Act). Part 2 of the bill also proposes amendments to the Local Government (Auckland Council) Act 2009, as well as consequential amendments to a series of other Acts listed in Schedule 5.

The bill seeks to give local authorities more flexibility to co-ordinate and combine resources and infrastructure networks across regions and towns. To achieve this goal, the bill proposes enabling:

  • more functions to be transferred between local authorities

  • joint governance arrangements for areas of common or shared interest

  • greater use of joint council-controlled organisations (CCOs) for providing core services such as water and transport

  • flexible reorganisation processes, led by local authorities or the Local Government Commission, that can focus on service delivery arrangements for specific activities.

This commentary covers the main amendments recommended to this bill. It does not discuss minor or technical amendments.

Submitters on the bill

We heard from 75 local authorities and CCOs, 59 individual submitters, 13 community organisations, and various developers, mayoral forums, Māori organisations, local boards, and interest groups. Several local authorities expressed support for the submissions prepared by Local Government New Zealand (LGNZ) and the New Zealand Society of Local Government Managers (SOLGM).

We resolved that our advisers could consult LGNZ and SOLGM to inform their advice to us about the bill.

Commencement

In the bill as introduced, clause 2 specifies that the bill would come into effect on the day after the date of Royal Assent, with the exception of clause 40. Clause 40 would amend the Local Government (Auckland Council) Act 2009 to apply certain sections of the bill to an Auckland Council CCO, Watercare.

The bill would require Watercare to prepare and adopt a development contributions policy to fund its capital expenditure, rather than impose the infrastructure growth charges it currently uses. To facilitate this transition, the bill as introduced would delay the commencement of clause 40 for 18 months.

We recommend amending clause 2 to remove references to clause 40, and instead insert new clause 22 in Schedule 1. New clause 22 would be a transitional provision, and would specify that Watercare may continue to collect infrastructure growth charges until either:

  • 30 June 2018, or

  • when Watercare’s new development contributions policy comes into effect.

Changes to dates throughout the bill

Some deadlines specified in the bill are no longer workable. We recommend amendments throughout the bill to extend these deadlines.

Definitions

Clauses 4 and 5 set out definitions for the terms used in the bill.

We heard that the use of the term “non-statutory function” may create uncertainty. We recommend amending the bill to use the term “discretionary function” instead, and to expand the definition of the term in clause 4, section 5(1) to more clearly explain its intended meaning.

Transport services CCOs

The bill proposes to require local authorities to hold their share of transport services CCOs directly, rather than through a subsidiary such as a holding company. Greater Wellington Regional Council owns Greater Wellington Rail Limited through such a holding company (Wellington Regional Holdings Limited).

The council asked us to exclude Greater Wellington Rail Limited from the definition of “transport services council-controlled organisation” because of the tax implications of transferring ownership directly to the council. We sought advice, and support this request.

We therefore recommend amending clause 5, section 6(1), to exclude Greater Wellington Rail Limited from the definition of transport services CCO.

Substantive CCOs

In the bill as introduced, one of the characteristics of a “substantive council-controlled organisation” is that it owns or manages assets with a value of more than $10 million.

This aspect of the definition raised concerns among some submitters, particularly regarding how it could affect local authority holding companies. We were advised that it is intended that holding companies would not fall under the definition of “substantive council-controlled organisations”.

The definition of substantive CCO also includes a catch-all provision whereby a CCO may be defined as a substantive CCO if all its shareholders agree.

As this catch-all provision can be used by local authority shareholders to classify CCOs as substantive CCOs, we recommend amending clause 5, section 6(1), to remove the requirement that substantive CCOs own or manage assets with a value of more than $10 million.

Transferring councils’ statutory responsibilities

The bill seeks to significantly increase councils’ flexibility to provide joint services and infrastructure. To do this, it proposes changes to the way that local authorities can deliver their statutory responsibilities. The way in which local authority responsibilities are transferred is currently set out in section 17 of the principal Act.

Submitters expressed opposition to clause 7, proposed new section 17(3B). This subsection would introduce a requirement for local authorities to get written consent from the commission before consulting on transfer proposals. We note submitters’ concern that the bill would give the commission arbitrary power to reject councils’ proposals.

We understand that this amendment is intended to stop local authorities from adopting sub-optimal arrangements that may prevent later reform. It is expected that the commission would only decline a proposal if it had significant concerns about its desirability or likely results.

We consider that this intent should be made clear in the legislation, to avoid concerns such as those raised. We therefore recommend amending clause 7 to make it clear that the commission must agree to local authorities’ proposals unless it was satisfied on reasonable grounds that the disadvantages of the proposal significantly outweighed the advantages of it proceeding.

Changes to local government reorganisation

Part 3 of the principal Act addresses the structure of New Zealand’s local government, and how it can be reorganised. The bill proposes changes to Part 3, with the aim of making it easier to reorganise local government to provide more efficient services and infrastructure. The Local Government Commission has a principal role in improving the effectiveness and efficiency of New Zealand’s local government arrangements.

We propose amendments to several of the clauses related to Part 3.

Scope of reorganisation

Clause 9 seeks to replace section 24 of the principal Act. Section 24 lists the different types of changes to local government arrangements that can be made by reorganisation. The bill as introduced would add new matters into the scope of local government reorganisation.

We propose amendments to two of the paragraphs in new section 24(1):

  • new section 24(1)(h), which would allow the establishment of CCOs

  • new section 24(1)(m), which would allow the establishment of committees of local authorities, and the delegation of responsibilities, duties, and powers to them.

Some submitters raised concerns that enabling the commission to establish CCOs could cause the removal of core services from councils. Other submitters argued that council committees should not be established through stand-alone reorganisation, and should only be used to give effect to broad reorganisation schemes.

We were advised that the creation of CCOs or committees within an individual council should not be the primary outcome or focus of a reorganisation. We agree that internal matters such as these should remain with elected councils.

We therefore recommend amending new section 24(1)(h) to limit the establishment of CCOs to multiply owned CCOs. We also recommend removing paragraph (m) from new section 24(1). This would remove the power to create single-council committees, but leave the power for the creation of joint committees.

Orders in Council

Section 25 of the principal Act describes how Orders in Council are used to give effect to final proposals and reorganisation schemes.

Clause 11 of the bill proposes replacing section 25 with new sections 25 and 25A. New section 25 would set out the processes for implementing a reorganisation plan, and new section 25A would set out the processes for implementing a reorganisation implementation scheme. Both processes would require an Order in Council.

For clarity, we recommend adding section 25(3)(aa) to specify that Orders in Council which give effect to reorganisation plans must identify some specific dates. These are:

  • the date or dates when the first Order, which would give effect to the reorganisation plan, would come into effect

  • the date or dates on which a second Order, which would give effect to the reorganisation implementation scheme, would come into effect

  • the implementation date for the reorganisation.

Responding to commission reports and recommendations

Section 26A of the principal Act sets out the duties of local authorities in relation to local government reorganisation.

In the bill as introduced, clause 13 would add a new requirement that, after local authorities receive a report or recommendation from the commission, they must respond within 20 working days, unless the commission specifies another date.

We heard evidence that the 20-working-day period may be too short for some local authorities to respond to the commission. We note that the complexity and scope of issues that could be raised in the commission’s reports and recommendations may vary widely.

Taking this into consideration, we recommend amending clause 13, section 26A, to extend the deadline to a minimum of 30 working days. We recommend including an option for the commission to specify a later date if it chooses.

The Local Government Commission

The bill proposes significant changes to the operations of the Local Government Commission. The commission is an independent body with powers and functions set out in the principal Act. Its key responsibility is to make decisions on the structure and reorganisation of local authorities and their electoral representation. The commission currently has three permanent members, appointed by the Minister of Local Government.

Minister’s expectations of the commission

We recommend changes to clause 16, which would replace section 31A of the principal Act. Section 31A sets out the Minister of Local Government’s powers to set expectations for the commission. It allows the Minister to specify their expectations in relation to the commission’s role in reorganising local authorities.

In the bill as introduced, new section 31A would set out the matters that the Minister could include in their notice of expectations. These matters are:

  • any issues, problems, opportunities, or reorganisation objectives that must be regarded by the commission as having a high priority for investigation

  • any geographic area or areas that must be regarded by the commission as having a high priority for investigation

  • any matters or geographic areas that must not be the subject of an investigation.

We note that some submitters opposed the increased powers for the Minister to set expectations for the commission. We acknowledge submitters’ concerns about safeguarding the commission’s independence. However, the majority of us also consider it appropriate for the responsible Minister to have the opportunity to influence how the commission’s taxpayer funding is used. Therefore, we recommend several amendments to clause 16, new section 31A, to promote transparency around this process.

We recommend adding new section 31A(1A) to require the Minister to state their objectives in their notice of expectations. Further, we recommend amending section 31A(3) to require that the Minister must consult the commission, and may also consult any other person or organisation, before finalising their notice of expectations. Finally, we recommend adding new section 31A(4A) to require the commission to publish the Minister’s notice of expectations online as soon as it is able.

Modernising the commission’s accountability and reporting framework

Clause 17 proposes inserting new sections 31B to 31H, which are intended to modernise the commission’s accountability and reporting framework. This modernisation proposes new requirements for statements of intent and annual work programmes, and expands those for annual reports. It would also increase the Minister’s connection to the commission’s operations and performance, and set out a new process for resolving disputes that are referred to the commission.

We recommend amending proposed new section 31H to refer to chairs of regional councils and local boards, as well as mayors. This amendment recognises that local boards and regional councils may also be parties to disputes.

Membership of the commission

The commission’s membership currently comprises three permanent members, one of whom is appointed in consultation with the Minister of Māori Affairs and must have knowledge of tikanga Māori. The bill as introduced proposes changing this requirement to a minimum of three members and a maximum of five members.

We heard from SOLGM that it considers that the commissioners should include someone with experience as a local authority chief executive, and that LGNZ should be consulted before an appointment is made.

We agree that local government experience is valuable. We therefore recommend amending clause 18 to require one member of the commission to have local government experience as an elected member, or as a chief executive. We recommend that this commissioner be appointed after consultation with LGNZ.

Making the commission subject to the Official Information Act

Clause 19 proposes inserting new section 35A, which would make the commission subject to the Official Information Act 1982 (OIA). We note that the commission would not have to release documents created or received during an investigation, dispute resolution, or determination process, until after the process was completed.

We consider that it would also be beneficial to make it clear that the commission must comply with the Public Records Act 2005. This would ensure that the commission should manage public information effectively, and facilitate compliance with OIA release provisions.

We therefore recommend adding clause 14A to amend section 29 of the principal Act. This would make it clear that the commission is a public office for the purposes of the Public Records Act.

We also recommend amending section 34 of the principal Act to update references to the Commissions of Inquiry Act 1908 to the Inquiries Act 2013. The Inquiries Act was intended to replace the 1908 Act.

Replacing Part 5 of the principal Act

As introduced, clauses 22 to 29 would insert 33 new sections and amend several existing sections in Part 5 of the principal Act, which deals with CCOs and council organisations.

We are proposing several substantive changes to these provisions. We have also taken this opportunity to consider the existing structure of Part 5, and believe reordering and redrafting of various sections would make the principal Act easier to follow. We believe the simplest and clearest way to make these changes is to replace Part 5 of the principal Act in its entirety.

We therefore recommend deleting clauses 22 to 29, and replacing them with new clause 21A, which would replace Part 5 of the Act. We explain below the more substantive aspects of this proposed amendment. We also outline the provisions that would be retained, at times in reworded form, from the principal Act and the bill as introduced.

Provisions that would remain substantively the same

The following sections in new Part 5 would remain substantively the same as equivalent existing sections in the principal Act: 55, 56, 57, 57A, 58, 59, 60A, 61, 68A, 68D, 68E, 68F, 68G, 68H, 69E, and 69F.

The following sections in new Part 5 would remain substantively the same as equivalent provisions proposed in the bill as introduced: 58A, 62, 62C, 64, 65B, 65F, 66, 67, 68, 68B, 68C, 69A, 69B, 70, 71D, 72A, 73, 74, 74C, and 74D.

Giving consent to consult on proposed transport and water CCOs

In the bill as introduced, clause 22, new section 56A, would require local authorities planning to become a shareholder in a water or transport CCO to get written consent from the commission before starting the consultation process.

Submitters opposed this clause for similar reasons to other provisions that set out a requirement for the commission’s consent. These reasons included concern that the bill would give the commission unilateral power to control the councils or limit their development.

As discussed earlier, the intention of these provisions is to ensure that local authorities do not pre-empt more optimal reorganisations. They are intended to be used sparingly by the commission when there are significant concerns about a proposal’s desirability or outcomes.

We agree that this intention should be made clear in the legislation. We therefore recommend adding clause 21A, new section 58B. This new section includes the substance of section 56A in the bill as introduced, but adds a requirement that the commission would have to agree to proposals unless it was “satisfied on reasonable grounds that the disadvantages outweigh the advantages of proceeding”.

Appointing directors

We note that the bill as introduced does not make any provision for councils to consider Māori representation on the boards of CCOs. We encourage local government to engage with Māori perspectives. We intend that overall, boards of directors should have knowledge of tikanga Māori.

We therefore recommend adding to clause 21A, new section 60, which contains the content of existing section 57 of the principal Act. New section 60(3) would include a requirement that, when identifying the skills, knowledge, and experience required of the directors of a CCO, the local authority must consider whether knowledge of tikanga Māori may be relevant to the governance of that CCO.

We also recommend including the provisions from clause 23 of the bill as introduced in new section 60, and deleting clause 23.

Consulting Māori before making significant decisions

During the submission process, we noted that iwi submitters favoured stronger requirements for substantive CCOs to comply with their shareholder councils’ obligations to Māori.

We recommend adding clause 21A, new section 61A. This would require substantive CCOs to take a series of considerations into account before making any decision that may significantly affect land or a body of water. These considerations are the relationship of Māori, and their culture and traditions, with their:

  • ancestral land

  • water

  • sites

  • wāhi tapu

  • valued flora and fauna

  • other taonga.

Statements of expectations for substantive CCOs

We consider it important to set expectations for how CCOs operate within the community. For instance, councils might want to specify how CCOs deal with iwi and hapū, customers, or other community stakeholders.

We recommend adding clause 21A, new section 62A. This proposed new section includes the substance of section 56V in the bill as introduced. It specifies that shareholders in a substantive CCO would have to prepare a statement of expectations for the CCO. This statement would set out various aspects of the CCO’s conduct, including:

  • how the CCO conducts its relationship with its shareholding local authorities and various stakeholders

  • a requirement to act consistently with its shareholders’ statutory obligations, and obligations in relation to agreements with third parties such as iwi and hapū

  • a statement setting out the shareholders’ expectations of the CCO to align with, and contribute to, any relevant central government objectives and priorities.

Statements of expectations could also include other shareholder expectations.

For transparency, we recommend including new section 62A(3), to require statements of expectations to be published online by local authorities.

Some of us disagree with the requirement that shareholders must set expectations for how substantive CCOs align with central government policy.

Governance of multiply owned substantive CCOs

We heard concerns from submitters about the governance provisions for multiply owned substantive CCOs in the bill as introduced. These concerns particularly related to clause 22, new section 56W, which would require shareholders of multiply owned substantive CCOs to establish a joint committee to manage their interests. Submitters asked questions such as:

  • how joint committees would be composed

  • how joint committees would interact with the boards of their CCOs

  • how voting would be weighted in joint committees

  • whether joint committee decisions should be unanimous.

Participants’ agreements

We consider that joint committees should be flexible arrangements, and intend to allow local authorities to determine many of these matters for themselves.

To assist in this process, we recommend adding clause 21A, new section 63. This new section would set out a requirement for a “participants’ agreement”. This agreement, between the shareholders of a multiply owned substantive CCO, would stipulate much of the joint committee’s governance processes.

While we emphasise that new section 63 is deliberately designed to be flexible, it would impose some requirements for what participants’ agreements must set out. These are:

  • a process for board appointments

  • a process for monitoring board performance

  • the role and operation of the joint committee, including voting rights.

Finally, we recommend including new section 63(5), to state that participants’ agreements may not provide for a review of the CCO (under section 17A of the principal Act) until 6 years after the CCO’s establishment. This would allow multiply owned CCOs time to settle and evolve before their first review under section 17A.

Joint committees

As part of our proposed redrafting of Part 5 of the principal Act, we recommend adding new section 63A. This new section includes the substance of section 56W in the bill as introduced.

We recommend adding some further amendments to this section.

We recommend specifying that shareholding local authorities may determine committee procedures for their joint committees, including whether to weight committee members’ voting rights (taking into account the proportion of shares held), and the right of shareholders to appoint alternate committee members. This provision would build on the flexibility we are promoting in clause 21A, new section 63.

Further, we recommend adding new paragraph (b) in section 63A(3), as a consequence of our proposed changes to service delivery plans (discussed in the next section of this commentary). This paragraph would set out more fully the process for development and approval of a service delivery plan.

Content of CCO service delivery plans

In the bill as introduced, clause 22, new section 56C, sets out the content that would be required in a CCO’s service delivery plan. Service delivery plans are intended to be the CCO equivalent of a local authority’s long-term plan: they would set out the CCO’s planned activities for the next decade.

More accountability in service delivery plans

We consider that the content of service delivery plans could be extended to make CCOs more publicly accountable. Consequently, we recommend adding new section 65A. This new section includes the substance of section 56C in the bill as introduced. It also adds three new requirements for the content of service delivery plans:

  • the CCO’s infrastructure strategy (if one is required)

  • a list of the CCO’s strategic assets, and shareholder requirements in relation to the management of these assets

  • proposals and practices to give effect to the shareholders’ long-term plans and resource management policy statements and plans, as they relate to the CCO’s activities.

Key elements of development contributions policies to be included in service delivery plans

We recommend some provisions in new section 65A(5) to execute our proposed new development contributions policy process for non-water services substantive CCOs (which we discuss later in this commentary). These provisions would require core features of the development contributions policy for a substantive non-water services CCO to be included in its service delivery plan. These features would be:

  • the proportion of growth expenditure to be recovered from development contributions

  • the significant assumptions underlying the development contributions policy

  • the geographic catchments to be used for calculating development contributions

  • the approach to be taken to applications for remission or waiver of development contributions.

It is our intention that this (along with our proposed amendments to development contributions policy processes) would create a balance between CCOs’ autonomy and shareholders’ rights to manage their CCOs’ overall funding. CCOs would be able to dictate the terms of their own development contributions policies, but the core features of these policies would be subject to the approval of the appropriate shareholders.

Infrastructure strategies included in service delivery plans

In the bill as introduced, clause 22, new section 56D, sets out the required contents of a CCO’s infrastructure strategy.

We heard from some submitters that it would be useful to closely link infrastructure strategies to service delivery plans. We agree, and recommend adding, via clause 21A, new section 65C. This new section would include the content of section 56D in the bill as introduced, and add a requirement that infrastructure plans be included in CCOs’ service delivery plans.

Adopting and amending CCO service delivery plans

In the bill as introduced, clause 22, new section 56E, would set out the requirements for adopting CCOs’ service delivery plans and infrastructure strategies.

As a result of our proposed amendments to infrastructure strategies, the following provisions would only be applicable to service delivery plans.

Adopting CCO service delivery plans

We note that the bill currently provides for service delivery plans to be presented to local authorities immediately after their long-term plans. We were advised that this arrangement may not be effective or beneficial for all CCOs and shareholders.

We therefore recommend adding new section 65D. This new section contains the substance of section 56E in the bill as introduced. It would also require that service delivery plans relate to the same first year as their shareholding local authorities’ long-term plan. Plans would therefore need to be presented before, or at the same time as, long-term plans, rather than after them.

We also recommend including section 65D(2). This would require shareholding local authorities to consult with their communities about proposed service delivery plans, before they approve them.

Amending CCO service delivery plans

We acknowledge that there will be circumstances where CCOs are unable to implement their service delivery plans as they intended. To provide for this, we recommend adding new section 65E.

This new section would introduce provisions for CCOs to amend their service delivery plans. CCO boards could apply to their shareholders to agree to amend the service delivery plan. Equally, the shareholders could instruct the board to prepare an amendment. We recommend allowing shareholders to determine their own consideration and consultation processes for proposed amendments.

New development contributions policy processes

In the bill as introduced, clause 25, new sections 63A to 63D, deal with using development contributions to fund substantive CCOs’ capital expenditure.

Although the majority of submitters support the intent of this proposal, submitters generally oppose the processes to achieve it, set out in new section 63B. These processes would mean that CCOs could require amendments to their shareholding local authorities’ development contributions policies.

We propose an alternative system for funding substantive CCOs’ capital expenditure through development contributions. This alternative is intended to address some of the concerns raised by submitters. We propose developing two separate processes: one for water services CCOs, and one for all other substantive CCOs. Both systems would enable the CCOs to have their own development contributions policies.

We recommend that all consultation for substantive CCOs’ development contributions policies should give effect to the requirements in section 82 of the principal Act. This is the same section that is applied to local authority consultations.

Water services CCOs

We recommend outlining the new process for water services CCOs in clause 21A, new section 71.

We note that Watercare is included in this provision. We propose a new transitional provision (discussed in the “Commencement” section of this report) to allow it sufficient time to adapt to the new system.

We recommend providing for water services CCOs to prepare, adopt, and administer their own development contributions policies. We recommend adding new section 71(2), to enable a development contribution to be required to be made if the CCO’s development contributions policy:

  • is in line with section 201 of the principal Act, and

  • was in force at the time when the application for authorisation of a service connection was submitted.

We recommend inserting clause 21A, new section 71(3), to explain that water services CCOs are to have the same powers and obligations as territorial authorities for the purposes of preparing, adopting, and administering development contributions policies.

We recommend inserting new section 71(4) to require water services CCOs to consult on draft plans and proposed amendments.

Finally, we recommend inserting new section 71(5). This subsection is about capital expenditure on assets that have been transferred from a shareholding territorial authority to a water services CCO. The CCO could only require development contributions for this capital expenditure if, on the date of the asset’s transfer, the authority had provisions in its own development contribution policy to meet the cost of that capital expenditure.

All other substantive CCOs

We recommend outlining the new process for all other substantive CCOs in clause 21A, new section 71A. This new section would allow all other substantive CCOs to have their own development contributions policies. We note that some content of new section 71A is based on section 63A in the bill as introduced.

As discussed earlier in this report, we recommend requiring all other substantive CCOs to identify key features of their development contributions policies in their service delivery plan. Further, we recommend that the capital expenditure a CCO may provide for in its development contributions policy must be either:

  • provided for by the development contributions policy of the CCO’s shareholding territorial authorities, on the date when the asset it is associated with is transferred to the CCO, or

  • capital expenditure by the CCO that could be funded by development contributions, if it were incurred by a shareholding territorial authority.

We recommend inserting new section 71A(4) to specify when all other substantive CCOs could require a development contribution to be made. This would be when:

  • a resource consent is granted by the CCO’s shareholding territorial authority for a development within its district

  • a building consent is granted by the CCO’s shareholding territorial authority for building work within its district

  • an authorisation for a service connection is granted by the CCO’s shareholding territorial authority.

We recommend adding new section 71A(7) to make it clear that CCOs may amend their development contributions policies after consulting on the proposed amendments.

We also recommend adding new section 71B. This would require shareholding territorial authorities to administer the development contributions policies of their non-water services substantive CCOs, and to pay the CCOs the amount received (less the reasonable costs of administration). We consider this process sensible because these contributions can only be made after the territorial authority has granted a consent or authorised a connection.

To set out all other substantive CCOs’ responsibilities in regards to their development contributions policy, we recommend inserting new section 71C. The responsibilities would include reviewing their development contributions policy, including through public consultation, at least once every three years.

Consultation on development contributions policies

We also propose inserting new section 71E. This would allow the boards of all substantive CCOs to delegate their consultation obligations to a committee, officer, or independent adviser.

Transport and water services CCOs acquiring and disposing of land

In the bill as introduced, clause 22, new section 56Q, would allow transport services CCOs to acquire and dispose of land. It would achieve this by enabling transport services CCOs to use their shareholding local authorities’ powers under the Public Works Act 1981.

The bill as introduced also includes Schedule 4, which would insert new Schedule 8A to confer local authority powers under the Public Works Act on water services CCOs.

We note that some submitters perceived new section 56Q and new Schedule 8A as ways for CCOs to control their shareholding local authorities.

We recommend adding new section 72. This would include some of the content of section 56Q in the bill as introduced, but we propose some amendments to address submitter concerns.

Our new section 72(1) and 72(2) would allow transport and water services CCOs to access Public Works Act powers in a similar way to network utility operators. This would entail requesting the relevant local authority to exercise these powers on the CCO’s behalf.

When a local authority disposes of land acquired for public work, it has obligations towards former landowners. We consider it important to clarify that CCOs would also be expected to honour these obligations. For this reason, we recommend adding clause 21A, new section 72(4).

Damage to water supplies or wastewater work

We recommend adding clause 21A, new section 74A. This new section would provide water services CCOs with the same protections that local authorities have from wilful or negligent damage to their water supply, wastewater works, and properties. Under this clause, people who interfere with these supplies, works, and properties are liable for:

  • the amount of the damage or destruction

  • the cost incurred by the CCO removing a stoppage or obstruction

  • any loss or expenses incurred by the organisation because of the stoppage, obstruction, or interference.

Joint committees for multiply owned water services CCOs

In the bill as introduced, clause 22, new section 56J, would require the shareholding local authorities of a multiply owned water services CCO to establish a joint committee that proposes bylaws, appoints enforcement officers, and approves enforcement actions.

We recommend adding clause 21A, new section 74B. This new section would include some of the content of section 56J in the bill as introduced.

Our new section 74B(2) would make it clear that the joint committee may be established exclusively for bylaw-related work, or may simply be the joint committee established to govern the CCO in recommended new section 63A.

Consistent with proposed new section 63A, we recommend that bylaw-related joint committees may determine their own procedures for issues such as vote weighting.

Reducing compliance costs for unplanned CCOs

In the principal Act, section 97 specifies certain decisions that local authorities may not make if they have not provided for them in the authority’s long-term plan.

We note that, if reorganisation were to restructure a local authority’s operations, there is a possibility that actions may need to be taken that would trigger section 97.

We do not want to impose unnecessary compliance costs on local authorities. We therefore recommend adding new clause 29B, to exempt local authorities from section 97 in the case of implementing a reorganisation.

Development contributions for transferred responsibilities

We recognise that our proposed development contributions policy processes for substantive CCOs raise questions around funding capital expenditure for transferred assets. It is our intention that local authorities and CCOs would not be able to use this model to “double-dip” development contributions.

We therefore recommend adding new clause 31A, which would add new sections 198B and 198C to the principal Act.

New section 198B would provide that shareholding territorial authorities must not require development contributions for any past or planned capital expenditure if the responsibility for that expenditure has been transferred to a CCO. However, we propose an exception in the case that:

  • the authority’s development contributions policy provides for development contributions for the capital expenditure, and

  • the responsibility for the capital expenditure has been transferred to a substantive CCO, and

  • that substantive CCO has not adopted a development contributions policy.

In this circumstance, the authority may continue to require development contributions until either: the date when the CCO’s development contributions policy takes effect, or one year after the date on which the CCO’s first service delivery plan takes effect.

We also recommend including new paragraph (b) in section 198B(3) to make it clear that, when the above exception applies, the shareholding territorial authority must provide information to the CCO. This information would be:

  • a scheme of all completed works in respect of which development contributions were being collected immediately before the transfer

  • the amount of the total cost of capital expenditure that is still to be recovered through development contributions, at the date when the authority stops requiring development contributions

  • a definition of the part of the district in respect of which the development contributions for each work were being collected.

Our new section 198C would require shareholding territorial authorities to remove provisions in their development contributions policies for funding transferred capital expenditure.

Reviewing and replacing rules specifying performance measures

In the bill as introduced, clause 33 proposes amendments to section 261B of the principal Act. Section 261B sets out that the Secretary for Local Government must make rules specifying performance measures for a series of activities. Clause 33 would add a new subsection, permitting the Minister to direct the secretary to make rules specifying performance measures beyond those listed in section 261B(1) of the principal Act.

We were advised by Parliament’s Regulations Review Committee that clause 33 contains a “Henry VIII” power. Henry VIII powers authorise delegated legislation to amend, suspend, or override primary legislation. They are discouraged because they result in a loss of public scrutiny and accountability.

We therefore recommend deleting clause 33, and replacing it with new clause 33A. New clause 33A would insert new section 261CA in the principal Act.

New clause 33A would not include the provisions enabling the Minister to direct the secretary to make rules. This would remove the Henry VIII power from the bill.

Instead, we recommend that new clause 33A, new section 261CA(3), would give the Minister a new power to direct the secretary to review the effectiveness of rules made under section 261B.

We also recommend adding a provision in new section 261CA(1) that the secretary may revoke and replace rules, following the process set out in section 261B. We recommend also including new section 261CA(2) to require the secretary to review the effectiveness of rules at least once every seven years.

Mayors as ex-officio members of committees

Section 41A of the principal Act provides that “a mayor is a member of each committee of a territorial authority”.

We heard evidence from SOLGM that this requirement could create issues for the joint committees proposed in this bill. That is, mayors could accidentally inflate the quorum and membership requirements of joint committees, because of their ex-officio status as joint committee members. We consider this a problem, particularly in the case of joint committees with larger numbers of territorial authorities.

We therefore recommend adding new clause 36B. This would amend Schedule 7, clause 23, of the principal Act. It would specify that mayors who are purely ex-officio members of committees would not count as committee members for the purposes of quorum.

Appointing development contributions commissioners

When a local authority receives an objection to a development contribution, it must appoint up to three development contributions commissioners to decide the objection. Schedule 13A, clause 3, of the principal Act defines who these commissioners may be.

We recommend adding new clause 38A. This would insert new paragraph (ba) into clause 3(2) of Schedule 13A. The new paragraph would make it clear that, if the objection relates to a CCO’s development contributions policy, board members and staff of that CCO may not be appointed commissioners.

Amendments to the Income Tax Act 2007

Many tax-related matters were raised during the submissions process. The essence of many was that there is general confusion over how CCOs would be treated under tax law, and that the bill should set out clearer provisions for this. Submitters considered that tax consequences could significantly reduce the benefit of the transfer opportunities created by the bill.

To achieve the bill’s intent, CCOs would need to be subject to the same tax treatment as local authorities. We propose doing this, but with some conditions imposed.

We therefore recommend adding new clause 38B to insert new section CW 39B in the Income Tax Act 2007. This new section would make multiply owned and substantive CCOs exempt from income tax if:

  • they are created by a reorganisation scheme under the principal Act (either by the commission or local authorities)

  • at least 50 percent of their assets at establishment were previously owned by the local authorities subject to the reorganisation scheme

  • they are wholly owned by local authorities

  • they primarily undertake core local authority services (although they may perform incidental other activities).

New section CW 39B(3) would give CCOs who meet this definition an opportunity, upon reorganisation, to choose to remain taxable. This opportunity would be one-off, and we expect it to be rarely used.

Transfers from the Department of Internal Affairs to the Local Government Commission

The commission’s staff

In the bill as introduced, Schedule 3 provides for the commission to employ a chief executive officer, who would have the responsibility of employing staff.

We note that there is no provision for transition around this role, so it would come into effect the day after Royal Assent. We consider this undesirable, and recommend amending Schedule 1 to add clause 14A to Schedule 1AA of the principal Act. This new clause would set out transitional arrangements for the employment of a chief executive officer. These transitional arrangements would include provisions to allow for the transfer of selected staff from the Department of Internal Affairs (DIA) to the commission.

Terms and conditions for commission staff

Our clause 14A(5) would ensure that the employment terms and conditions of DIA staff transferred to the commission would be at least as favourable as their current terms and conditions.

Protection from liability

We note that in the bill as introduced, the commission’s chief executive and staff would not be protected from personal liability for good faith actions or omissions.

We recommend adding new clause 30 to Schedule 3, which would extend the provisions afforded to the commission in Schedule 4, clause 30, of the principal Act to cover the chief executive and the commission’s staff.

Transferring non-employment contracts, assets, records, liabilities, and debts

We propose adding new clause 14B to new Part 2 of Schedule 1AA of the principal Act. This provision would set up transitional measures for the transfer of non-employment contracts, assets, records, liabilities, and debts from DIA to the commission.

New clause 14B(1) would require the chief executive of DIA to identify all of the department’s assets, records, liabilities, and debts that are used or incurred by the Commission before 1 July 2018.

New clause 14B(2) would vest all of the items identified in 14B(1) in the commission.

New clause 14B(3) would set out how non-employment contracts relating solely to the functions or powers of the commission would be treated after 1 July 2018.

More consultation in the reorganisation initiation process

We consider it important that local authorities and stakeholders be involved and consulted during reorganisation and investigation processes.

We recommend the following amendments to Schedule 2, amending Schedule 3, Part 1, of the principal Act.

Engaging with local authorities affected by proposed reorganisations or investigations

We recommend adding clause 5(2), to require the commission to notify local authorities that would be affected by a proposed reorganisation or investigation, before it decides whether or not to undertake it. We recommend adding clause 6(1A) so that, when considering whether to undertake an investigation of its own motion, the commission must consult the affected authorities before deciding to undertake the investigation.

Further, we recommend amending clause 6(1) to limit the scope of the commission’s self-initiated reorganisation investigations to matters specified in its annual work programme.

Consulting stakeholders about proposed reorganisation investigation processes

We recommend amendments to clause 8, to explicitly provide that affected iwi and hapū must be included in the reorganisation investigation process documents, principles, consultation, and notification.

We recommend adding new paragraph (cb) in clause 8(3) to require that proposed processes offer interested people, entities, and organisations an opportunity to present their views to the commission.

Agreement to adopt reorganisation plans

We consider it important that local authorities are able to agree to take up a shareholding in a multiply owned CCO, even when it is created through reorganisations. We therefore recommend adding clause 12(2A) to require the commission to receive written agreement from all shareholding local authorities before it can proceed with creating or modifying their multiply owned CCO.

Transport CCOs to have bylaw powers

The bill would grant powers to transport CCOs to make and manage bylaws. We recommend amending Schedule 2 to add new clause 46A. This new clause would make it clear that transport CCOs with responsibility for bylaws would take responsibility for any relevant existing bylaws. It would then be that CCO’s responsibility to review the pre-existing bylaws, and either confirm, amend, or revoke them as a result of this review.

Effect on existing local authority accountability documents

Schedule 10 of the principal Act deals with long-term plans, annual plans, and annual reports.

Submitters encouraged us to consider including more detail in the bill about CCO planning processes. One area of interest was existing local authority accountability documents. We propose the following changes to the bill to make it clearer how CCOs should be incorporated into local authorities’ accountability documents.

We recommend adding new Schedule 4A, which would amend clauses 7 and 28 and add new clauses 7A, 28A, 38, and 39 to Schedule 10 of the principal Act.

Proposed new clause 7A would set out what extra information a shareholding local authority of a multiply owned substantive CCO would need to include in its long-term plan. This information would be:

  • disclosing its projected yearly contribution to the CCO’s operating revenue

  • disclosing its lending to the CCO

  • identifying significant projects in the CCO’s service delivery plan that will contribute to the shareholding local authority’s community outcomes, and explaining these contributions.

Proposed new clause 28A would require this information retrospectively for the shareholding local authority’s annual report. The retrospective requirements would entail:

  • disclosing its contribution to the CCO’s operating revenue in the past financial year

  • disclosing its lending to the CCO in the past financial year

  • reporting on the progress of significant projects in the CCO’s service delivery plan that would contribute to the shareholding local authority’s community outcomes

  • explaining the implications of any significant variation between the planned progress of these projects and the actual progress.

Proposed new clause 39 would require that a shareholding local authority of a multiply owned substantive CCO:

  • may not describe services provided by the CCO as “local authority activity” in its accountability documents

  • may include relevant information from the CCO’s infrastructure strategy in its own infrastructure strategy, to identify the CCO’s contribution to managing infrastructure matters.

Finally, proposed new clause 38 would set out how local authorities that wholly own a substantive CCO may treat that CCO in their accountability documents. Local authorities could:

  • describe the services provided by the CCO as “local authority activities” in its long-term plans, annual plans, and annual reports

  • prepare a combined infrastructure strategy, for inclusion in its long-term plan, that combines both the authority’s infrastructure strategy and the CCO’s infrastructure strategy.

Green Party of Aotearoa New Zealand, New Zealand Labour Party, and New Zealand First Party Minority View

This bill is much improved from the bill that was introduced into the House a year ago. The Green, Labour, and New Zealand First Parties would like to acknowledge first the organised opposition and many submissions from councils, local government leaders, and the public, which highlighted the bill’s many defects; and then all the work with officials by Local Government New Zealand and SOLGM on behalf of the sector to improve the policy and detailed provisions of the bill.

Local government has a vital role in our democracy. The concept of subsidiarity is at the heart of this role. Subsidiarity is the principle that decisions should be taken closest to where they will have their effect. The Green, Labour, and New Zealand First Parties believe subsidiarity and local democracy have been undermined by the Government’s law changes to suspend and then restrict regional democracy in Canterbury, remove the four well-beings from the Local Government Act, and restrict notification and opportunities for public participation under the Resource Management Act.

It is important to see this bill, especially in its original form, in context. While the bill as reported back looks less like central government taking over local government (through increased powers for the commission to reorganise local government), its general direction is to encourage larger councils and council-controlled organisations (CCOs) more corporatisation and more central government influence. As a result the Green, Labour, and New Zealand First Parties cannot support this bill.

The Green, Labour, and New Zealand First Parties do not support the increased role for the commission alongside greater powers for the Minister to set expectations and effectively direct the commission’s work. While major concerns of submitters about the ability of the commission to create multiply owned CCOs without the agreement of affected councils have been addressed, the bill would still increase the power of the Minister in respect of local government performance and structure and the work of the commission.

The Minister would appoint the members of the commission and approve its direction and there would only be a requirement for one member to have local government experience. The commission would be required consult the Minister on its work programme, and take note of the Minister’s expectations. The Minister could direct the commission to have regard to Government policy and to review the commission’s operations and performance. The Green, Labour, and New Zealand First Parties believe the commission should be more independent, subject to less Ministerial direction, and more accountable to Parliament.

It is in this context that we still remain uneasy about the proposed additional role of the Minister in directing the replacement or revocation of performance measures post review. This is an improvement on the original proposal that would have enabled the Minister to direct the Secretary of Local Government to create new performance measures. We also acknowledge that some of the existing rules are problematic and review could be helpful, but remain concerned about the apparent increased role for the Minister in setting performance measures for activities which are funded by local communities.

This bill would provide more options for joint services and infrastructure, for example multiply owned CCOs, a change in the shareholding of an existing CCO, the disestablishment of a CCO, and the establishment of committees or joint committees. The Green, Labour, and New Zealand First Parties understand the importance of councils working collaboratively across boundaries to ensure the best protection of resources and outcomes for everyone. We have seen excellent examples of this happening outside of a CCO model. We have a concern that the emphasis of this legislation leads to a privileging of the CCO model. Increasing the role of the commission in this process may override natural collaboration between councils.

We support the removal of the requirement for a petition of electors in order for there to be a referendum to test public support or opposition to a reorganisation proposal. We opposed the Government’s earlier law changes which introduced this requirement. A referendum would now be required unless affected councils agree otherwise.

The Green, Labour, and New Zealand First Parties remain uneasy and opposed to the changes that would reduce the need for communities to show demonstrable support before a reorganisation plan can proceed. We have heard that the rationale for not requiring it and just requiring the commission to have regard to the degree and distribution of community support, alongside a community opposition test, is premised on the wider range of possible reorganisations which the bill provides for. Again, in the context of a clear central government agenda we remain uneasy about this provision and believe it would have been clearer and more democratic to maintain a requirement for demonstrable community support before certain types of reorganisation could proceed.

While CCOs can be seen as a way of resolving cross-boundary issues around service provision and infrastructure funding and management, much of the underlying rationale for CCOs still appears to be that corporate models of decision-making are supposedly more efficient and effective. The Green, Labour, and New Zealand First Parties remain unconvinced. There seems to be variation between CCOs as there is variation between councils. We heard from submitters that the drive towards larger CCO entities to provide roading, parks maintenance, wastewater, and other council services tends to also result in the CCOs contracting to larger companies. We were told this often reduces the potential for smaller, local, and often family-owned business to subcontract successfully. This has a negative consequence on innovation and their ability to grow their businesses, and undermines an important base of both regional and national economies. We were also told that creating large, multiply owned CCOs in smaller rural districts could threaten the viability of the entire community and risks distancing service providers from residents. While this bill would return the ability of councils to choose whether to proceed with a reorganisation and establish a CCO, the Green, Labour, and New Zealand First Parties are aware that the immediate cost pressures facing many councils as a result of vastly increased regulatory responsibilities within a still restricted funding base creates a de-facto privileging of the more corporate CCO model.

Appendix

Committee process

The Local Government Act 2002 Amendment Bill (No 2) was referred to the committee on 15 June 2016. The closing date for submissions was 28 July 2016. We received and considered 188 submissions from interested groups and individuals. We heard oral evidence from 84 submitters at hearings in Auckland, Christchurch, and Wellington.

We received advice from the Department of Internal Affairs. The Regulations Review Committee reported to the committee on the powers contained in clause 33.

Committee membership

Andrew Bayly (Chairperson)

Matt Doocey

Hon Craig Foss

Joanne Hayes

Tutehounuku Korako

Hon Tim Macindoe

Ron Mark

Mojo Mathers

Eugenie Sage

Meka Whaitiri

Dr Megan Woods

Sarah Dowie, Paul Foster-Bell, Jan Logie, Hon David Parker, and Hon Scott Simpson also participated in this item of business.