Warning on local government bill

New legislation would mean weaker financial controls but vastly increased powers for local government. This was the message delivered to local government finance managers by Rob McLagan, chairman of the Local Government Forum*, today.

The Local Government Bill would remove the specific rules constraining councils to their core services, replacing them with a ‘power of general competence’, while requiring them to actively engage in ‘social, cultural and environmental’ activities. At the same time, financial controls would be weakened.

This could lead councils to overreach themselves in inappropriate activities at ratepayers’ expense, Mr McLagan warned.

“Apart from MMP, this is the largest constitutional change in the last few decades,” he said. “Regrettably, the most likely outcome from this Bill is an increase in rates.”

Mr McLagan said weakened financial provisions included:

No statutory requirement for councils to undertake economic analysis supporting financial decision-making.

It will be easier for local bodies to forecast operating deficits and borrow to fund current operating expenditure.

Council-controlled organisations will have diluted requirements to operate as successful businesses.

Financial accountability weakened by ‘must endeavour’ statements - councils will not have to ensure prudent stewardship of resources or undertake commercial transactions in accordance with sound business practice - under the Bill they merely have to ‘try’ to do so.

Projects will require consultation on social, cultural, environmental and economic impacts, but putting economic impact in the same category as the other three diminishes its restraining power – projects that are financially shaky but have social, cultural and environmental appeal will conceivably get through the consultation process, since they’ve scored three out of four.

Mr McLagan said the Local Government Forum favoured clear guidelines to ensure councils stick to their core business, rather than the wider ‘power of general competence’ approach.

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