28 July 2016
Chair
LocalGovernment
and Environment Select Committee
Parliament Buildings
Wellington
Dear Sir/Madam,
SUBMISSION FOR WATER NEW ZEALAND ON THE LOCAL GOVERNMENT ACT 2002 AMENDMENT
BILL (NO 2)
INTRODUCTION AND OVERVIEW
- 1.Water New Zealand (“Water New Zealand”)
appreciates the opportunity to provide a submission on the Local Government Act
2002 Amendment Bill (No 2) (“the Bill”).
- 2.Water New Zealand is a national not-for-profit
organisation which promotes the sustainable management and development of New
Zealand’s three waters (freshwater, wastewater and storm water).Water New Zealand is the country's largest
water industry body, providing leadership and support in the water sector
through advocacy, collaboration and professional development. Its 1,500 members
are drawn from all areas of the water management industry including regional
councils and territorial authorities, consultants, suppliers, government
agencies, academia and scientists.
- 3.Water New Zealand notes the policy intent of the
Bill is to improve local government service delivery and infrastructure
provision arrangements.The increased
flexibility that the Bill provides for local government structures and
reorganisations are intended to enable bespoke solutions to local issues.However, Water New Zealand considers that,
that additional flexibility can bring uncertainty and careful drafting is
required to ensure appropriate and effective checks and balances are in
place.
- 4.Water New Zealand is primarily concerned with
changes that affect the water sector and our comments in this submission are
therefore directed at changes affecting that sector.Water New Zealand has a number of overarching
or general comments as well as comments on specific provisions.
- 5.These general issues will be discussed first,
followed by comments on specific provisions.The specific changes sought by Water New Zealand to address its concerns
are outlined at the end of this submission.
OVERARCHING / GENERAL COMMENTS
Lack of uniformity
- 6.The flexibility that the Bill provides may lead
to a lack of uniformity (and different degrees of horizontal or vertical
integration) between organisational structures applying in different
areas.While that can provide benefits
in terms of such structures being fit for purpose, it can also make it more
complex for those that operate in more than one district or region where
different structures are in place.Clear
guidance as to who is responsible for what (i.e. water, transport etc.) in
different areas will be important.Water
New Zealand suggests that each local authority within a region be required to
provide this information in a clearly identifiable place on its internet site.
Cross boundary issues
- 7.Water New Zealand also considers that given the
local government system is structured around territorial boundaries, ventures
which cross territorial boundaries, like joint council controlled organisations
(“CCOs”), could cause challenges for the fulfilment of the separate obligations
of local authorities.While each local
authority remains responsible for meeting their various requirements, Water New
Zealand considers that further recognition of the potential for conflict, and a
process to address any such issues would be helpful.This could include for example a requirement
to refer any significant or unresolved issues to a joint committee of
shareholders for determination.
Funding/resourcing
- 8.While the Bill recognises that the Local
Government Commission (“Commission”) will require funding for its new functions
and responsibilities no consideration is given to the costs of reorganisation
proposals on local authorities and CCOs.This may be an issue particularly when a proposal is Commission rather
than local authority led and given the different size and resources of the
organisations involved.Water New
Zealand suggests that further consideration be given to providing funding for
local authority involvement in reorganisation proposals – particularly where
these are commission initiated rather than council led.
CCOs
- 9.The Bill enables the greater use of CCOs for the
provision of water and other services.Water New Zealand considers it is important that the legislative regime
applying to CCOs is fit for purpose to enable the benefits of CCOs to be
realised (efficiencies, economies of scale, and improvements in the levels of
services), while at the same time ensuring there is transparency,
accountability and effective public participation, particularly in relation to
funding mechanisms.
Taxation
- 10.The taxation rules applying to local authorities
and CCOs are complex.While it is
understood that the new CCO and local government structure proposals in the
Bill are intended to be tax neutral, Water New Zealand is concerned that the
tax implications have not been adequately considered or addressed in the
Bill.Further changes are required to
ensure that the tax status and implications are clear, consistent and fair.
- 11.Water New Zealand supports the submission of the
Society of Local Government Managers (“SOLGM”) in relation to taxation matters
and endorses the recommendations made in that submission; particularly in
relation to the tax status and treatment of multiply owned, substantive and
water CCOs.
COMMENTS ON SPECIFIC PROVISIONS
- 12.In addition to the above high level issues,
there are a number of specific issues arising with the wording of particular
provisions in the Bill.
Clauses 4 and 5 definitions
- 13.The definition of “corporate accountability
information” in clause 4 includes “the extent to which the local authority
satisfies the expectations of citizens and customers”.Water New Zealand considers that this wording
introduces a significant element of uncertainty as it is not clear what such
information should comprise and sets a threshold which is very difficult to
measure.Water New Zealand considers
that this wording should be deleted from the definition.
- 14.The definition of “substantive council
controlled organisation” in clause 5 includes a CCO “agreed by all shareholders
to be a substantive council controlled organisation”.This is a very broad discretion unfettered by
any quantitative or qualitative requirements.Given the definition already includes a CCO which owns or manages assets
with a value more than $10m, and water and transport services CCO’s; it is
submitted that such a broad catchall is unnecessary.Water New Zealand suggests that this text be
removed from the definition.
Clause 7 – Section 17
- 15.This clause inserts a new subsection (3B) which
requires a local authority proposing to transfer or accept a transfer of
responsibility relating to the delivery of water, wastewater, storm water or
transport, to obtain the written agreement of the Commission before commencing
consultation.It is not clear why such a
requirement is imposed particularly given one of the purposes of the Bill was
to enable council-led reorganisation schemes.There are no provisions containing criteria to guide when and how the
Commission should make its decision to agree or not.There is also no specific process provided to
challenge any refusal to give such approval.Water New Zealand considers that such a requirement is unnecessary and
should be deleted, but that if it is retained, further guidance be provided as
to what factors the Commission must consider and the timeframes in which the
Commission must make a decision.
Clause
16 – Section 31A
- 16.The replacement section 31A gives the Minister
increased powers to dictate what the commission can and cannot do as it gives
the Minister the power to:
(a)Specify expectations for the Commission
including which matters or geographic areas are to have high priority for
investigation; and
(b)Determine matters or geographic areas that must
not be the subject of an investigation by the Commission.
- 17.This is a broad discretion and there is no
requirement for the Minister to consult before making such determinations, and
no specific criteria to guide the Ministers decision-making.If such powers are to remain, Water New
Zealand considers that further thought should be given to appropriate
restrictions on the powers.For example,
one such restriction might include not recommending investigating a region which
has been the subject of a successful reorganisation proposal in the last say
two years.
Clause 19 – Section 35A
- 18.Subsection (2) states that information held by
the Commission for an investigation, the resolution of a dispute, or the
determination of an appeal or objection under section 19R of the Local
Electoral Act is not official information for the purposes of the Official
Information Act until the investigation, resolution or determination has been
completed.While some of the information
obtained through these processes will undoubtedly be sensitive, not all or even
the majority of it will be.To impose a
blanket ban on the application of the Official Information Act seems like a
very blunt approach – particularly as the Act itself provides for withholding
information where necessary for maintaining the effective conduct of public
affairs, negotiations, the confidentiality of advice, etc.Water New Zealand considers that such a ban
is unnecessary and should be removed.
Clause 22
- 19.Clause 22 inserts new sections 56A to 56W.Water New Zealand has comments on a number of
these provisions:
(a)Section 56A requires a local authority that is
proposing to become a shareholder in a multiply owned water services CCO to
obtain the written agreement of the Commission before starting consultation on
the proposal.As noted above for clause
7, it is not clear why such a requirement is imposed particularly given one of
the purposes of the Bill was to enable council-led reorganisation schemes.There are no provisions containing criteria
to guide when and how the Commission should make its decision to agree or
not.There is also no specific process
provided to challenge any refusal to give such approval.Water New Zealand considers that such a
requirement is unnecessary and should be deleted but that if it is retained
further guidance be provided as to what factors the Commission must consider
and the timeframes in which the Commission must make a decision.
(b)Section 56F states that local authorities have
to hold and exercise ownership interests in a water services CCO directly and
not through a holding company or other subsidiary of the local authority.Water New Zealand assumes this is because
under the Bill such CCOs can be transferred some of the local authorities’
powers (such as rights of access, to carryout works on private land etc.) and
there is therefore a desire to have a more direct ability to enforce
obligations. However, the Bill does not spell out what would happen if a CCO
fails to perform and what powers councils (or joint committees established
under section 56W) have to step in.Indeed, under new section 56I(2) a shareholding local authority is
prohibited from performing or exercising any duty or power conferred on a water
services CCO by order in council – unless the water services CCO delegates that
responsibility duty or power to the local authority.Water New Zealand suggests that further
consideration be given as to how any non-performance can best be addressed. One
such example may be by reserving the power of a local authority to step in and
undertake a responsibility duty or power in the event of any non-performance.
(c)Section 56H states that a water services CCO
must not pay a dividend or distribute any surplus to shareholders.However, this restriction does not apply to
any other CCOs including transport.It
is not clear why water is singled out for differential treatment.If there is no specific policy rationale
warranting separate treatment, Water New Zealand considers this restriction
should apply to all other CCOs (except council controlled trading organisations
which operate for the purpose of making a profit).
(d)Section 56K enables water services CCOs to
propose bylaws but gives the local authority (or joint committee) power to
decline to make such bylaws if in its opinion the bylaw does not meet the
requirements. There is no specific provision which provides a CCO with a right
to object to or appeal such a decision.While a CCO could seek to judicially review such a decision, Water New
Zealand considers that providing an objection process would be a more cost
effective and efficient process.
(e)Sections 56S(3)(b), 56T(3(b) and 56U(1) all
require local authority accountability policies which apply to substantive CCOs
to include a statement about how the CCO contributes to “any relevant
objectives and priorities of central government”.Water New Zealand considers that referring to
objectives and priorities of central government introduces a significant
element of uncertainty as it is not clear what these are, how these are determined,
and who determines them.Water New
Zealand also queries whether giving effect to central government priorities
which are not provided for through legislation is appropriate.Water New Zealand considers that such
references should be deleted.
Clauses 24 and 25
- 20.Under proposed new section 61C – a CCO can, if
its service delivery agreement or statement of intent allows it, require a
shareholding local authority to contribute a certain level of operational
funding.There are also then provisions
to enable more or less funding to be contributed with the agreement of both
parties. Water New Zealand questions whether it is necessary and appropriate
for this to be a requirement.An
alternative may be to require a CCO to make a request for a certain level of
funding along with the reasons to support that request, and to require council
to provide that funding if certain criteria are met.These could include matters such as alignment
with long term plan etc.Such a
provision could also provide greater clarity on the timing of any such funding.
Development contributions and capital
charging
- 21.New section 61D prevents a substantive CCO
(including a water services CCO) from imposing a capital charge for connections
to or use of infrastructure or services provided by that organisation.[1]Instead development contributions are
proposed as the method to meet capital costs. Under section 63A CCOs can
prepare a development contributions policy to cover the charges which the
territorial authority is obliged to adopt under section 63B - provided it meets
all the relevant legislative requirements.So while the CCO is primarily in control of the policy decisions in
relation to capital charges, territorial authorities are in charge of
administering the policy and collecting the development contributions, which
they must then pay to the CCO.
- 22.The regulatory impact statement indicates that
the rationale for requiring local authorities to collect and administer a CCO’s
capital charges is so that such charges are subject to the same reconsideration
and appeals process as for development contributions.[2]Water New Zealand questions whether this is
the most efficient and appropriate process of administering and collecting CCO
capital charges particularly as it appears to involve double handling and extra
administrative costs for territorial authorities.It also appears to be inconsistent with the
“arms-length” relationship which is meant to exist between local authorities
and CCOs.A better alternative could be
enabling the CCO to set, administer and collect the capital charges
directly.This could be achieved by
providing for the relevant provisions from the development contributions regime
in the Local Government Act 2002 (LGA) to apply to a CCO in relation to capital
charges as if the CCO were a territorial authority imposing development
contributions.In this way the
reconsideration and objections process would also apply to such charges.
- 23.Water New Zealand suggests that further
consideration be given to the method of administering and collecting capital
charges and in particular to whether enabling CCOs to administer and collect
these charges directly as development contributions would be a more efficient
and appropriate process.If however, the
process proposed in the Bill is to proceed, Water New Zealand considers that
changes are required to:
(a)Section 63A to provide for consultation with the
affected territorial authorities during the drafting of the amendment to the
development contributions;
(b)Section 63B to:
i.Impose a timeframe regarding when payment should
be made;
ii.Enable separate amendments for the development
contribution policies of each shareholding local authority rather than a single
amendment covering all.This will better
recognise that such policies can and do differ significantly between local
authorities;
iii.Provide greater clarification around how
territorial authorities can recover their administrative costs – the process
proposed in the Bill of deducting such costs from the development contributions
is at odds with the development contribution requirements in the LGA which
limit such contributions to growth related charges;
iv.The LGA to enable CCOs to participate in
objections and reconsideration processes, and to update other provisions such
as the definition of development agreement to include reference to the new
substantive and water services CCOs; and
(c)Provide an ability to refer any disputes between
substantive CCOs and their shareholding local authorities regarding the content
of any proposed amendments to development contributions policies to the Local
Government Commission for resolution under new section 31H.
Long term plan consultation
- 24.New section 63E requires a local authority that
is a shareholder in a CCO to allow the board of the CCO a “reasonable
opportunity” to comment on the proposed content of the local authority’s long
term plan before it starts the formal consultation process.Water New Zealand sees two issues with this
section.The term “reasonable
opportunity” introduces an element of uncertainty giving rise to questions of
what is reasonable, and who determines it.Water New Zealand considers that this clause needs clarification around
the extent and timing of the consultation required.
Clause 33 – Additional performance measures
- 25.Clause 33 amends section 261B by adding a new
subsection that permits the Minister to direct the Secretary to make rules that
specify performance measures and to review the effectiveness of rules made
under this section.While supporting the
policy intent, Water New Zealand considers that further clarification and
guidance is required around these new powers.Water New Zealand supports the submission and endorses the
recommendations of SOLGM in this regard.
Schedule 2 – Amendments to Schedule 3
- 26.Under clause 21A the reorganisation plan can
provide for the establishment of joint committees and where it does so the plan
may specify committee membership,
terms of reference, delegations and when and how changes can be made to these
matters.In order to provide certainty,
Water New Zealand considers that there should be a mandatory requirement for
the plan to specify these matters where a joint committee is established.
- 27.New clause 22C(2) states that the Commission
must approve a local authority led reorganisation plan unless the plan is not
accompanied by the required documentation or the Commission considers on
reasonable grounds that certain provisions were not complied with or that the
plan does not have the support of affected communities.No guidance is provided as to how the latter
(i.e. community support) is determined, and what degree of support is required
(majority, significant etc.).It is also
notable that such a requirement does not apply to Commission led schemes.Given the consultation requirements already
built into the process, and the requirements to consider impacts on communities
(under clause 11 of the schedule), Water New Zealand considers that the
requirement for community support (clause 22C(2)(b)(ii)) should be deleted.
Schedule 4 – New Schedule 8
- 28.Clause 2 of new Schedule 8 requires the board of
a substantive CCO (including a water services CCO) to give effect to any
shareholder comments on the statement of intent unless they are unlawful,
contrary to the constitution or propose conflicting priorities for the
CCO.For other CCOs there is only a
requirement to consider the comments rather than give effect to them, and there
is no requirement to give reasons as to why any comments have not been adopted.Water New Zealand assumes that the reason for
the differentiation relates to the different degrees of control, with there
being greater control over substantive CCOs due to direct ownership holdings as
opposed to other CCOs.However, Water
New Zealand considers that one standard could be developed to apply to all CCO
types which required consideration of the comments and whether they were
unlawful etc. and a requirement to give reasons for any decision to not give
effect to those comments.
- 29.Under new Schedule 8A there are a broad range of
powers that can be conferred on a water service CCO (by order in council)
including rights of access and to do works on private land as well as Public
Works Act 1981 (“PWA”) powers.While
Water New Zealand supports the ability to transfer such powers to the CCOs
carrying out these works, Water New Zealand considers there are a couple of
issues that require further clarification/consideration.There is a need to ensure that:
(a)Officers of the CCO as well as the CCO itself
are able to exercise the powers to access land etc.; and
(b)The local authority also retains the ability to
utilise these powers in case they are needed e.g. in the case of non-compliance
by the CCO.If such a change is adopted,
Water New Zealand also considers that the issue of liability should be
clarified, in that the local authority will not be liable for any damage or
loss arising from any non-compliance by the CCO and will only be liable for any
powers or works it exercises or undertakes itself.
Other matters
- 30.Unlike transport CCO’s (see new section 56P)
water services CCOs are not deemed to be a requiring authority and network
utility operator under s 167 of the Resource Management Act 1991 (“RMA”)Water New Zealand questions why water
services CCOs are treated differently, particularly since both types of CCOs
are given PWA powers under the Bill.Water New Zealand considers it would be more appropriate for both types
of CCO to be treated consistently and for both to be deemed requiring
authorities.
CHANGES SOUGHT
- 31.Given the issues noted above, Water New Zealand
requests that the following changes or changes to similar effect or which are
appropriate to address the concerns expressed above are made to the Bill:
(a)A new provision be introduced to require every
local authority to provide information in a clearly identifiable place on its
internet site as to which local government and CCO organisations are
responsible for which activities within the district/region.
(b)New provisions be introduced which recognise the
potential for conflict between different organisations responsibilities within
a district or region and which introduce a process to address any such issues –
such as through a requirement to refer any such issues arising in the context
of a multiply owned CCO to a joint committee of shareholders for
determination.
(c)Further changes be made to address taxation
issues in accordance with the recommendations made in the submission by SOLGM.
(d)Clause 4 - amend the definition of “corporate
accountability information” as follows:
corporate
accountability information, in
relation to a local authority, means information relating to the corporate
governance of the local authority and indicators of the overall effectiveness
of the local authority in performing its role, and includes the extent to
which the local authority satisfies the expectations of citizens and customers
(e)Clause 5 - amend the definition of “substantive
council-controlled organisation” as follows:
substantive
council-controlled organisation—
(a) means a
council-controlled organisation, other than a council-controlled trading
organisation, that is wholly owned, or wholly controlled, by 1 or more local
authorities, and that—
(i) owns or manages
assets with a value of more than $10 million; or 5
(ii) is a water
services council-controlled organisation; or
(iii) is a transport
services council-controlled organisation; or
(iv) is agreed by
all shareholders to be a substantive council-controlled organisation; but
(b) does not include
a substantive council-controlled organisation of the 10
Auckland Council
(f)Clause 7 – amend to delete proposed new section
17(3B) or alternatively be amended to provide guidance as to the factors the
Commission must consider when deciding whether to agree to a transfer and the
timing of any such decision.
(g)Clause 16, section 31A – further consideration
be given to whether restrictions on the Ministerial powers should be imposed
and if so what such restrictions should be.
(h)Clause 19, section 35A – delete in its entirety
or amend to confirm that the Official Information Act 1981 applies to
investigations, dispute resolution processes and determinations in the normal
manner.
(i)Clause 22:
i.Section 56A - delete in its entirety or
alternatively amend to provide guidance as to the factors the Commission must
consider when deciding whether to agree to a transfer and the timing of any
such decision.
ii.Sections 56F and 56I – amend to indicate local
authority powers in the event of any non-performance.
iii.That the restriction in section 56H on water
services CCOs making a surplus or paying a dividend to shareholders also be
applied to other CCO’s (except council controlled trading organisations).
iv.Section 56K – be amended or that additional
provisions be added to provide a right of objection and a process should any
bylaw proposed by a water CCO be declined.
v.Sections 56S(3)(b), 56T(3(b) and 56U(1) – delete
reference to “any relevant objectives and priorities of central
government”.
(j)Clauses 24 and 25:
i.Section 61C – consideration be given to amending
the requirement to provide funding so that council has to provide funding but
only if it meets certain criteria – such as the works are aligned with the
long-term plan.
ii.Sections 63A and 63B – consideration be given to
the method of administering and collecting capital charges and in particular to
whether enabling CCOs to administer and collect these charges directly as
development contributions would be a more efficient and appropriate process.Or alternatively if the current process is to
remain, that changes are made to clarify the matters noted in paragraph 23
above (consultation, timeframes, administrative costs, development contribution
provisions in the LGA, dispute resolution).
iii.Section 63E – delete in its entirety or if it is
retained amend to clarify the extent and timing of the consultation.
(k)Clause 33 - changes be made to address the
address the additional performance measures issues in accordance with the
recommendations made in the submission by SOLGM.
(l)Schedule 2 (which sets out amendments to
Schedule 3):
i.Clause 21A(3) amend as follows:
The
reorganisation plan must may specify—
(a)
the membership of a committee:
(b)
the terms of reference of a committee:
(c)
any delegations to the committee:
(d)
when and how the matters in paragraphs (a) to (c) may be varied.
ii.Clause 22C(2)(b)(ii), delete in its entirety.
(m)Schedule 4 – amend clause 2 of new schedule 8 to
read as follows:
The
board must—
(a)
consider any comments on the draft statement of intent that are made by the
shareholders, or by any of them, on or before 1 May in the year preceding
the
year to which the draft statement relates; and
(b)
in the case of a substantive council-controlled organisation, give effect to
those
comments, unless
(b)
not give effect to shareholder comments where:
(i) to
do so would be unlawful; or
(ii)
to do so would be contrary to the organisation’s constitution; or
(iii)
the comments propose conflicting priorities for the organisation.
(c) provide reasons for any refusal to give effect to
shareholder comments.
(n)Schedule 4 – new Schedule 8A amend to clarify
that:
i.The officers of the CCOs will be able to
exercise the powers of access, etc. which are proposed to be conferred on the
CCOs;
ii.The local authority will:
•Still have some residual powers, duties and
responsibilities under these sections, for example in the event of
non-compliance by a water services CCO;
•Not be liable for any damages or loss arising
from any non-compliances by the CCO;
•Only be liable for any damages or loss arising
from powers or works it exercises or undertakes itself.
(o)That a provision similar to section 56P be
introduced to apply to water services CCOs so that they are deemed to be
requiring authorities and network utility operators under the RMA.
(p)Such other or further consequential changes
which may be required as a result of the above changes.
- 32.Water New Zealand also requests that
consideration be given to funding for local authorities costs in participating
in reorganisation proposals, particularly where the proposals are initiated by
the Commission.
CONCLUSION
- 33.Water New Zealand thanks the Committee for the
opportunity to provide comments on the Bill and wishes to be heard in support
of its submission.
_____________________
John Pfahlert
Chief Executive
[1]
It is noted that for Auckland water
CCOs this prohibition only comes into effect 18 months after the Bill receives
royal assent as per section 2 of the Bill.
[2]
Regulatory Impact Statement, Department
of Internal Affairs, 9 June 2016, page 30.