The Government released this week its template for improving the performance of local government: Better Local Government.   This document rightly recognises the importance of local government performance for overall economic performance, and in general offers a sound set of policy prescriptions that will have a positive influence on local government performance.   However, the policy proposals are not uniformly positive.     In particular the proposed new definition of the purpose of local government could potentially be too narrow and the so-called provisions to strengthen council governance look positively barmy.

The so-called proposal to strengthen council governance provisions by allowing elected councillors to set employment and remuneration policy is hopefully one that will not be implemented.   Instead of promoting governance this proposal is more likely to encourage micro-management and interference in council operations by councillors.   This issue seems to have gained prominence due to public concern about the pay packages of some local government chief executives.   Yet the salaries of chief executives are already the responsibility of councillors as the chief executive is the only direct employee of the elected council.   If elected councillors already exhibit poor judgement in setting chief executive salaries, who they meet frequently, how good is their judgement going to be in setting salary and employment limits on functions for which their understanding is more limited?   This proposal will not address the source of the problem: poor collective judgement of elected councillors.   Instead it will perversely increase the potential for poorly functioning councils to create damage.

The other proposal in "Better Local Government" that I am concerned about is the proposal to amend the Local Government Act 2002 to replace the references to the "social, economic, environmental and cultural well-being of communities" with the purpose for councils of "providing good quality local infrastructure, public services and regulatory functions at the least possible cost to households and business".   At first blush there seems to be a lot of sense to this proposal.   As noted in "Better Local Government" having too many inter-related objectives raises the risks of creating false expectations over what councils can achieve, creating confusion about what the role of councils are, making it more difficult to assess the performance of councils, and blurring the line between central government, local government and private sector roles.

Better Local Government identifies local infrastructure, public services and the administration of regulations as the key focus of local government.   From a purely functional perspective this might be a reasonable description of local government activities.   But surely it also requires a sense of purpose; why should local government provide these services and towards what ultimate aim?   The answer inherent in the existing legislation, although perhaps too broad, at least tried to do this: it is something about the wellbeing of the local community.   And this is something that any new legislation still needs to incorporate.   Infrastructure is of use only if it improves the wellbeing of those who use it.   Considering cost only has a bearing when you balance it against community wellbeing.   Otherwise you potentially promote the delivery of low cost and low value services.   The cheapest road option is not necessarily the one that generates the greatest wellbeing for its community.  But this is the potential risk of the government’s current approach; we promote an emphasis on cost reduction, without considering the value of what is being produced.

There is also a risk that the prescribed purpose for local councils could be overly narrow.   No one really knows which local government activities really make a difference for their community.   Part of the reason for this is that the path from council service to ultimate community benefit can be complex with not directly obvious consequences.   Indeed many council activities do not necessarily generate any direct material benefit, or at least benefits that can be easily quantified.   Yet this does not mean that the activities are of low worth.   For example, a beautification project might be regarded by some to be frivolous and a potential waste of ratepayer money.  However, there may be less obvious indirect benefits.   For example, successful entrepreneurs may choose to locate activities in the area and skilled workers may choose to live and work in the area due, at least in part, to the ambience created by beautification projects.

This is where a cost mandate can be overly simple and narrow.   The lowest cost option is not necessarily the most effective option.  It may minimise the costs to the community, but it may not generate the desired benefits.   A better mandate would be to require councils to demonstrate the benefits relative to costs of proposed projects.   Benefits can in many circumstances be very difficult to quantify, and one would not want to be overly prescriptive in defining what constitutes an acceptable benefit to cost ratio.   But it is worthwhile going through the exercise in a methodical way and insisting that councils demonstrate explicitly the facts and judgements that underpin their decisions.

We should want to promote rigour in council decision processes but perhaps be less prescriptive about what communities consider to be of value to them.